PPG Industries, Inc.

operator today. At this time, I would like to welcome everyone to this third quarter EPG earnings conference call. All lines will be 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 ask a question during this time, simply press star followed by one on your telephone keypad and to remove yourself from the line of questioning will be star followed by two. To allow everyone an opportunity to ask a question, the company requests that each analyst only ask one question. Thank you. I'd now like to turn the call over to our host, Alex Lopez, Director of Investor Relations. Please go ahead, sir.

Thank you, Carly, and good morning, everyone. This is Alex Lopez. We appreciate your continued interest in PPD and welcome you to our third quarter 2025 earnings conference call. Joining me today from PPD are Tim Fenevich, 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, October 28, 2025. We have posted detailed commentary and the accompanying presentation slides on the investor center of our website, ppg.com. Following management's perspective on the company's results, we will move to Q&A, to the 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, reconciliation of these non-GAAP, the most directly comparable GAAP financial measures. For additional information, please refer to PPE styling with the SEC. Now, let me introduce PPE Chairman and CEO, Tim Canady.

Tim Canady Thank you, Alex, and good morning, everybody. I'll start by providing a few highlights on Q3 2025 and then move to our outlook. I'm very proud of the PPG team's performance for the quarter. In Q3, in a very challenging world, the team delivered organic growth, which included both volume growth and price growth, and delivered a record high Q3 EPS. Our results for the quarter reflect the accelerating momentum in PPG's organic sales growth with an increase of 2%, including our third consecutive quarter of sales volume growth, despite a challenging macro environment. These results reflect the benefits of PPG's global breadth and our strong commercial execution, which is driving share gains in many of our businesses. In addition, sales volumes in our industrial coding segments once again outpaced industry demand, reflecting benefits from share gains in both packaging coatings and automotive OEM coatings. Several of our businesses in the performance coating segment delivered outstanding results, including double-digit organic sales growth in both aerospace and protective and marine coatings. Although this was offset by lower sales volumes in automotive refinish as our volumes were heavily weighted to the first half of 2025 due to distributor order patterns. From a regional perspective, the macro environment was choppy. Despite this, PPG organic sales grew a low single-digit percentage in the U.S. and Canada, representing the third consecutive quarter of year-over-year increases in this region. Organic sales also increased in Latin America and Asia Pacific and were flat in Europe. Solid sales improvement combined with our aggressive cost management and consistent cash deployment drove an adjusted earnings per share increase of 5% year over year, establishing a third quarter record of $2.13. Looking at each of our segments, in the global architectural coding segment, positive selling prices in both regions and volume growth in Latin America were offset by lower volumes in Europe and the impact of divestitures. In Architectural Coatings, EMEA, organic sales growth in Eastern Europe was more than offset by lower demand in Western Europe. While volumes remain lower in the quarter, this business has now delivered price growth consistently every quarter over the last nine years, demonstrating the value the customers place on our leading brands and products that we provide. In architectural coatings Latin America and Asia Pacific, we delivered mid-single-digit organic sales growth in Mexico, aided by solid retail sales. Project-related spending remained lower year-over-year, but improved sequentially versus the second quarter. We expect sales growth to strengthen in Mexico in the fourth quarter, including stronger year-over-year consumer sales and modest improvement in project-related work. Segment EBITDA margin increased as strong pricing and operational excellence, including our cost control actions, outpaced the impact of lower sales volumes and business divestitures. The performance coding segment delivered record net sales with a 2% increase in organic sales. Within the segment, aerospace delivered double-digit percentage organic sales growth with recordly quarter sales and earnings. Customer order backlogs increased to 310 million, even as growth-related investments improved manufacturing output during the quarter. In automotive refinish, organic sales decreased by a double-digit percentage versus the prior year, driven by lower sales volumes in the U.S. As we communicated on our second quarter earnings call, our distributor order patterns were heavily weighted to the first half of the year. On a year-to-date basis, PPG's automotive refinish coatings organic sales are outperforming industry demand, which has declined due to lower U.S. industry collision claims. In the third quarter, the company grew the number of refinish link subscriptions as well as moonwalk hardware installations, which now total more than 3,000, further supporting customer productivity and related share gains. We continue to add tools to our portfolio in order to expand our industry-leading productivity offering and to further strengthen our differentiation and market position. One such product is our newest clear coat, which is Deltron Premium Glamour Speed Clear Coat. With this product, we have broken a paradigm as it is the first of its kind to be fully designed with AI technology using proprietary PPG data. results in a refinished product and application that combines high-quality appearance with increasing speed of application. This also redefines our innovation process, and then applying AI to the design phase allows us to bring market-leading solutions to our customers faster. Protective and Marine Coatings delivered the 10th consecutive quarter of year-over-year volume growth with double-digit percentage organic growth in the quarter. Given this strong and consistent performance and further opportunities in various end markets, including marine aftermarket and certain energy markets, we are channeling additional growth-related investments into this business. Traffic Solutions delivered mid-single-digit percentage organic growth in the quarter, driven by share gains, given the strength of our industry-leading value propositions. Segment EBITDA margin decreased, driven by lower automotive refinish coating sales volumes and the higher growth-related investment spending in aerospace coatings and protective and marine coatings, partially offset by higher selling prices. A performance coating segment is an important growth engine for the company. And I want to take a moment to talk about the increasing scale and strength of our aerospace business in this segment. Aerospace has grown at a mid-single-digit CAGR over the past 10 years and now represents a third of the segment and a significant part of the overall PPG portfolio. Based on the momentum in the industry and the demand for our highly specialized and qualified products, we expect sales growth CAGR of a mid- to high-single-digit percentage over the next three years. For PBG, this is a business that is equally weighted to OEM and aftermarket, with margins that are credo to the overall reporting segment. We've experienced significant OEM growth, and customers have recently increased their bills forecast for the next several years. Based on the nature of this industry, this OEM growth will then translate into additional aftermarket growth in the succeeding years. Given the significant growth dynamics we're experiencing today and expect into the future, we are increasing our investments in this business. This includes near-term OpEx investments in 25 and into 26 to further de-bottleneck our facilities. We also announced an investment in new manufacturing facility, which will be commissioned in 2027, and we will likely have additional investments in the future. These investments represent more than a half a billion dollars and are being completed in order to capitalize on the significant multi-year growth opportunity we have in this business. All of these investments will deliver very strong financial returns for our company. We have a strong and unique growing position across commercial, general aviation, and military, and we are excited that this will accelerate profitable growth for PPG and our shareholders for the foreseeable future. Now moving to the industrial coating segment, third quarter sales volumes increased 4%, outpacing industry demand as we realized the run rate benefit of share gains with strength in automotive OEM coatings and packaging coatings. From a business unit perspective, our automotive OEM business delivered an 8% increase in net sales with growth above market in all regions. The global light vehicle industry production growth was 4%, which we clearly outpaced. We expect to outgrow the market again in the fourth quarter and throughout 2026. Industrial coating sales volumes declined a low single digit percentage as growth in Asia Pacific and share gains were offset by lower demand in the US and Europe. Packaging coatings organic sales increased by a double-digit percentage year-over-year, growing significantly above industry rates. These results, again, reflect the positive momentum in share gain in all regions. Segment EBITDA was up 12% year-over-year, reflecting the leverage from organic sales growth along with our manufacturing productivity and strong cost control actions. Now, let me talk about our balance sheet and cash. During the quarter, we completed approximately $150 million in share repurchases and paid $160 million in dividends, which combined totals $1.2 billion delivered to shareholders year-to-date. Our balance sheet is strong, which continues to provide us with financial flexibility, and we remain committed to driving shareholder value. Looking ahead, we're committed to driving consistent organic sales and earnings growth, even in this highly dynamic macroeconomic environment. As a result of the tariffs enacted, we are expecting low single-digit inflation for the year, and we are actively working with our suppliers to balance volume and price, with most suppliers favoring volume. When looking at our guidance, let me quickly recap some of the elements that we expect in the fourth quarter. We see structural strength in our performance coding segment, driven by our technology-advantaged products in aerospace and protective and marine coatings. which will be offset by lower automotive refinish sales based on customer order patterns. We expect a year-over-year decline in organic sales similar to that in the third quarter as distributors have been managing their inventories heading into year end. In our architectural coding segment, while European volume trends are anticipated to remain tepid in the upcoming quarter, we expect strong retail sales and modest recovery of project-related spending in Mexico. In the industrial coding segment, the share gains in automotive OEM, packaging, and industrial codings are yielding benefits, and we expect to outperform the market again in the fourth quarter. Finally, during the fourth quarter, we expect growing benefits from operational excellence programs, including reducing our costs. This, combined with the leverage from the acceleration in volume growth, is expected to drive earnings and margin expansion in our global architectural codings and industrial coding segments. This will be offset by lower earnings in our performance coding segment due to the business mix. Altogether, we have updated our full year guidance of adjusted earnings per diluted share to a range of $7.60 to $7.70. In closing, I'm excited about the increasing momentum we have demonstrated in organic growth. In a macro environment where industry demand remains subdued, we are benefiting from our sharpened portfolio of with technology-differentiated products and customer productivity solutions, which is delivering positive sales price and volumes in 2025 and above industry levels. Additionally, the focus we have put on operational excellence, investing in innovation, and driving share gains, combined with our disciplined capital allocation and strong balance sheet, supports our strategy to deliver sustainable top-line and bottom-line growth in the midterms. 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. And this concludes our prepared remarks. And now, would you please open the line for questions?