Ahead of reporting full third quarter results on the morning
of October 18, paint and coating company PPG Industries (PPG 98.80, -10.78, -9.84%) opened
lower by 8.7% after a company update indicated that a high level of cost
inflation impacted the quarter.
Commenting on the cost inflation in the quarter, PPG management stated the company saw significant raw material and elevating logistics cost inflation during the period, including effects from higher epoxy resin and rising oil prices. Management stated that these inflationary impacts increased during the quarter, and as a result, PPG experienced the highest level of cost inflation since the cycle began two years ago. The company also noted that softened demand trends, particularly in China, and weakening foreign currencies were impactful to year/year earnings for the quarter and are expected to continue to be impactful for the remainder of the year.
As a result of the impact of the cost inflation, PPG provided an update for its coming Q3 print. PPG now sees Q3 adjusted EPS in the range of $1.41-1.45, worse than what the Street had expected from the paint manufacturer. What’s more, net sales guidance of approximately $3.8 bln, too, missed current market expectations. The adjusted tax rate for Q3 is expected to be in the range of 20-21%.
Commenting more broadly on business trends for Q3, management expects sales volume growth of about 2%, excluding unfavorable impact from previously announced customer assortment changes in the U.S. architectural coatings business. PPG furthermore expects higher selling prices sequentially versus the second quarter.
The company continues to work proactively with customers on establishing higher selling prices to reflect the value of the products PPG sells and recover margins that have been negatively impacted by the raw material inflationary environment in all of its businesses.
Additionally, management highlighted raw material cost inflation in the fourth quarter as impetus for an underwhelming Q4 guide. The company expects margins to be comparable versus last year in aggregate. On the whole PPG expects Q4 EPS in the range of $1.03-1.13, with the wide range primarily due to finalizing the company’s full year tax rate.
As mentioned PPG will announce its full Q3 financial results on Thursday, October 18 with a teleconference at 2:00 p.m. ET.
Shares of paint peer Sherwin-Williams (SHW 424.72, -17.84, -4.03%) fall today in sympathy.
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