PPG Industries, Inc.

Good morning. My name is Tracy and I will be your conference operator today. At this time, I would like to welcome everyone to the first quarter 2026 PPG earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. To allow everyone the opportunity to ask a question, the company requests that each analyst ask only one question. Thank you. I would now like to turn the conference over to Alex Lopez, Director of Investor Relations. Please go ahead, sir.

Thank you, Tracy, and good morning, everyone. This is Alex Lopez. We appreciate your continued interest in PPG and welcome you to our first quarter of 2026 Earnings Conference Call. Joining me today from PPG are Tim Kanavish, 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 28, 2026. 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 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's filing with the SEC. Now, let me introduce PPE Chairman and CEO, Tim Kanavish.

Thank you, Alex, and good morning, everyone, and welcome to our first quarter 2026 earnings call. Before I begin today's call, I want to take a moment to remember our dear friend and colleague, John Bruno. His passing last week is a tremendous loss. John was not only an exceptional contributor to our company, but a wonderful husband, father, and friend whose leadership, intellect, compassion, and humor touched everyone who knew him. Thank you to the many of you that reached out. It meant a lot to us here at PPG, but more importantly meant a lot to his family. Now, I'd like to start by providing highlights of our first quarter 2026 financial performance, and then I will share our outlook. I am pleased to report that PPG delivered solid performance in the first quarter, demonstrating our ability to maintain growth momentum and a challenging macro environment, led by our differentiated aerospace and PPG COMEX businesses. We achieved organic sales growth of positive 1%, marking our fifth consecutive quarter of higher year-over-year organic sales. This growth was driven by higher selling prices, with further selling prices increased, announced. and expected price realization for the remainder of the year targeted to offset any inflationary impact much more quickly than prior inflation cycles. First quarter net sales totaled $3.9 billion, up 7% year over year, with adjusted earnings per share of $1.83 and an increase of 6% versus the prior year. Our segment EBITDA margin was over 19%, reflecting solid execution of our share gains, the benefits of our technology-advantaged products, strong brand recognition, along with excellent commercial execution. Turning to our segment performance in global architectural codings, first quarter net sales rose 13% to $965 million with positive 2% organic growth. Organic sales for architectural coatings Latin America and Asia Pacific increased by a mid-single digit percentage compared to the first quarter of 2025, with equal contributions from selling price and sales volumes. In Mexico, retail sales were especially strong, and project-related sales continued their recovery. Architectural coating sales in Europe remained mixed by country. with a low single-digit percentage decline in total, which was partially offset by favorable pricing. Segment income increased more than 30%, supported by pricing and execution of self-help actions, which drove EBITDA margins up 230 basis points above prior year levels. We expect organic sales and margin momentum to continue into the second quarter of 2026. Also, we continue to reduce our overall structural costs in our architectural business in Europe, and we have four manufacturing plants that will be closed in the second half of 2026, resulting in lower fixed costs going forward. Our performance coding segment delivered 5% positive net sales growth to $1.3 billion, led by double-digit organic growth in aerospace and high single-digit growth in traffic solutions and protective and marine coatings. PMC has now delivered 12 consecutive quarters of positive volume growth. As expected, automotive refinish organic sales decreased by double-digit percentage as sales volumes were lower, reflecting customer order patterns stemming from our U.S. distributors during the first half of 2025. On a positive note, we are seeing improvements in the U.S. industry accident claims. February and March industry claims were down 1% year over year, which now makes three out of the last four months with low single-digit declines year over year, reinforcing a normalization trend after the high single-digit to double-digit declines most of last year. Another positive data point, we are seeing our U.S. distributor fulfillment orders sequentially improve as inventory levels normalize. In refinish, as we previously communicated, we expect year-over-year organic sales volume declines in the second quarter as we lack strong prior year first half order patterns. We anticipate volume growth during the second half of 2026. Segment EBITDA was strong at 24%, driven by the strength of our aerospace business, despite the unfavorable year-over-year refinish volume comparisons. In fact, the investments that we are making in aerospace to support our customers' demand have resulted in improved productivity and improved output. We are well positioned to deliver consistent growth in this key end market for the next several years. I would like to again emphasize the important and sizable role that our aerospace business plays as a key growth engine for our company. Demand is expected to remain strong given our highly specialized and qualified products for both the OEM and aftermarket channels. Our backlog remains at about $350 million despite year-over-year output increasing. The PPG Aerospace business provides unique technology advantage products in various sub-segments, transparencies, sealants and adhesives, coatings, services, and engineered materials. In each one of these verticals, we have a strong presence that allows us to provide a superior customer offering, including excellent distribution capabilities, creating a truly unique value driver for our company and for our shareholders. Another differentiator of PPG Aerospace Business is the balance is not only between OEM and aftermarket, but also we are not overly dependent on any subsegment as we're well balanced across commercial, General aviation and military. I'd like to highlight just two examples of the proprietary technology-advantaged aerospace products that are designed to provide customized chemistry solutions inside the can and improve productivity for our customers outside the can. PPG's PRC seal caps deliver lightning strike protection for aircraft while significantly improving application time and material usage for our customers. ARE 3D printed sealants are a customized gasket solution that offers superior quality and increased customer productivity solutions. Now, moving to the industrial coating segment, First quarter net sales grew 4% to $1.6 billion. Organic sales were flat, including share gains that led to 1% sales volume growth, well outpacing industry demand, as we realized the benefit of share gains with strength in automotive OEM coatings and packaging coatings. We expect to launch additional share gains in the industrial segment throughout this year and into 2027. From a business unit standpoint, our automotive OEM business delivered flat sales volume, which outpaced the decline in global automotive industry production by about 300 basis points. The industry decline was largely due to year-over-year comparisons in China, as the first quarter of 2025 was very strong and first quarter of 2026 was tepid. Expectations for China industry comparisons are to improve in the coming quarters. For PPG, due to our strong product portfolio and commercial execution, we expect to continue outgrowing the market in the second quarter and for the full year in 2026. Organic sales for our industrial coatings business were down a low single-digit percentage as lower volumes due to inconsistent demand were partially offset by positive pricing actions in this business. Packaging, coatings, organic sales increased by a double-digit percentage year-over-year, growing significantly above industry rates. Sales volumes for PPG are up over 20% on a two-year stack basis, driven by share gains as customers continue to select our leading technologies. Segment EBITDA margin was negatively impacted by regional mix as China automotive production dropped in comparison to a particularly high level in the first quarter last year. Looking ahead, we expect sequential margin improvement driven by incremental industry and PPG sales volume growth, selling price realization, and aggressive cost management. With the impact of the Iran war, costs have risen for raw materials, energy, logistics, and packaging across the coatings value chain. In this rapidly evolving macro environment, we are focused on our ability to supply our technology differentiated products and services to our customers, which will allow us to maintain our organic growth momentum. I'm expecting the actions we are taking, combined with PPG's portfolio strengths, to offset geopolitical driven impacts to date we have had limited impact from supply shortages and we have the ability to leverage our unique broad and global supply chain footprint to securely source raw materials and drive competitive pricing for those raw materials additionally we are leveraging our years of expertise in product formulation technology and our ability to maximize the use of AI to optimize products to drive reductions in our raw material costs. Considering our procurement capabilities, our global footprint, our formula flexibility, our portfolio strengths, and the current macro environment, the impact of PPG is expected to be a mid-single-digit percentage in the cost of goods sold for the remainder of the year. We expect to fully offset these costs, and we are proactively raising prices to secure raw materials for our customers. Given the distribution models and price mechanisms we have in place, we expect to deliver price-cost realization much more rapidly than we did in previous inflation cycles. This realization will impact our global architectural coatings, performance coating segments first, and then flow through our industrial coating segments. Importantly, there are areas where we anticipate potential upside to the second half of 2026, such as our growing aerospace business and our architectural coatings Mexico business, where demand has been strong. Additionally, industry demand in automotive refinish has been recovering faster than we initially expected. As a result, we are reaffirming our full year 2026 EPS guidance range of $7.70 to $8.10. Again, let me reemphasize, our top priority is supporting our customers' needs through technical expertise, products with consistent quality, and continuity of supply, even as market conditions remain highly dynamic. Now let me talk about our balance sheet and cash. Our strong balance sheet continues to provide financial flexibility. We ended the quarter with cash and short-term investments of about $1.6 billion. We repaid $700 million of debt that matured in the first quarter and returned approximately $260 million to shareholders through dividends and share repurchases. Our cash deployment remains focused on maximizing shareholder value creation. Looking ahead, our accelerating organic growth momentum and proactive pricing actions position us well for the year. For the second quarter of 2026, we expect strong growth in aerospace, architectural coatings Latin America, protective and marine coatings, automotive OEM coatings, and packaging coatings. While demand in architectural coatings Europe, automotive refinish coatings, and in global industrial end-use markets will remain below prior years. We expect overall pricing for the company to be positive with the strength from our performance and architectural coding segments and flat year-over-year price in the industrial coding segments, with all three segments having improved pricing versus the first quarter. This will result in organic sales growth for the second quarter in the range of flat to positive low single digits versus the prior year. Given our ability to outperform the macro through our commercial momentum, Combined with our pricing realization and self-help actions, we expect to deliver adjusted earnings per share growth in the range of flat to a positive low single-digit percentage for the second quarter versus the prior year period. We are confident in our strategy and the strength of our portfolio, delivering higher growth in earnings despite challenging market conditions. 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. Now, before we open the line for questions, I would like to congratulate Vince on his upcoming retirement on this, his final PPG earnings call. Thank you, Vince, for more than 40 years with PPG. Thank you for being a great contributor to our company, a driver of results, a driver of shareholder value, a great mentor to many talents, a great teammate to our operating committee, a great partner to the last three CEOs and a great friend to me. Thank you, Vince. As PPG makes the CFO transition, we are delighted to welcome Jamie Beggs as our new chief financial officer. With her extensive background and financial leadership, Jamie brings a wealth of experience that will be instrumental in driving our continued growth and success. Please join us in extending a warm welcome to Jamie as we work together to achieve new milestones and create lasting value for our stakeholders. We are thrilled that Jamie is joining our team. Now, operator, please open the line for questions.