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PPG Industries, Inc. (PPG), Sherwin-Williams Company (SHW): This Company Is Making the Right Moves to Grow Its Business

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PPG Industries, Inc.PPG Industries, Inc. (NYSE:PPG) is a specialty chemicals and products company that provides performance and industrial coatings. PPG sells its entire range of products through company-owned stores, home centers, paint dealers, and independent distributors, as well as directly to customers worldwide. So, the company’s business is in a good position to benefit from growth in industrial and auto end-markets. This is what helped it to post decent results in the second quarter.

Solid performance

There was healthy momentum across North America and Asia due to the upbeat mood in the automobile sector. European markets, however, masked this momentum because of continued weakness in the market, driving demand further down though it seems to be stabilizing as far as automobile markets are concerned.

As a result, the company posted earnings of $2.47 per share in the quarter, which beat consensus estimates by $0.11. In addition to growth in Asia and North America, the company’s cost-cutting efforts also contributed to these earnings.

Revenue increased 16% year-over-year to $4.1 billion, marginally missing consensus estimates. Excellent results in the coatings segment were driven by sales gains in automotive OEM coatings, automotive refinish and aerospace. Architectural coatings were the weakest performers, primarily due to weak demand.

PPG Industries, Inc. (NYSE:PPG)’ cash and cash equivalents moved north by 22% year-over-year to roughly $1.2 billion at the end of the quarter. Total debt decreased by 6% year-over-year to around $3.4 billion.

Prospects

PPG Industries, Inc. (NYSE:PPG) has a diversified product portfolio, exposure in all major markets, and looks to grow its businesses strategically in addition to controlling costs. However, the company faces challenges from a weak European market and a still-sluggish architectural-coatings business. PPG claims to be the number-one player in automotive coatings in North America and China.

PPG Industries, Inc. (NYSE:PPG)’s prospects for the remainder of 2013 and the year ahead will largely be governed by its performance within the industrial and architectural/construction end markets, and also how European markets behave. The industrial segment also covers the marine new-build market, which saw a sharp decline of 30% in the quarter. The company expects that declines will not be as sharp in the quarter ahead and things may turn around in 2014.

PPG Industries, Inc. (NYSE:PPG)‘ board approved a new $102 million business restructuring program aimed at achieving cost synergies in relation to a takeover in its North American architectural coatings business. The company expects to achieve $200 million in annual synergies from the buyout within the first three years.

Management is focused on implementing cost-savings programs, and this is exemplified by one of the most encouraging aspect of PPG’s results where the architectural-coatings income increased by $5 million in Europe, the Middle East and Africa (EMEA) to $69 million, despite sales declining 5%.

PPG Industries, Inc. (NYSE:PPG) believes in interacting with clients directly to develop specialty products, and this gives the company pricing power because for these clients, quality is more important. Also, the coatings business is less capital-intensive than its chemicals business. This should enable PPG to produce a higher ROIC as the segment becomes a larger part of its business in the future.

Competitors

Sherwin-Williams Company (NYSE:SHW) is the clear leader in the domestic paint market. It has a rich portfolio of brands that cater to a variety of end-users, with products ranging from architectural paints to automotive and industrial coatings. However, unlike PPG, Sherwin-Williams Company (NYSE:SHW) is restricted to just coatings and paints. PPG, on the contrary, has other segments, like glass, also.

Sherwin-Williams Company (NYSE:SHW) draws leverage from its own network of over 4,000 stores worldwide. This network reduces the reliance on big-box retailers and allows it to have direct control over pricing and customer experience. This enables it to earn higher margins by selling directly to customers instead of selling exclusively through third-party retailers.

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