Business Strategy and Outlook
PPG Industries is a globally diversified producer of paints and coatings. The company is the world’s largest producer of coatings after the purchase of selected Akzo Nobel assets. PPG’s products are sold to a wide variety of end users, including the automotive, aerospace, construction, and industrial markets. The company has a footprint in many regions around the globe, with less than half of sales coming from North America in recent years. PPG is focused on growing its coatings and specialty product offerings and expanding into emerging regions, as exemplified by the Comex acquisition.
PPG is organized into two segments, performance coatings and industrial coatings. Performance coatings (60% of sales) supplies architectural, aerospace, and protective coatings that are generally sold after the manufacturing of the underlying good. Architectural coatings make up roughly half of the segment, with PPG’s products usually on the lower end of the value chain. Recently, PPG announced it has expanded its partnership with Home Depot. This expansion should increase the firm’s exposure to the architectural market in North America. The industrial coatings segment (40% of sales) supplies coatings used in auto, packaging, metals, and industrial equipment manufacturing. The company generates more than $15 billion in sales each year, growing at GDP-like rates.
To supplement growth, the company has been a serial acquirer of relatively small bolt-on businesses. It typically looks for coatings technologies that it doesn’t currently have, with the intent to scale the production of that new offering across its facilities worldwide. The global coatings industry is highly fragmented, which should keep this strategy viable for the foreseeable future. That said, normally acquisition-dependent strategies due to the heightened risk of shareholder value destruction are disliked.
Financial Strength
It is held PPG has a sound capital structure, and its consistent free cash flow generation should easily support its debt-service requirements and future capital-allocation decisions. Given PPG’s acquisitive strategy, liquidity is an important metric to monitor. PPG has managed its leverage well, keeping net debt/EBITDA below 2.5 over the last 10 years. While management has no explicit long-term leverage targets, it is alleged the firm will maintain an investment-grade rating on its debt. PPG has roughly $6 billion of outstanding debt with staggered maturities through 2044. PPG has ample liquidity, with over $1 billion of cash on hand and no outstanding borrowings on a $2.2 billion credit facility. PPG has a history of strong free cash flow generation, and it is held, the firm will maintain its sound capital structure.
Bulls Say’s
Company Profile
PPG is a global producer of coatings. The company is the world’s largest producer of coatings after the purchase of selected Akzo Nobel assets. PPG’s products are sold to a wide variety of end users, including the automotive, aerospace, construction, and industrial markets. The company has a footprint in many regions around the globe, with less than half of sales coming from North America in recent years. PPG is focused on its coatings and specialty products and expansion into emerging regions, as exemplified by the Comex acquisition.
(Source: MorningStar)
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