PPG Industries (PPG, Financial) underperformed in Q1, missing revenue forecasts and setting a Q2 adjusted EPS projection that fell short of expectations, sparking ongoing concerns among investors. Despite announcing a significant $2.5 billion share repurchase program, the focus remained on the disappointing quarterly performance and cautious near-term outlook.
The company maintained its FY24 adjusted earnings target of $8.34-8.59 and a low-single-digit growth projection for FY24 organic sales. However, the lackluster Q2 guidance and just-adequate Q1 results have put pressure on PPG to deliver a strong performance in the latter half of the year. CEO Timothy Knavish cited multiple reasons for the company's continued confidence in meeting its FY24 goals, despite facing a tough demand environment, but investor sentiment remains low.
- PPG highlighted its consecutive sixth quarter of year-over-year segment margin expansion, with Q1 adjusted EPS of $1.86 slightly surpassing expectations, marking its second-best earnings performance, driven by moderating input costs and better manufacturing activity.
- The company anticipates a positive turn in volumes in Q2, attributing Q1's 3% year-over-year volume decline to one-off factors and expecting the paint industry's peak buying season to bolster sales.
- Significant markets, including China and India, showed robust organic sales growth in Q1, while the U.S. and Europe are seeing demand improvements and market stabilization, respectively.
- PPG is considering divesting its architectural coatings business in the U.S. and Canada, a move expected to improve margins significantly, with a strategic update promised by Q3.
Despite management's optimism for a rebound in the second half of FY24, investor confidence wanes, reflecting concerns over whether PPG can achieve its year-end targets amid tepid global industrial production. This sentiment comes as a warning signal ahead of quarterly reports from industry peers such as Sherwin-Williams (SHW, Financial), Axalta Coating Systems (AXTA, Financial), and RPM Inc (RPM, Financial).
