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PPG Industries Inc PPG

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Morningstar’s Analysis

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PPG Is Battling Through Supply Chain Disruptions and Inflation but Still Sees Strong Demand

Analyst Note

| Brian Bernard, CFA, CPA |

Shares of narrow-moat rated PPG slumped on July 20 after the firm reported second-quarter earnings that missed guidance and the FactSet consensus estimate. Adjusted EPS of $1.94 fell short of management's $2.15-$2.20 guidance and the $2.20 consensus estimate. PPG's earnings miss was primarily due to higher-than-expected raw material costs as well as supply chain issues for both the company and its customers. Raw material costs increased by a mid- to high-teens percentage year over year compared with management's expectations of high-single-digit inflation. Management also estimates that supply chain disruptions across the firm's end markets resulted in a $200 million revenue shortfall compared with earlier estimates of $70 million-$90 million. PPG has increased prices and cut costs to help offset these headwinds. Selling prices increased 3.5% during the second quarter, and we expect the firm will continue to take pricing actions during the rest of fiscal 2021. On the cost side of the equation, the firm saved $40 million during the quarter and raised its full-year cost-takeout target 10% to $135 million.

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Company Profile

Business Description

PPG is a global producer of coatings. The company is the world's largest producer of coatings after the purchase of selected AkzoNobel assets. PPG's products are sold to a wide variety of end users, including the automotive, aerospace, construction, and industrial markets. The company has a footprint in many regions around the globe, with less than half of sales coming from North America in recent years. PPG is focused on its coatings and specialty products and expansion into emerging regions, as exemplified by the Comex acquisition.

One PPG Place
Pittsburgh, PA, 15272
T +1 412 434-3131
Sector Basic Materials
Industry Specialty Chemicals
Most Recent Earnings Jun 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type Cyclical
Employees 46,900