Materials stocks and sector-related ETFs were among the worst performers Tuesday after paint and coatings supplier PPG Industries (NYSE: PPG) warned it will likely report weak third- and fourth-quarter results due to higher material costs and diminished demand from China.
On Tuesday, the Materials Select Sector SPDR (NYSEArca: XLB) fell 3.4%, iShares U.S. Basic Materials ETF (NYSEArca: IYM) dropped 3.3%, Vanguard Materials ETF (NYSEArca: VAW) declined 3.3% and Fidelity MSCI Materials Index ETF (NYSEArca: FMAT) decreased 3.3%.
The materials sector was dragged down by PPG Industries after the specialty materials supplier warned it expects to report weak third- and fourth-quarter results. Chief Executive Michael McGarry said the company was pressured by higher costs for epoxy resin and oil prices, along with rising freight costs, the Wall Street Journal reports.
The company in the most recent quarter “experienced the highest level of cost inflation since the cycle began two years ago,” McGarry said.
“We will continue to aggressively manage our costs including accelerating restructuring activities wherever possible,” he added.
The chief executive also stated that the raw material costs are expected to continue increasing for the current quarter but at a more modest pace compared to last year.
PPG shares plunged 10.1% on the Tuesday announcement, one of its worst daily declines in over two years.
The negative outlook from the materials provider was seen as a warning for the potential broad sector in the upcoming earnings season.
“If industrials and materials are weighed on because of concerns about global activity, it’s going to cast a pall over the market at large since S&P 500 companies generate about half of their business from overseas markets,” Mark Luschini, chief investment strategist at Janney Montgomery Scott, told U.S. News.
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