PPG Industries Inc. is a U.S.-based world class manufacturing stock supplying paints, coatings, optical products, specialty materials, glass and fiber glass to customers in industrial, transportation, consumer products, and construction markets and aftermarkets. It has more than 150 manufacturing facilities and equity affiliates in more than 60 countries around the world.
We regularly review PPG Industries Inc. (NYSE─PPG), a Pittsburg-based global manufacturing stock of specialty coatings. The company is earning record profits manufacturing coatings for customers’ products to protect them from the elements and beautify them. And PPG keeps rewarding its shareholders too. As a result, the shares are a buy for long-term price gains and decent, rising, dividends.
PPG continues to earn record profits. In the second quarter of 2015, it earned $458 million, or $1.67 a share, excluding one-time items in both periods (all figures in U.S. dollars). This was up by 17.6 per cent from $398 million, or $1.42 a share, the year before.
Chairman and chief executive officer Charles Bunch said, “We delivered all-time record adjusted earnings per share, up 18 percent, supported by second quarter earnings records in each of our coatings segments and expanded year-over-year earnings in our glass segment.”
One plus of PPG is that it operates in over 60 countries. This reduces its dependence upon any one country. It also lets the company profit in faster-growth countries. The only problem is that the high U.S. dollar is eroding the value of its foreign earnings. In the second quarter, net sales from continuing operations rose just $18 million, or about one per cent, compared to a year earlier. Exclude the impact of exchange rates and net sales grew $340 million or roughly eight per cent.
This world class manufacturing stock is a dividend aristocrat
A second plus is that PPG is diversified by industry. It provides coatings to customers in construction, consumer products, industrial and transportation (including automotive) markets and after-markets. This moderates its exposure to any one industry.
A third plus is that PPG has an outstanding dividend record. It has paid continuous dividends without interruption since 1899. The company has raised its dividend in each of the past 44 years. The only thing is, the share price of this ‘dividend aristocrat’ has gone up so much that its dividend of $1.44 a share yields a merely decent 1.5 per cent.
A fourth plus is that PPG also rewards its shareholders by repurchasing shares. This spreads the ownership of the company over fewer shares—so more profit, cash flow, etc. is attributed to each remaining share. In the first six months of 2015, PPG spent $350 million to buy back its own shares. The company can spend up to another $1.35 billion to repurchase its shares.
A fifth plus is that PPG makes sensible acquisitions within its industry. On September 1, it completed the acquisition of IVC Industrial Coatings. This U.S.-based manufacturing stock of specialty and liquid coatings will add sales of over $100 million a year. On August 20, PPG acquired the rest of the Chemfil Canada Limited joint venture that it didn’t already own. Chemfil produces pre-treatment products and industrial coatings for automotive manufacturers and industrial customers in Canada. PPG continues to integrate paint manufacturer Consorcio Comex of Mexico, which it acquired last year for $2.3 billion.
PPG can afford to both reinvest and reward you
On July 1, PPG held cash and short-term investments of $1.2 billion. Its cash flow is growing. As a result, we expect the company to continue to reward you while it builds its businesses.
In 2015, PPG is expected to earn $5.73 a share. That would be earnings per share growth of 17.4 per cent. In 2016, its earnings are expected to grow by 13.3 per cent, to $6.49 a share. Its forward price-to-earnings ratios of 16.3 and 14.4 times are reasonable.
PPG Industries remains a buy for long-term share price gains as well as decent, rising, dividends.
The MoneyLetter, MPL Communications Inc.
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