A Member of Pat McKeough’s Inner Circle recently asked for his advice on PPG Industries, a company that produces coatings and paints for a variety of industries.
Pat likes the company’s expansion plans as it expands its footprint with key acquisitions. While growth by acquisition adds risk, these purchases appear to be a good fit with its existing products and customer base.
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PPG Industries Inc. (Symbol PPG on New York; www.ppg.com), is the world’s largest producer of coatings and paints for the automotive, aerospace, construction, and industrial markets. Its paint brands include PPG, Olympic, Glidden and others.
In the quarter ended December 31, 2022, PPG’s revenue was virtually unchanged at $4.19 billion. While higher prices pushed up sales, those gains were offset by lower volumes, unfavourable currency movements, and the closure of PPG’s Russian operations.
Excluding one-time items, the company earned $286 million, or $1.22 a share. That was down 4.0% from $298 million, or $1.26, a year earlier. Profits were hurt by higher expenses, from labour costs to supply-chain disruptions.
PPG made some key acquisitions in 2020 and 2021 to expand into new markets.
In 2020, it acquired Ennis-Flint for $1.25 billion. That firm is a global leader in pavement markings. Its products are used on roads and highways, taxiways, runways and parking lots, and in commercial, contractor, governmental, industrial, airport and architectural settings.
In April 2021, PPG bought Cetelon Lackfabrik GmbH. It hasn’t disclosed the purchase price.
Cetelon develops and manufactures a wide range of coating systems for the wheel industry, including certain exclusive technologies. It operates production and sales offices in Ditzingen, Germany, from which it serves many leading wheel suppliers worldwide.
Founded in 1948 in Stuttgart, Germany, Cetelon became part of the Berlac Group in 2011. The company employs 95 people globally.
Inner Circle: Recent acquisitions will expand market reach and technical expertise for PPG Industries
The acquisition of Cetelon will let PPG build upon its existing coatings products, liquid and powder coating technologies, and colour matching capabilities. Cetelon’s longstanding and established customer relationships will also complement PPG’s existing customer base and global presence.
At the same time, Cetelon’s expertise in the wheel industry will help drive future growth for PPG in the transportation segment.
In yet another area, PPG purchased Finland’s Tikkurila in June 2021. That firm was established in 1862 and is headquartered in Vantaa, Finland. The company is a leading producer and distributor of decorative paint and coatings, with more than 80% of its revenue coming from Finland, Sweden, Russia, Poland, and the Baltic states. The purchase price was $1.8 billion.
On January 1, 2023, PPG’s COO Tim Knavish took over as CEO from Michael McGarry. Knavish will be able to draw on the former head’s experience: McGarry, who has been with the company for 40 years, will serve as executive chairman until October 1, 2023, when he will retire.
Growth by acquisition adds risk, but each of PPG’s recent purchases appears to be a good fit with its existing products and customer base.
In the near term, like many manufacturers, the company faces supply-chain challenges and inflationary pressures. As well, the high U.S. dollar is currently hurting the contributions of its international operations—they comprise almost two-thirds of its total sales. However, PPG’s long-term outlook is positive.
The company raised its quarterly dividend by 5.1% with the September 2022 payment, to $0.62 from $0.59. The stock now offers investors a 2.0% yield.
Recommendation in Pat’s Inner Circle: PPG Industries Inc. is a buy.
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