PPG Industries (NYSE:PPG) recently outlined the financial and operating strategy the company will use in 2012 to generate profits amidst sluggish global economic growth. The company also reviewed current business trends in many of its end markets.
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Vision and Strategy
PPG Industries believes that the coatings area is an attractive business and has worked to redirect the company to focus on coatings and specialty products. The coatings market has historically grown at a faster rate than GDP and the company expects this growth to continue through 2014. (For more on GDP, see High GDP Means Economic Prosperity, Or Does It?)
The coatings industry has also become more consolidated over the last decade. The top 10 producers control 59% of the market, compared to 52% in 2002, PPG Industries and Akzo Nobel (OTCBB:AKZOY) together control 20% of the global $92 billion coatings market.
Other companies that compete with PPG in coatings and other areas include DuPont (NYSE:DD) and The Sherwin Williams Company (NYSE:SHW).
PPG Industries has made selective acquisitions to increase the company's presence outside North America and expand into higher margin businesses. The company expects to continue looking for these types of acquisitions in 2012, as wells as maintain margins through strong cost management across its lines of business.
Current Business Conditions
PPG Industries commented on current business conditions that the company is facing in its end markets. This is important because of recent investor concern on the strength of global economic growth.
PPG Industries is experiencing weakness in the company's marine and architectural businesses, offset by strength in the aerospace and automotive end markets. Europe is a focus of concern for many investors due to the issues involving sovereign debt, and PPG Industries is seeing a slight softening in end markets here, as customers get defensive due to uncertainty in 2012.
Raw Material Inflation
Cost inflation for raw materials has been a problem for many companies in the industrial and materials sector over the last few years and this trend has historically impacted the company as well. PPG Industries is currently seeing an easing of the cost inflation on some of the raw materials that the company uses in its products. The company is still experiencing rising cost pressure for titanium dioxide and other pigments.
PPG Industries has a long tradition of share repurchases and has repurchased 18 million shares, or 10% of the company's float, over the last two years. The company will continue with this practice in 2012 and recently authorized the repurchase of an additional 10 million shares of company stock.
PPG Industries has increased dividends for 40 consecutive years, including during the recent recession. The company last raised its dividend in June 2011 to an annual rate of $2.28, providing a 2.8% yield for shareholders. (For related reading on dividends, see The Power Of Dividend Growth.)
The Bottom Line
PPG Industries and most other businesses face an uncertain 2012, as concerns about the potency of global economic growth continue to plague customers and investors. The company plans to maintain its strategy of focusing on faster-growing and higher-margin end markets, along with shareholder-friendly actions on dividends and stock repurchases.
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At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.
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