Shares of this proxy for the economy plunge the most in 9 years on rising costs, weak China demand

  • PPG shares plummeted more than 10 percent for their biggest drop in nine years after the company said it expects to report weaker-than-expected third quarter earnings.
  • The industrial coatings manufacturer could be seen as a corporate barometer for the health and direction of the global economy because of the many markets it serves.
  • In the most recent quarter, PPG "experienced the highest level of cost inflation since the cycle began two years ago," CEO Michael McGarry says.
A robotic arm sprays red paint onto an automobile body at PPG Industries Inc.'s automotive coating's technical center in Ingersheim, Germany.
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A robotic arm sprays red paint onto an automobile body at PPG Industries Inc.'s automotive coating's technical center in Ingersheim, Germany.

PPG shares plummeted more than 10 percent Tuesday, a day after the industrial coating manufacturer warned that it is getting hurt by rising costs from raw materials and oil.

PPG's guidance for its upcoming third quarter earnings report was about 10 cents a share weaker than expected, according Wall Street analysts polled by Thomson Reuters.

The 135-year-old PPG is one of the world's largest manufacturers and distributors of coatings and specialty materials, with a market capitalization of about $26 billion. Due to PPG's size and the breadth of other sectors it supports, the company is seen as a corporate barometer for the health and direction of the global economy.

"During the quarter, we saw overall demand in China soften, and we experienced weaker automotive refinish sales as several of our U.S. and European customers are carrying high inventory levels due to lower end-use market demand," Chairman and CEO Michael McGarry said in a statement Monday.

The plunge in share prices Tuesday was the biggest in nine years.

McGarry said PPG is "disappointed with the third quarter earnings results," which the company now expects to be in the range of $1.47 a share to $1.51 a share. PPG is expected to report its final third-quarter earnings on Oct. 18.

Rising materials, freight and oil costs were listed as contributing factors for PPG's weak quarter.

"We experienced the highest level of cost inflation since the cycle began two years ago," McGarry said.

PPG expects to increase the average global price by 10 percent on products it sells to automotive equipment manufactures, beginning Nov. 1. The company said this price change is a response to the rising costs.