PPG Industries, Inc.

Ladies and gentlemen, the first quarter 2025 PPG earnings call will begin shortly with our host, Alex Lopez. We appreciate your patience as we prepare your session today. During the call, we encourage participants to raise any questions they may have. You can raise a question by pressing star followed by one on your telephone keypad. To remove yourself at line of questioning, be star followed by two. As a reminder, to raise a question will be star followed by one, and to remove yourself at line of questioning, be star followed by two. We will begin shortly. Good morning, all, and thank you for joining us for the first call to 2025 PPG Earnings Conference Call. My name is Carly, and I'll be coordinating the call today. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you'd like to register a question during the call, you can do so by pressing star followed by one on your telephone keypad, and to mute yourself for any questioning, it'll be star followed by two. I'd now like to hand over to our host, Alex Lopez. The floor is yours.

Thank you, Carly. And good morning, everyone. This is Alex Lopez. We appreciate your continued interest in PPG and welcome you to our first quarter 2025 earnings conference call. Joining me today from PPG are Tim Knavish, Chairman and Chief Executive Officer, and Vince Morales, Senior Vice President and Chief Financial Officer. Our comments relate to the financial information released after U.S. equity markets closed on Tuesday, April 29, We have posted detailed commentary and the accompanying presentation slides, which are being shown on this webcast, on the investor center of our website, ppg.com. Following management's perspective on the company's results, we will move to Q&A session. Both the prepared commentary and discussion during this call may contain forward-looking statements reflecting the company's current view of future events and their potential effect on PPE's operating and financial performance. These statements involve uncertainties and risks, which may cause actual results to differ. The company is under no obligation to provide subsequent updates to these forward-looking statements. The presentation also contains certain non-GAAP financial measures. The company has provided in the appendix of the presentation materials, which are available on our website, reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures. For additional information, please refer to PPG filings with the SEC. Now, let me introduce PPG Chairman and CEO, Tim Kanavich.

TIM KANAVICH Thank you, Alex, and welcome, everyone. I'd like to start by providing a few highlights on our first quarter 2025 financial performance, and then I'll move to our outlook. The PPG team delivered sales of $3.7 billion. This is a decrease of 4% compared with the first quarter of 2024, primarily due to unfavorable foreign currency translation and the impact from business divestitures, including the silicus business. We are beginning to realize the benefits of our enterprise growth strategy as organic sales grew year over year with increases in both sales volumes and selling prices. Regionally, we delivered year over year organic sales growth in Asia, driven by strong performance in China, India, and Vietnam. In the U.S., after six quarters of declines or flat performance, we achieved 4% organic sales growth, led by share gains in several of our businesses and improvement in industrial production. Organic sales in Latin America were up slightly with growth tempered by the recent geopolitical environment. European organic sales were down 1%, which was significant improvement versus prior quarters as demand for our products were stabilizing in the region. Our top line results reinforce our positive organic growth momentum and contributed to improved manufacturing productivity. As we noted in our earnings materials released last night, our first quarter segment EBITDA margin was 19.4% and adjusted earnings per diluted share was $1.72. Also, we repurchased approximately $400 million of our stock and ended the quarter with a strong balance sheet. Before we go through the quarterly details, let me first talk about how our results and momentum reflect the consistent, disciplined execution of the enterprise growth strategy that we launched in 2023. We are beginning to benefit from the actions we have taken to optimize and focus our portfolio. The development of PPG's organic growth muscle and strategic investments in innovation are driving positive momentum. The company is aggressively managing the bottom line, including decisive self-help. Combined with our disciplined capital allocation and strong balance sheet, critical in today's environment, PPG is in a great and differentiated position to prevail in the current economic conditions. Looking at our segment performance, in the global architectural coding segment, first quarter net sales were significantly impacted by unfavorable foreign currency translation, which decreased sales by 7% as both the Mexican peso and Europe weakened year over year compared to the U.S. dollar. In architectural coding's EMEA, organic sales were flat versus prior year with improved selling prices offset by slightly lower sales volumes. Sales increased in Central Europe and in the Nordic region while they declined in Western Europe. Our volumes in Europe were slightly unfavorable but stabilizing, and we expect flat to higher volumes year over year in the second quarter. We are making rapid progress reducing structural costs in this region and anticipate strong incremental earnings leverage as demand trends improve. In architectural coatings, Latin America and Asia Pacific sales volumes declined reflecting a pause in project related business and governmental spending in Mexico due to recent geopolitical related uncertainty. However, core retail sales were solid. We anticipate economic activity and project spending in Mexico will resume in the upcoming quarters as more certainty regarding regional trade evolves. With its structural advantages, Mexico will remain a strong growth country for PPG. Segment EBITDA margin decreased 310 basis points versus prior year, driven by lower sales volumes and regional inflation stemming from the weaker peso, partially offset by cost control actions. In the performance coding segment, first quarter organic sales increased 9%, with both price and sales volume improvements. Within the segment, Aerospace delivered double digit percentage organic sales growth with record first quarter sales and earnings. Customer order backlogs were stable at $300 million, even with growth related investments that improved our output in the quarter. The backlog demonstrates excellent industry dynamics and strong demand for our technology-advantaged products. In automotive refinish, global organic sales increased a low single-digit percentage versus the prior year. In the U.S., sales volumes improved a mid-single-digit percentage with benefits from customer order patterns and share gains, offsetting lower industry collision claims. In the first quarter, the company grew the number of Lynx subscriptions as well as Moonwalk installations, which now total more than 2,700 in service, further supporting customer productivity and partnerships. Protective and marine coatings delivered double-digit percentage organic sales growth, supported by increasing global demand for our technologies and our recent share gains in marine. This was the eighth consecutive quarter positive year-over-year sales volume growth in this business, and we are increasing our growth-related investments to support demand. Graphic Solutions delivered above-market mid-single-digit percentage sales growth in the quarter. Demand is expected to remain strong for this business throughout the year, including in the second quarter when demand steps up seasonally. Segment EBITDA was up 8% year over year, a new first quarter record, reflecting the organic sales growth as our various growth investments in the segment are yielding benefits. In the industrial coating segment, net sales declined compared to the first quarter of 2024, primarily due to the impact of foreign currency translation and the divestiture of the silica products business in 2024. These items combined lowered sales by 6%. Organic sales for the segment were down less than 2%, which is a significant improvement versus the fourth quarter of 2024, which was down 6%. In the first quarter, selling prices declined 1% due to carryover of certain index-based customer contracts. Segment sales volumes also decreased 1%. as strength in industrial coatings and packaging coatings was offset by soft automotive industry builds. From a business unit perspective, automotive OEM industry production was lower year over year in the U.S. and Europe, and our results followed that lower demand trend. We partially mitigated this volume decline with growth in Asia and Latin America, including our share gains in Brazil. During the first quarter, we narrowed the gap in our volume performance versus auto industry builds. We expect to grow above industry levels starting in the third quarter of this year, driven by already won share gains and our market outperformance in Asia. Industrial coatings organic sales were flat with lower index-based pricing offset by improved sales volume after several quarters of weak industrial production. Demand for PPGs industrial products grew in all regions, but varied across subsegments. Packaging coatings organic sales increased by a low single-digit percentage year-over-year, driven by share gains on top of strong growth in the prior year. Segment EBITDA margin declined 90 basis points year-over-year as lower sales volumes and price were partially offset by strong cost control and productivity actions. For the industrial segment, we expect organic results in the second quarter to be generally similar with the first quarter with share gains aiding organic results in the back half of the year. Now let me talk about our balance sheet and cash. We issued 900 million Euro of debt during the quarter at 3.25%. We have Euro debt maturities of 300 million and 600 million due in the second and fourth quarter respectively. During the quarter, we completed approximately 400 million in share repurchases and paid approximately 160 million in dividends. We have repurchased $1.2 billion in our stock over the last six quarters and paid 930 million in dividends over that same time period. Our balance sheet remains strong which continues to provide us with financial flexibility, and we remain committed to driving shareholder value. Looking ahead, obviously the current macroeconomic environment is highly dynamic. Our business model has historically proven to be well positioned to navigate and perform during periods of uncertainty. As it relates specifically to recent tariffs, let me highlight a few relevant business traits that provide structural resilience for PPG. We have a balanced global business portfolio without reliance on any single country, region, or end market. We primarily buy, make, and sell local for local. We are flexible batch process manufacturers, which results in an asset-like footprint that is easily adaptable to volume shifts. We have a highly variable cost structure that allows us to adjust our conversion costs according to demand. Our input cost model is very dependent on commodity materials, including oil, that are reliant on supply and demand. Historically, we have been successful in adjusting our selling prices, including through surcharges to account for any changes in our delivered cost of raw materials. Finally, we have a demonstrated track record of consistent cash generation through all stages of the business cycle to complement our strong balance sheet. While these structural advantageous attributes of PPG provide a buffer for macro impacts, we are not immune to lower economic demand and continue to closely monitor customer order patterns and quickly adjust as necessary. Like all companies, we have potential downsides, if overall demand significantly weakens, and we are diligently monitoring these conditions. With regard to our supply chain, we are executing our contingency plans and already working with suppliers on alternative sourcing, and you should expect us to aggressively manage our costs and productivity. Now a few more details of what we are seeing. In the first quarter, we already realized a step down in demand in Mexico, as project-related spending was paused, yet the overall PPG enterprise still performed. Beyond Mexico, we did not see any other significant changes to demand, and we did not experience any noteworthy customer pull forward into the first quarter. This pattern has continued for the first four weeks of the second quarter, as we have not seen evidence of any curtailment of customer orders in our businesses. Some customers, however, have publicly expressed the need to eventually assess their production, depending on the duration and eventual framework of trade outcomes. Additionally, we have not yet experienced any significant change to our raw material pricing as our suppliers continue to favor volume over pricing. We are monitoring this situation, and we will react accordingly with pricing actions and or self-help cost actions to mitigate any impacts. When considering our guidance, we see structural strength in our performance coating segment driven by our technology advantage products in aerospace and protective and marine. We expect European architectural coatings volume trends to improve and also anticipate short-term tepid business conditions in Mexico given the economic uncertainty. Demand for various general industrial markets improved in the first quarter and we see increasing momentum in the coming quarters. While auto OEM industry demand forecasts were slightly reduced, our share gains are beginning to yield benefits and we expect to outperform the market beginning in the third quarter. We sized our annual share gains in the industrial segment at $100 million and we are tracking to that annualized figure. Finally, we expect growing benefits from our self-help programs and other discretionary cost management programs, the pace and scope of which we have stepped up over the past few months. In closing, I am confident in our ability to successfully navigate this uncertainty given our improved business portfolio, the diversity of our regions and businesses, our self-help actions, and our share gain momentum. We are reaffirming our full year earnings per share guidance range of $7.75 to $8.05. Thank you to our PPG team around the world who make it happen and deliver on our purpose every day. We appreciate your continued confidence in PPG. This concludes our prepared marks, and now would you please open the line for questions.