PPG Industries, Inc. (NYSE:PPG): Does The -3.4% Earnings Drop Reflect A Longer Term Trend?

After reading PPG Industries, Inc.'s (NYSE:PPG) latest earnings update (31 December 2018), I found it beneficial to look back at how the company has performed in the past and compare this against the most recent numbers. As a long-term investor I tend to pay attention to earnings trend, rather than a single number at one point in time. I also like to compare against an industry benchmark to understand whether PPG has outperformed, or whether it is simply riding an industry wave. Below is a brief commentary on my key takeaways.

View our latest analysis for PPG Industries

Was PPG weak performance lately part of a long-term decline?

PPG's trailing twelve-month earnings (from 31 December 2018) of US$1.3b has declined by -3.4% compared to the previous year.

Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 3.3%, indicating the rate at which PPG is growing has slowed down. Why could this be happening? Let's examine what's occurring with margins and whether the entire industry is experiencing the hit as well.

In terms of returns from investment, PPG Industries has invested its equity funds well leading to a 28% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 8.9% exceeds the US Chemicals industry of 7.7%, indicating PPG Industries has used its assets more efficiently. However, its return on capital (ROC), which also accounts for PPG Industries’s debt level, has declined over the past 3 years from 16% to 15%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 65% to 106% over the past 5 years.

What does this mean?

Though PPG Industries's past data is helpful, it is only one aspect of my investment thesis. Companies that are profitable, but have capricious earnings, can have many factors impacting its business. I recommend you continue to research PPG Industries to get a better picture of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for PPG’s future growth? Take a look at our free research report of analyst consensus for PPG’s outlook.
2. Financial Health: Are PPG’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

NB: Figures in this article are calculated using data from the trailing twelve months from 31 December 2018. This may not be consistent with full year annual report figures.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.