HOUSTON (ICIS)--PPG expects third-quarter adjusted earnings/share to fall year on year because of higher costs for logistics and raw materials, the US-based paints and coatings company said on Monday.
PPG stock fell by nearly 9% in after-hours trading, according to MarketWatch.
PPG expects to report adjusted earnings/share from continuing operations of $1.41-1.45, compared with $1.52 from the same time last year, the company said.
Nonadjusted earnings/share from continuing operations should be $1.47-1.51 for the third quarter, the company said.
Third-quarter sales should be about $3.8bn, similar to Q3 2017, the company said.
CEO Michael McGarry said that costs for raw materials and logistics continued to rise in the third quarter, highlighting epoxy resins and oil.
“These inflationary impacts increased during the quarter and, as a result, we experienced the highest level of cost inflation since the cycle began two years ago," McGarry said.
On top of higher costs, overall demand in China has softened, he said.
Because of lower demand, several of PPG's US and European customers are carrying high levels of inventory, causing weaker automotive-refinish sales, he said.
Exchange rates around the world weakened, mainly in emerging economies, and that caused income to fall by about $15m, he said.
"This lower demand, coupled with the currency effects, was impactful to our year-over-year earnings and is expected to continue for the balance of the year," McGarry said.
The company has made progress passing through higher costs, with Q3 selling prices rising from the second quarter, he said. “We expect sales volume growth of about 2%, excluding the unfavourable impact from the previously announced customer assortment changes in the US architectural coatings business."
Raw-material costs should continue rising in the fourth quarter, although at a more modest level, he said. This reflects the spike in costs that took place in Q4 2017. Year on year, fourth-quarter margins should be about the same.
Earnings/share during the fourth quarter should be $1.03-1.13, he said. The range is wide because the company is still trying to determine its full-year tax rate.
PPG expects to spend $1bn on either acquisitions or buying back shares during the fourth quarter, McGarry said.
The company will release its Q3 results on 18 October.
“We are disappointed with the third quarter earnings results. We continue to work proactively with our customers on higher selling prices to reflect the value of the products we sell and recover margins, which have been negatively impacted by the raw material inflationary environment in all of our businesses," McGarry said. "We will continue to aggressively manage our costs including accelerating restructuring activities wherever possible.”
Paints and coatings producers have been on the forefront of the rise in feedstock costs.
Stock prices for other US-based paints-and-coatings companies also declined in after-hours trading following PPG's announcement.
Sherwin-Williams fell by 2.84% and Axalta Coating Systems fell by 2.45%, according to MarketWatch.
(Image above shows paint cans and a paint brush. Source: Cultura/REX/Shutterstock)