PPG Industries (PPG) really bushwhacked The Street yesterday in so many ways that it's painful to think about.
First, there's the obvious thing: The company put out a note yesterday morning that talked about escalating costs for materials, freight and labor. Not so hot, I know. But then it put the whole thing under a simple headline of its own devise: "PPG Announces Global Price Increase for Automotive OEM Coatings."
That headline and the accompanying story never talked about demand except in the following phrase : "This price increase is vital to sustaining our history of innovating these next-generation solutions and enhancing our ability to continue to meet demand."
The implication? The company can put through the price increase and it will hold because it is trying its best to meet demand.
But then, after the close, PPG told us a different story -- a full-blown negative preannouncement of a very large magnitude: $1.41 -$1.45 versus a $1.59 estimate and then a fourth quarter forecast of $1.03 to $1.113 down from the street's $1.32 view.
This time there were demand issues of a different order: "We saw overall demand in China soften and we are experiencing weaker automotive refinish levels as several of our U.S. and European customers are carrying high inventory levels due to lower end-use demand."
Where is the need to "continue to meet demand"? What happened between 8:08 a.m. ET, when it put out the release about the price increase, and 4:49 p.m. ET, when it preannounced that nasty downside view?
Now it is amazing that until last night, PPG had not been hurt as badly as other auto suppliers. What's really amazing to me, though, is how wrong this company could have been about what lay ahead. I know that July 19, when the company gave us insight on the future during its last earnings call, is -- in Wall Street terms -- a pretty long time ago. Still, though, it was on that call that the company expressed a lot of optimism about autos.
Here's what CEO Michael McGarry had to say at that time: "Surprisingly, the OEM automotive had a good first half of the year, slightly better than expectations. And we see no reason why the second half won't continue. The only negative there, of course, is whether or not people are trying to buy ahead of the tariffs, so we won't know that just yet."
Could they have been buying ahead and McGarry didn't know? Was his crystal ball that bad? Maybe, given how off it was between 8:08 a.m and 4:49 p.m.
One thing is for certain: Any company with any auto exposure or oil exposure, as well as dollar and logistics issues, now will be considered guilty until proven innocent. That's what this PPG number will do.
The saving grace? It didn't blame housing or aerospace, two other important businesses -- although the former was already dinged with Lowe's (LOW) dropped PPG's Olympic Brand paints and stains last February. It seems to be all auto.
But that, alas, is the only saving grace I can think of, especially as the tariff situation with China has only become worse, Europe has slowed even more than the quarter that just felled PPG and, will, I can imagine, fell many others that look a lot like this now-suspect industrial.
