PPG Industries Aktie

Good morning. My name is Chase, and I will be your conference operator today.

At this time, I would like to welcome everyone to the Second Quarter 2026 PPG Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Alex Lopez, Director of Investor Relations. Please go ahead, sir.

Thank you, Chase, and good morning, everyone. This is Alex Lopez. Joining me today from PPG are Tim Knavish, Chairman and CEO; and Jamie Beggs, Senior Vice President and CFO.

Our remarks relate to the financial information released on July 28, 2026. Supporting materials are available in the Investor Center at ppg.com, and we will take questions following our prepared remarks.

Both the prepared commentary and discussion during this call may include forward-looking statements and non-GAAP financial measures.

Forward-looking statements involve uncertainties and risks, which may cause actual results to differ. Please read our cautionary statement on Slide 2 of the presentation materials.

Please refer to our presentation materials and SEC filings located on our Investor Center website for additional information and reconciliations of non-GAAP financial measures. Tim, over to you.

Thanks, Alex, and good morning, everyone. Welcome to our second quarter 2026 earnings call. Before reviewing our results, I want to welcome Jamie to our first earnings call as PPG's CFO. Jamie brings deep financial, operational and strategic experience to the role, and I'm confident that she'll be a strong partner as we continue executing our growth strategy, expanding margins and creating long-term shareholder value. I'd also like to thank our employees in the Middle East for their dedication and resilience during this very difficult period.

Their commitment to our business, our customers, our values and to each other has been truly inspiring. I know some of you are listening, so please continue to prioritize your safety and the safety of your family above all else.

Now I'd like to start by providing highlights of our second quarter 2026 financial performance, and then we'll share our outlook for the remainder of the year. I am proud to report that PPG delivered its sixth consecutive quarter of organic sales growth, a solid increase of 4% with equal contributions from sales volumes and selling prices.

As many of you know, we have been systematically building our organic growth muscle through commercial excellence, innovation excellence and operational excellence, and we are seeing positive momentum from these initiatives.

We outpaced the industry by 300 basis points, achieving organic growth in all 3 segments and in 8 of our 9 businesses, demonstrating our ability to accelerate momentum in a complex and rapidly evolving environment.

This growth momentum was led by our strategy to deliver product innovation and productivity solutions, both inside and outside the can for our customers.

Our second quarter net sales totaled $4.5 billion, up 7% year-over-year. Adjusted earnings per share of $2.23 was slightly higher year-over-year, driven by strong results in our differentiated aerospace and Architectural Coatings Latin America businesses, offsetting the expected lower sales volumes in Automotive Refinish.

Our total company adjusted EBITDA margin was over 17%, reflecting solid commercial execution of both pricing and share gains, which partially offset portfolio mix dynamics.

During the quarter, we also covered about 90% of cost of goods sold inflation with pricing, and we repurchased $75 million of shares, bringing year-to-date repurchases to $175 million.

Turning to our segment performance. In Global Architectural Coatings, second quarter net sales rose 8% to $1.1 billion with 2% organic growth driven by higher selling prices, partially offset by slightly lower sales volumes.

Organic sales for Architectural Coatings in Latin America and Asia Pacific increased by a mid-single-digit percentage, driven by volume growth in Latin America and higher selling prices.

In Mexico, retail sales were strong and project-related sales improved compared to prior year. In EMEA, we reached an inflection point with organic sales turning positive, increasing a low single-digit percentage with our higher selling price actions partially offset by modestly lower volumes as market demand remains mixed by country.

Segment EBITDA increased by 14% and EBITDA margin improved 100 basis points to 19.4%, driven by the realization of higher selling prices and cost control actions, partially offset by cost of goods sold inflation.

Importantly, we delivered EBITDA and margin expansion in both of our major regions this quarter. In Europe, in particular, our pricing and cost actions drove a return to margin expansion after several quarters of contraction, marking a change in trajectory for this business.

In the third quarter, we expect year-over-year strengthening in retail sales and project-related spending in Mexico, while consumer sentiment in Europe is anticipated to remain mixed. We expect higher prices and self-help actions to increase earnings.

Quarterly aggregate organic sales growth for the segment is expected to be in the range of flat to positive low single-digit percentage compared to the third quarter of 2025, and year-over-year EBITDA margin is anticipated to be relatively flat.

Our Performance Coatings segment delivered 7% net sales growth to $1.6 billion, with organic sales up 3%, led by Aerospace, Protective and Marine Coatings and Traffic Solutions, partially offset by the lower automotive Refinish sales volumes.

Aerospace achieved exceptional quarterly sales with double-digit percentage growth. Our order backlog remained around $300 million as we are starting to see the benefits of our capacity and productivity investments in this business.

Protective and Marine Coatings organic sales increased by a double-digit percentage, achieving their 13th consecutive quarter of sales volume growth, including above-market marine growth in both Asia Pacific and Europe.

Traffic Solutions grew a mid-single-digit percentage on strong commercial excellence performance.

Automotive Refinish Coatings organic sales decreased by a double-digit percentage, reflecting both the expected challenging comparisons to customer order patterns in the second quarter of 2025 and a modest recovery of underlying industry demand. U.S. automotive insurance claims continue to improve and over the past 2 quarters have declined by a mid-single-digit percentage versus double-digit percentage in prior year.

While the pace of improvement was not as fast as we would like, the data reinforces a normalization trend for this industry. Importantly, auto insurance premiums declined a low single-digit percentage in the second quarter.

This is the first quarterly year-over-year decline in the past 5 years. Segment EBITDA margin was 22.7%, declining 300 basis points year-over-year, driven almost entirely by the Refinish year-over-year comparison.

Higher selling prices were offset by lower automotive Refinish sales volumes due to the strong Refinish results in the first half of 2025.

In the third quarter, we expect organic sales growth for the segment in the range of mid- to high single-digit percentage. And in the second half of '26, we expect EBITDA margin expansion to return driven by pricing actions and automotive Refinish stabilization.

Now I'd like to recap the highlights of our PPG Aerospace deep dive that took place last month and the importance and sizable role that our Aerospace business plays as a growth engine for our company.

As a technology leader with nearly 100 years in the industry, we offer a very unique roughly $2 billion portfolio of qualified products and productivity solutions across sealants, adhesives, transparencies and coatings.

The demand for our business is expected to remain robust given our highly specialized and qualified products for both the OEM and aftermarket channels, supported by our deep global distribution and customer productivity capabilities.

In addition, we are diversified not only across OEM and aftermarket, but also across commercial, general aviation and military end uses.

We are not overly dependent on any single subsegment, and all of them have strong order books. We are investing more than $0.5 billion in additional capacity to drive scale and support strong growth with technology developed through collaboration and synergies across our other PPG businesses.

This positions us to deliver consistent above-industry growth in this key business for years to come. In the Industrial Coatings segment, second quarter net sales grew 7% to $1.8 billion, led by higher sales volumes.

Organic sales increased 5% due to volume growth in all 3 businesses, reflecting the benefits of our previously communicated share gains. Automotive OEM coatings organic sales increased a low single-digit percentage with mid-single-digit percentage sales volume growth, including share gains outpacing global automotive industry production by about 500 basis points.

Industrial Coatings organic sales improved a mid-single-digit percentage, marking a change in trajectory for this business, driven by volume and price in Asia Pacific, Europe and North America.

Packaging Coatings organic sales increased by a double-digit percentage with sales volumes now up over 20% on a two-year stacked basis as customers continue to adopt our leading technologies.

Segment EBITDA increased 2%, while EBITDA margin declined 70 basis points to 15.9%, driven by cost of goods sold inflation, partially offset by higher sales volumes.

Looking ahead, our share gains in automotive OEM coatings, industrial coatings and packaging coatings are yielding benefits, and we expect to outperform the respective markets again in the third quarter.

For the segment in the second half of 2026, we expect modest organic sales growth and EBITDA margin compression due to the timing of index-based pricing.

Specifically for the third quarter, aggregate organic sales growth for the segment is anticipated to be in the range of flat to positive low single digits compared to the third quarter of 2025.

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 have ensured supply continuity of our technology differentiated products and services to our customers. We have proactively made price adjustments globally and across all of our businesses, resulting in a net 2% selling price improvement in the quarter with an exit run rate of 3% for the month of June.

In the second quarter, we covered about 90% of our cost of goods sold inflation with pricing, and we expect to reach 100% coverage by the fourth quarter.

I am proud of this progress, which is one quarter ahead of our commitment made just 90 days. This represents a faster price or faster rate of price realization than we achieved during the previous cycles.

This is enabled by our customer value propositions, our procurement capabilities, our global footprint, our formula flexibility and the strength of our portfolio. We estimate cost of goods sold inflation in the range of mid-single-digit to high single-digit percentage between the second quarter and fourth quarters, and we have executed and remain poised to implement further selling price actions as necessary to fully offset inflation.

Importantly, a top priority remains supporting our customer needs through our technical expertise, consistent product quality and continuity of supply even as the market conditions remain dynamic. With that, I'll turn the call over to Jamie Beggs, our Senior Vice President and Chief Financial Officer, to take you through the balance sheet and cash as well as our third quarter and full year financial projections. Jamie?

Thank you, Tim, for the warm welcome, and good morning, everyone. We are building upon our strong balance sheet as we ended the quarter with cash and short-term investments of $1.6 billion. Net debt decreased by more than $400 million from the second quarter of 2025, leaving net debt at 1.9x adjusted EBITDA.

We also issued long-term bonds of CHF320 million due in 2030 and 2034 with a weighted average interest rate of approximately 1.4%. Year-to-date cash from operating activities was approximately $600 million, more than $220 million higher year-over-year, primarily driven by working capital improvement.

During the quarter, we returned approximately $235 million to shareholders through dividends and share repurchases. Our cash deployment remains focused on maximizing shareholder value creation.

Looking ahead, our organic growth momentum and proactive pricing actions position us well for the remainder of the year. For the third quarter, we anticipate robust organic sales growth across most of our businesses, led by strength in aerospace, Latin American Architectural Coatings and Packaging Coatings.

We expect third quarter organic sales growth in a range of a low single-digit to a mid-single-digit percentage and company adjusted EBITDA margin, which includes corporate expenses to be in the range of a flat to a decline of 100 basis points year-over-year.

We are reaffirming our full year adjusted earnings per share guidance range of $7.70 to $8.10. This reflects our confidence in our earnings trajectory given our positive momentum, the realization of pricing and the execution of our self-help actions.

With that, let me turn it back over to Tim for closing remarks.

Thanks, Jamie. In closing, we are confident in our strategy and the strength of our business models and our momentum in delivering higher sales and earnings growth and in outperforming the market.

With a very unique portfolio, strong brands, technologies, an asset-light and flexible cost structure and consistent cash generation, PPG remains a compelling long-term investment.

Thank you to our PPG team around the world who make it happen and deliver on our purpose every day. We protect and beautify the world. We appreciate your continued confidence in PPG. That concludes our prepared remarks. Chase, we're now ready to begin the question-and-answer session. Please open the first line for questions.

[Operator Instructions] Your first question comes from the line of Matthew DeYoe of Bank of America.

I appreciate that comps can vary quarter-to-quarter. But as I look at Performance Coatings, kind of wanted to know why they were down so much sequentially. And then as we try to bridge the gap to 2H, what gives you the confidence the business can actually accelerate, particularly as some of this raw material backdrop is actually going to creep up on you incrementally as we move through the rest of the year?

Yes. Thanks, Matt. Performance Coatings, the drop in sales was entirely Refinish year-over-year comps. That's really the quick answer.

All of our other businesses in that space, we grew double-digit in aerospace. We grew double-digit in Protective and Marine. We grew mid-single digit in Traffic. So the rest of that segment is growing.

So the delta in performance was purely Refinish comps.

To your second question, look, we had a great quarter on growth across the company, 8 out of 9 businesses. And we fully understand what happened on the 9th. And that one is going to return to growth starting in this quarter. And Refinish will grow in Q3 and Refinish will grow in Q4.

So we've got great momentum on the top line. We're beating market across most of our businesses. I couldn't be happier with how fast we came out of the gates on pricing, able to pull forward our breakeven point.

So we've got strong momentum there. And look, to your point, while there are a number of factors outside of our control, we've proven that how quickly we can move on pricing to accommodate any other changes in what might happen on the raw material environment.

And we are confident that, that Refinish destocking in the U.S. is behind us. So the one business that didn't grow is now going to start growing. And so when you add that plus the momentum that we have in pricing, we feel really confident in our second half guide.

Matt, this is Alex. And just to add some color to your first question, sequentially, the drop in margin on that segment, let's remember, price net inflation in Q1 was positive. Price net inflation in Q2 on that segment is neutral. It covered inflation, but it was positive in Q1, flat in Q2.

And it will be positive in Q3.

Your next question comes from the line of Kevin McCarthy with Vertical Research Partners.

Tim, I wanted to move the discussion to your industrial business. The volume there of plus 5%, I think, was the best in 5 years. It looks as though maybe you punched above your weight in auto OEM.

So maybe you can kind of unpack the volume growth trajectory as you see it in that business? And then on a related note, I think your Industrial segment sales guide for the third quarter is like flat to down low single digits compared to the plus 7% total sales growth that you posted in June. So maybe just some comments on why that might decelerate sequentially would be helpful.

Yes, Kevin, you nailed it, man. I mean we're thrilled with the growth results out of Industrial Coatings segment, and it's one that we've been working on for a couple of years.

And as you know well, when you win business in auto or packaging, it could be 1.5 years until you actually launch that business. So we've been talking about share gains in that business or in those businesses for 2 years, and it's starting to hit the P&L now as we launch at our customer facilities.

The good news is you could count on about $25 million of new business wins in that segment per quarter hitting the P&L as we go forward, mostly -- across all three of those businesses, auto, packaging and industrial.

So yes, great quarter for growth in Industrial segment. All three of those have growth momentum. And if you look at auto, plus low single digits for Q2, that's accelerating as we launch more share gains in Q3.

Industrial is the one that really flipped for us that had been down for a number of quarters. And now the share gains in that business have started to launch up mid-single digits in Q2. We expect that to grow in Q3 and beyond.

The reason the overall range, frankly, is a little bit lower is because packaging, we are stacking double digits on double digits on double digits. So the year-over-year comp starts to get just mathematically to go from double digits down to something else, but maybe high single digits or mid-single digits for packaging in that segment.

But we'll still be growing nicely at least for the rest of 2026. And some of the wins we're getting won't even launch until 2027. So yes, exciting turnaround in the Industrial Coatings segment.

Your next question comes from the line of James Hooper with Bernstein Research.

I'd like to go into a little bit more detail about the Refinish margin and how you see that coming back over time? Because previously, you said this was the highest margin business in the group. And I think to give more detail on how that rebuilds will really help drive the kind of EPS growth story.

Yes, Thanks, James. So it's definitely one of our top margin businesses in the portfolio. There's a couple of others that are in a tight race as well with Refinish, but one of our top margin.

And within Refinish, Refinish is majority collision, which is what we talk about all the time, but there are other parts of that business that use Refinish technologies that aren't exactly collision, but within that business, collision is the highest margin within that business.

So when you have a big year-over-year comp delta on one of your top, top segments, it has a fairly sizable negative margin impact on the whole segment.

Our confidence level going forward is a couple of things. Number one, we are confident that the destocking in the United States is behind us.

And so our run rate going forward and our year-over-year comp rate going forward changes significantly. And number two, Alex touched on this a bit, while we were out quickly on pricing in Refinish with what happened with the Iran conflict, we'll continue to drive pricing to get that kind of gross margin back where it needs to be.

And so the combination of those two give us confidence that going forward, you won't see that margin delta. And in fact, if you look at the total Performance Coatings segment, you'll see sales growth, you'll see earnings growth, and we'll return to margin growth as we move through Q3 and beyond.

Your next question comes from Ghansham Panjabi of Baird.

Welcome to you, Jamie. I guess just going back to the price cost recovery time line coming in one quarter ahead of schedule, Tim. Can you just give us more color as to how you were able to accomplish that? Was it pricing execution on your end? Is it raws aren't -- have moderated relative to perhaps what you thought initially? What's driving that change?

Ghansham, it's actually not -- I mean, raws were up more than we thought initially, right? So what happened is we learned through these inflationary cycles.

And we learned some things last time and got a little faster. We learned some more things this time and got even faster. And I think also just the abruptness of the increase driven by the conflict with Iran, it took away any lag period between assessing whether or not or do we need to go out with significant price increases pretty much overnight.

So you take away any lag period at the beginning, you incent the teams to beat what they did last time. And of course, you take the learnings from last time. And so all of our businesses came out of the gates a lot faster and with more meaningful price increases.

And again, we were able to offset 90% of it in just a quarter. And we've got some more price actions coming out this quarter and beyond, which gives us full confidence to pull forward that kind of breakeven run rate period that we previously committed to you.

Your next question comes from David Begleiter with Deutsche Bank.

Jamie, welcome as well. Tim, just for Refinish, to be clear, do you expect volumes to still be up in Q3? And if so, how much? And also, one of your competitors announced some pretty large body shop wins, et cetera, this past quarter. Are you seeing similar wins and share gains in Refinish as we move forward?

Yes, David. Yes, volumes will be up in Q3 and Q4, not huge amounts because this business is typically a low-volume business and then you make your top line by a combination of expanding your TAM to some of our productivity solutions and share gains and pricing.

So yes, on the volumes, even better on the top line. I used to be a salesperson in this business. I know it well. And share -- unlike automotive or packaging, where there's like huge cost of change, there's share shift in this business, not just every quarter, every month, there's share shift every day, right? And we closely watch net wins.

Sometimes there's an MSO share shift, which is a little bigger than a hand body shop here and there. You'll recall last quarter, we talked about a big MSO that we had won. That's now converted.

We have another big MSO that we're going to be converting in the future here. And so it's really just a normal period, I would call it, and nothing extraordinarily different as far as what's happening with share in the Refinish market.

Your next question comes from the line of Mike Harrison with Seaport Research Partners.

Maybe if we go to the next question, Chase, I don't know if it's Mike open, but we can try -- I see Chris Parkinson on the line.

So Tim, if we just take a step back and just get away from Refinish for a second. In the second half of the year, and I'm not going to ask you for a crystal ball for '27 quite yet, but where are the areas -- the 3 or 4 areas where you're stealing the most share and you are incredibly confident with your team that you are growing above market sustainably.

Would that be essentially Aerospace, Protective and Marine, Comex and perhaps packaging? Is there anywhere else you think you should be stealing more share? If you could just give us a little bit more to triangulate where you think you should be growing relative to market rates over the next 6 to 12 months, that would be particularly helpful.

Chris, I prefer to say winning share versus stealing share. But I'm just going to look through our businesses here. Aerospace, the story there, you were at the deep dive.

We just continue to incrementally increase our strong share position there. PPG Comex, similar thing, more of a continuous improvement of share wins. Packaging, step change, and that's driven by our technologies, U.S. and Europe in particular.

And a lot of the share gain this year is coming from Europe. So that's more of a step change versus incremental. Protective and Marine, I would say, mostly in the marine businesses in Europe and Asia is where our share gains are coming there.

Industrial, we've been building up to this for about 5 or 6 quarters now. So some of the share that we won there we actually won last year. We're launching it this year. We're seeing outsized growth in powder coatings, specifically within industrial.

And we see some solid pipeline coming. Auto, we outperformed the market by 500 bps. So definitely share gain there with more to launch in the second half of the year. Architectural Europe, again, in the countries that we operate, we don't operate in every country.

But in the larger countries that we operate, about 75% of them, we are gaining share and 25%, we've either held or lost incrementally. So net-net, we're winning.

And then our traffic business, small U.S. only, we did an acquisition, a small acquisition last quarter. So that's a bit of a step change in share there. And so you add all that together, Chris, this is why we feel so good about our momentum. This is why we're so proud of what we put out in second quarter, something we've been incrementally building up to for 3 years now.

And it's why we feel so good about second half and beyond is I didn't list one business there where I was concerned that we might be losing share.

Yes. If I can add on, Tim, it's been so impressive to see just the commercial efforts walking into PPG.

And if you take a look, six consecutive quarters of organic growth. And if I look at the actual individual performance of all the SBUs, the majority of them actually grew volume.

And this is a really hard environment for any company to be able to do. So I'm very impressed. There's been a lot of structural things on the selling machine and some other things that Tim had advocated. And for me to see that live underneath the hood here, it's quite impressive. And it gives us a ton of confidence, especially if we're going into the second half, how we're going to continue to grow organically, which is an important objective for the entire company.

Yes. And then on Refinish, Chris, you'll recall in October, we told everyone on this call and we told the world that we recognized we were going to be subject to a significant destocking until the middle of '26. We're now in the middle of '26, and that significant destocking is behind us.

And so now the path forward here is net-net body shop wins, which we typically do very well at. So again, we feel great about our momentum.

Your next question comes from the line of Frank Mitsch with Fermium Research, LLC.

Operator, I see John Roberts on the line. Maybe, John, if you can try.

My mistake, sorry. John Roberts with Mizuho.

Tim, within general industrial or the general industrial SBU within the Industrial segment, two of the largest competitors of yours are merging.

And I think that's where they may have the most antitrust overlap. Is that a contributor to the inflection that you're seeing in your growth there?

John, it's hard to say because some of this growth we're achieving in general industrial is stuff we won last year.

Most of it announced before the merger, the potential merger that I think was announced in November. Some of it announced after that. So it's really hard to say whether -- how much of that is driven by pre-announcement and post announcement.

What I will say is there's obviously some -- it does bring some anxiety and a bit of a distraction in the short term.

So maybe that contributed to some of it. But our team is out there every day just attacking the share gain opportunities in general industrial, which happens to be one of our bigger growth opportunities as a company because we have relatively compared to some of our other verticals, lower market share there with great technologies.

So I think it's more about the execution of what Jamie talked about, commercial excellence, our selling machine and perhaps some, but we can't really point to that specifically.

Your next call comes from the line of Duffy Fischer with Goldman Sachs.

Just a couple of questions back on Refinish, if we could. So when was peak sales for that business? And how much are we down from that peak sales period on a run rate basis? And then underlying, has there been a mix shift in your business within that? I mean are customers trading down because of the financial difficulties around insurance and paying for stuff? And then at this lower level of sales, how has structural margins been impacted within that business?

Duffy, so we'll have to -- I'll let Alex confirm with you the specific quarter of peak. But if you think about where the market in the United States saw a downturn, it was largely, say, mid-'24 and all of '25.

So I would surmise that our peak was around that '24 area, but I have to caveat that with -- even though that was market, you know very well that we were expanding our TAM. We're expanding our pricing and we're expanding our share.

So there may be a little bit of a delta there. And I'll let Alex come back and confirm. We have not -- to your second point, we have not seen a negative mix shift despite the challenging financials that some of our end users were under during that period.

Frankly, quite the opposite because what they value in good times, but particularly in bad times is their own productivity and their own shop output. And we sell outstanding coatings in that business, but we also bring best-in-class productivity tools through our digital ecosystem that helps them reduce labor costs, increase throughput, reduce waste and net-net, get more cars out per week, which is really what drives their financial performance. So we did not see a step down in premium to value or anything like that during this period.

Yes. The big derailment, if you look at annual sales of it, Alex, 2024, 2025, it was the insurance premiums when they escalated, let's say, 16%, 17% every year.

And that's what created the big disconnect with miles driven. As Tim pointed out at the beginning of the call, those insurance premiums, actually, we saw this quarter, Q2 in the U.S. lower insurance premiums and it's the first time since 2023 that, that happens.

Your next call comes from the line of Jeff Zekauskas with JPMorgan.

I have a two-part question. In your press release, you say that your cash flow from operations was higher by roughly $220 million year-over-year. Is that temporary? Or is that something you can maintain over the course of the year, that is your operating cash flow being a couple of hundred million better than last year? And second, in Auto Refinish, just to try to clarify things, your first half volumes are down, I don't know, 12% or 13%, and you think your second half volumes will be up maybe 8%. And so you're looking for roughly a 5% volume decrease this year. Is that the way to encapsulate it?

Jeff, this is Tim. I'll take part B and let our new CFO take part A on the cash. I'd say you're in the right ballpark on first half volumes, right, down low double digits.

I don't know if it was exactly 12%, but that's in the ballpark. I'd say you're a little high on your second half volumes. You might be right on, on your second half revenue.

But on volumes, liters of paint is probably more like up low single digits, but then you've got price on top of that, and then you've got our digital ecosystem and our subscriptions on top of that. So down low double digits first half, up low single digit second half on pure volume.

Yes. And Jeff, on cash flow from operations, there's been a lot of good work by the teams on managing working capital.

So what we expected was basically that continuous improvement instead of waiting towards the back half of the year, but really getting on that earlier and really good management by the team.

So I don't expect there to be anything change from what was provided for where operating free cash flow, we expect north of 10% on a sales basis. We expect that to be where we end up for the year. It was just a really nice win by the team to manage that earlier in the year.

Your next question comes from the line of John McNulty with BMO Capital Markets.

This is Cal on for John. Tim, you've spoken a lot about pushing through pricing and also going for share on the call. So how are you balancing those 2 dynamics?

Yes. Cal, so the reality is that we haven't really seen any -- frankly, none that I know of lost business as a result of our pricing efforts.

We don't jam price with our customers.

We collaborate with our customers. We're not just selling them a product, right? We're part of their operations. We're a part of their business success. So it's more of a collaborative approach.

We respect the business they run. They respect the business we run. So we don't really lose share typically when we approach pricing because of the way we approach pricing.

So the momentum that we have on sales growth is just continuous execution of sales pipeline. And then when it comes time where you've got a dramatic increase in cost of goods sold inflation, some of them are contractual, but a lot of them are just collaboration with our end customers in a way that it's -- we help their business, they help ours.

Your next question comes from the line of Vincent Andrews with Morgan Stanley.

I just wanted to ask on buybacks. The pace decelerated in 2Q versus 1Q, but your cash flow was better. It looks like the share price was lower for most of the quarter.

So is it -- you were looking at some M&A stuff or any other issues there? And I guess maybe just also a comment on -- forget about the large stuff, but how is the smaller and more bolt-on M&A pipeline looking?

Yes, Vincent, on the capital deployment, we still deployed about the same amount because we did close on one of our small bolt-ons that cost us about $65 million.

And so we bought back about $75 million. As Jamie was describing that working capital execution throughout the quarter, frankly, came in better than we expected. So we had -- some of it was timing and that we ended up with more cash than we expected when we put our buyback plan in.

The way we do it, we sit down in the middle of each quarter, me, Jamie and John Jankowski, our Treasurer, and we do our best estimate of what's it going to look like from an incoming cash.

We know what it's going to take to pay our dividend. We got some really great CapEx investments right now in Aero in particular. And then we look at M&A pipeline and then whatever is left, we say, okay, let's do repo.

And when we did our math this time, the total deployment was a little less than what we did last quarter and the quarter before, but in the same ballpark, that's not at all a change in execution strategy. We're going to continue to do what we've done.

I think consistent for 15 quarters since I took this job. We bought shares back 11 straight quarters. And I stand behind. I'm not going to let cash grow on the balance sheet. And yes, we raised dividends this quarter, too.

So no change in strategy. A little bit of it was timing of -- we did better on working capital than we thought we would. And we got to remember that we did that small bolt-on.

Now the second part of your question on pipeline, there's nothing really big in our pipeline right now. We've got a couple of little bolt-ons may or may not happen. I wouldn't hold your breath, but you never know. So I think you should expect us to continue the same capital deployment strategy, and that is we'll look at it next month in the middle of the quarter, and we're not going to let cash grow on the balance sheet, and we'll do our best to estimate what that surplus cash is going to be, and then we'll buy back shares accordingly.

Your next question comes from the line of Josh Spector with UBS.

I want to come back to performance and maybe some of the initial questions around the margins in that segment.

And I know the year-on-year is messy. So I was looking quarter-on-quarter and you had almost $300 million higher sales, you have about $40 million-ish higher EBITDA. It's about a 15% incremental. So it's probably about half I would have expected if you were even on price cost.

So it seems like there's something else in there, either investments or something on mix that may have impacted you.

But I'm just curious on your thoughts about why that would have looked that way and why it wouldn't have been higher, given you've had growth in Aero and some of the other businesses, which were generally higher incrementals.

Yes. Josh, it really -- and Alex can fill in if there's any smaller down on the Pareto list that I'm not thinking about. But when I look at it, it was really 2 things.

We already talked about the year-over-year comp in Refinish, which is the biggest part of it. But price/cost was not neutral for the whole quarter, right? And so in Q1, it was positive, right, because that was largely before the war.

So we had a big positive price cost in Q1 and a slightly negative price cost in Q2, which will be positive going forward. Those 2 make up the vast majority. Now if I'm missing some minutia, but that's -- when I looked at it, those were really the explanations.

Your next question comes from the line of Mike Harrison with Seaport Research Partners.

Can you hear me?

Yes, Mike.

Great. Well, welcome aboard, Jamie. My question is on the Protective and Marine business. It seems like you guys have been in this sustained upswing. I think you said 13 straight quarters of organic growth.

It seems like other companies are seeing this as well. And so understanding that you guys have a nice innovation and some share gains in marine. But I'm just curious, do you feel like the underlying strength in the business is related to infrastructure growth -- is there pent-up demand or maintenance requirements that are flowing through? What are the main drivers of the strength? And really, what I'm trying to get at is how sustainable do you think that strength could be? Is it possible that we are starting to get near a peak and may start to see demand cycle a little bit lower?

Mike, we put up double digits again. And to be honest with you, just from a comp standpoint, because we're comping double, double, double, we thought we might actually be high single digits.

So we outperformed our own expectations there. I don't think we're anywhere near a peak. I just from the law of big denominators, you might start seeing high single digits, mid-single digits as we comp multiple, multiple, multiple doubles.

You mentioned marine. We're doing particularly well in marine, particularly well in marine aftermarket, but also in marine new build in Asia. We're doing particularly well in fire protection, which is really growing, whether it's hydrocarbon or cellulosic fire protection for things like data centers and warehouses.

We are doing -- there's quite a pipeline in data center work, which is not only fire protection, but structural steel, flooring, insulative coatings, dielectric coatings. So there's a number of verticals.

You mentioned infrastructure. There's a number of verticals that are particularly strong here energy. So all of those things are driving robust top line, and we see that continuing for quite some time period.

You mentioned maintenance. Maintenance is more like a floor where it just keeps chugging along. It doesn't go up a lot. It doesn't go down a lot. It's pretty steady. It's more of those particulars that I pointed out that still have quite a bit of runway.

So we don't really see a peak on the horizon, but we'll start having lower comps just because of bigger denominators.

Your next question comes from the line of Eric Boyes with Evercore.

Could you remind on the cadence of your raw material purchases? Do you lock in a good portion for the quarter at the very beginning of the quarter or maybe late in the prior quarter? And when we see some of these recent temporary spikes in crude, does PPG tend to kind of vary your purchase cadence? Or is it pretty programmatic? I guess I'm trying to get a sense on how impactful the short-term crude volatility is or isn't for PPG.

Yes, Eric, I'd say there's a typical answer that on average, we're locking stuff in at 45 to 60 days in advance.

But every contract is different. But that's a good walking around kind of number. You mentioned oil in particular, solvents, which is one part of our spend that's somewhere probably in the 10%, 15% of our total spend, and Alex can give you the exact number later.

That stuff moves very quickly because it's pretty much straight up the wellhead, right? So up, down, that moves pretty quickly. Then not all of -- only about half of our raw material basket is any form of a derivative of petrochem.

So some of it, we'll do an annual contract on things like pigments or things like that, that don't really have much to do at all with the price of oil. And then we've got oil derivatives that don't move nearly as fast up or down with the price of oil because they're 1 step or 2 steps removed from the wellhead.

So that's how I would describe it, walking around average, 45 to 60 days, but there's exceptions on both ends.

Your next question comes from the line of Frank Mitsch with Fermium Research, LLC.

Welcome, Jamie, to PPG. Just a couple of questions on auto. I know that it's been discussed a lot. But obviously, Tim, it sounded like on the Refinish side, you didn't have any major concerns in terms of share shifts one way or the other on the Refinish side.

But then on auto OEM, it sounded like, obviously, you're gaining share there. Can you talk about the sustainability of your market shares in both Refinish and in auto OEM?

Sure, Frank. Auto OEM we started talking about our $100 million of Industrial segment share gains last year and being very impatient.

I kept waiting to see that on the P&L. And hey, we're seeing it on the P&L while now. And that about 40% of the numbers that me and Alex have been quoting for Industrial segment wins are in auto OEM.

We talked about 100 total industrial segments last year, probably another 100 this year, some of which will roll into next year. So we've got a good line of sight to additional auto OEM outperformance for the next several quarters, which is really about as far out as you're quoting business.

So we feel good there. Refinish is more of a -- there's very few big share shifts in that industry. It's more about singles and the occasional double every day.

And despite what's shown up on the P&L because of the destocking comp issue, we've continued to win those singles and doubles at more than our fair share. So we feel good about kind of incremental share gains in Refinish, more step change in auto OEM.

Your next question comes from the line of Arun Viswanathan with RBC Capital Markets.

Just wanted to get your thoughts on the portfolio as it stands right now. Are there any areas that you find are delivering returns below your threshold maybe due to some structural volume issues? It just appears that you have some momentum in aerospace and a few other businesses that, unfortunately, that's being canceled out by some of the other verticals.

So just wanted to get your thoughts on the portfolio and if there's any areas that you think could be optimized or you'd want to exit at this point?

Yes. Arun, I mean, I'll give you the spoiler alert first, and then I'll walk through them a little bit.

Spoiler alert, I got nothing for sale right now. Right? I mean we went through nothing of size, nothing -- anything you all would notice even.

We went through the period of selling 2 sizable business -- 2 businesses, and we also sold a whole bunch of small ones to clean things up. We have a couple on the fringes that I'd like to clean up. Some of it's performance, some of it is they just don't fit our enterprise growth strategy going forward.

But so small, you would never even see them. So that's the conclusion right now. I have to put the stamp on that, I always say and all of our businesses know this, they have to earn their right to be in the portfolio every day, every quarter, every year.

So naturally, you mentioned aerospace, that's at one end of the profitability growth spectrum, laws of averages. We have some that are below that average that we're working really hard to get up.

And you can see which ones they are just by looking at our segment EBITDA performance but that doesn't mean that they're on the for-sale block right now. We're working really hard to continuously improve their margin delivery.

And if we didn't believe that we had path to improve margin delivery, then we'd be having another conversation.

Your next question comes from the line of Laurence Alexander with Jefferies.

So for the industrial and the auto, when you look at the amount of the innovation pipeline is contributing to your performance ahead of the end markets, do you expect based on what you have visibility on now to be running -- is that gap widening going into next year? Or do you expect it to at least be stable for next year through the end of the year?

Go ahead.

Laurence, this is Alex. I mean we've been outperforming the industry for quite some time now one year.

We expect to continue to outperform, probably not at the same level of the 500 basis points that we did this quarter. Just to remind you, last quarter, we did 300.

But certainly, we expect that gap to continue, not at the same level of the 500 basis points...

Yes. And if I try to -- maybe I misunderstood your question, Laurence, on the innovation side, we've got a continuous innovation pipeline in auto. And as you know, that's one of our highest technology businesses.

And a lot of those share wins are coming from a combination of that innovation pipeline plus commercial excellence plus the great field service that we provide to help our customers be more productive.

But as I look at the innovation pipeline in auto, we've got a number of things that aren't ready to launch today that are coming through to drive productivity for our customers, lower energy for our customers.

I know EV isn't -- it's not exactly the shining star it used to be, but the EV growth rates, particularly in China, continue to expand. And so we've got a number of product initiatives coming for that space as well. So Alex is right. We -- our line of sight, we have good outperformance on the horizon.

And then innovation pipeline, we've got a number of things that just aren't quite ready to be commercialized yet that we feel good about for the coming quarters and years.

Your next question comes from the line of Patrick Cunningham with Citigroup.

This is Rachel on for Patrick. So for Architectural EMEA, how much of the margin improvement is sustainable from price realization versus some early benefits from your restructuring and planned closure of European manufacturing plants?

Yes, Rachel. I mean, I would say we've only just begun to see the margin enhancement from that business. It's a combination of 3 things. We've taken some good share in that business in our key countries.

So the volume certainly helps give us some leverage. We've launched a number of sustainable products, which for our European customers are very full, very important, which have incrementally higher gross margins. We've gotten price in that business ahead of the inflation spike with the war, and we'll get more price after this quarter.

And we've taken out some of our SG&A and you're starting to see that benefit.

But you really haven't seen any benefit from a leverage standpoint from the plant closures because they won't close until Q4, Q1.

And so there's still -- there's like some continuous incremental improvement in margin in that business that you'll see as we move through the year. And then there's another step change in '27 as we execute the closure of those facilities.

Your next question comes from the line of Abigail Eberts with Wells Fargo.

You called out $0.5 billion in aerospace CapEx. I'm recalling your Shelby, North Carolina project was supposed to run about $380 million. Is any of that $120 million delta from CapEx fits in that project? Or is that from other smaller debottlenecking projects?

Yes, Abigail. So the $0.5 billion, I think $380 million, I don't think I know, $380 million was Shelby, the new plant that's under construction now.

The other $120 million was above and beyond CapEx that we're spending at existing facilities such as Huntsville, Alabama, Mojave, California and others to debottleneck, but also just add incremental capacity at those facilities.

And so it's that $120 million that we're just now starting to see improvement in outputs from. And of course, the $380 million will come when that plant comes online. And we're probably not done. We'll be -- we continue to build for the future in that outstanding high-growth, good margin business at returns that are great for our shareholders.

There are no further questions at this time. I will now turn the call back over to Alex Lopez.

Thank you, Chase. We appreciate your interest and confidence in PPG. This concludes our second quarter earnings call.

This concludes today's conference call. You may now disconnect.

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. [Operator Instructions] 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 2026 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 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 PPG'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 PPG Chairman and CEO, Tim Knavish.

Thank you, Alex, and good morning, everyone, and welcome to our first quarter 2026 earnings call. Before we 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 in 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 Coatings, 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 coatings sales in Europe remain 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 4 manufacturing plants that will be closed in the second half of 2026, resulting in lower fixed costs going forward.

Our Performance Coatings 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 3 out of the last 4 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 industry levels -- inventory levels normalize. In refinish, as we previously communicated, we expect year-over-year organic sales volume declines in the second quarter as we lap 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, and 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 $315 million despite year-over-year output increase.

The PPG aerospace business provides unique technology-advantaged products in various subsegments, 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 are well balanced across commercial, general aviation and military.

I'd like to highlight just 2 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 customized gasket solution that offers superior quality and increased customer productivity solutions.

Now moving to the Industrial Coatings 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 realize 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 2-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 and Performance Coatings segments first and then flow through our Industrial Coatings segment.

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 year.

We expect overall pricing for the company to be positive with the strength from our Performance and Architectural Coatings segments and flat year-over-year price in the Industrial Coatings segments, with all 3 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 that are delivering higher growth and 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 3 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.

[Operator Instructions] Your first question comes from the line of Ghansham Panjabi with Baird.

Our best to you, Vince, and our very best for John's family as well. I guess, Tim, first off, on your comments on price cost recovery will be much faster than prior periods. Can you just outline some of the specific changes you've made to support that? And then related to that, you've been very calibrated in the past with pricing and with previous inflation cycles to kind of maintain your market share, et cetera. Do you expect volumes to hold this go around as well just given the near 20% increases you've implemented thus far?

Yes. Thanks, Ghansham. Look, the difference this cycle from a volume standpoint is, as you know well, for the last 3 years, we've been building our organic growth muscle, right? So we have tremendous momentum from an organic growth standpoint that will help as we move forward with price increases. And if you compare to the last couple of cycles, the pre-COVID cycle of 2017, '18 took us about 1.5 years to get to run rate neutrality. The 2021 cycle, which was the post-COVID combined with the Texas freeze, took us about a year. Now we're talking months.

So it's a combination of 2 things, Ghansham. Number one, we've always had a good pricing muscle. And with each cycle, we refine that. We learn. We get better. We get faster. Now from a volume standpoint, we're combining it with positive momentum on the organic growth muscle that we've been building and demonstrating results here these last 5 quarters or so. So we're confident that we're going to be able to strike the right balance between pricing and volume.

Your next question comes from the line of Michael Sison with Wells Fargo.

Nice start to the year. And congrats to you, Vince, and John will be sorely missed. In terms of your outlook for the second half, Tim, how do you see volumes sort of shaping up sort of at the midpoint? Any effects from the Iran conflict on each of the segments? And just give us your thoughts on the type of volume growth that could be -- that's kind of embedded in your outlook.

Yes. Thanks, Mike. In everything, unfortunately, you kind of have to time stamp right now because it's just so fluid out there, right? But based on today's environment, we feel good about the second half volume.

A couple of things. First of all, aerospace beat our own expectations in Q1, and we continue to see improving output there. And as you know, we're essentially sold out. So every incremental output that we get is an incremental volume for us. Second, and this is a significant one for us, we had said all along that refinish would have positive volume in the second half. It's recovering a little earlier than we expected, and we got 2 really good sets of data points in U.S. collision claims rates as well as improving U.S. distributor fulfillment orders.

Then on top of that, we've got the industrial segment share wins that we will continue to launch as we move through the year. And finally, Mexico has really recovered nicely for us. Retail is doing great. And with each passing quarter, projects get a little better. And in some of our other businesses, packaging is doing great, up double digits. PMC is doing well and has been doing well for a couple of quarters. We've got a good order book there. We have not seen any order book changes with the Iran conflict. Obviously, we've seen change in feedstock pricing. But when it comes to volume and order books, based on today's current environment, we have not seen any negativity in our order books.

Yes, Mike, this is Vince. Just to peel the onion back a little on the refinish comments. Just as a reminder for everybody in the baseload, we had very strong refinish activity in the first half of '25. Distributors stopped up inventory. We were well above market. The second half, the patterns hurt us. So we have much easier comps. So we still expect muted volumes in refinish for the year, but the comparisons are why Tim said we expect growth year-over-year in the second half.

Your next question comes from the line of John Roberts with Mizuho.

It was good to see the PPG family come together for John Bruno. And welcome, Jamie. And Vince, again, thank you very much for all the good service. And good luck with the Penguins tonight. Tim, on your guidance on Slide 9, raw materials, how much higher do you think costs are going up for the smaller competitors who maybe buy raw materials through distributors? And with the dynamic pricing that's going on out there, are there gaps opening up between competitor pricing? Or is it relatively orderly and competition is generally moving up together?

John, thanks for your support of Mr. Bruno. It's really hard for me to say what our smaller competitors are seeing. But what I will say is we are getting more favorable deals and contracts and agreements because of our volume, right? So even though prices are going up, and we're projecting basically mid-single digits here based on today's knowledge. But -- and that's on the back of our volume, our global footprint and our ability to get the best deals in the market because of our scale. So I would imagine that our smaller competitors are likely seeing higher prices than what we're seeing on the input costs.

Your next question comes from the line of Chris Parkinson with Wolfe Research.

Vince, sincere congratulations. And most importantly, thank you for the life advice going back to 2015 before I was even married. And I must disagree with one of my colleagues here, go Flyers. Okay. In terms of the second half of the year -- sorry, that was in an honor of a friend.

In terms of the second half of the year, Tim, perhaps you could just give us kind of the puts and takes. Obviously, you've been very proactive in pricing in terms of those dynamics, which is helpful in terms of us to contemplate, but also that you could have some positive mix effects, specifically in PC. So could you just kind of go through your thought process in terms of how you're thinking about margin in the second half, what you want to see, what you need to see or just overall?

Yes. Thanks, Chris, and thanks for your support here recently with the passing of John as well. First of all, I'm confident that we'll have positive volume in the second half. I'm confident that our net EBITDA margin will improve in the second half. And that's because of a number of things. Number one, aerospace will continue to grow, good margin contributor. The refinish recovery that we've already talked about, a big impact on our net margin. Mexico continuing to grow. That's a good contributor to our net margin. So from a mix standpoint, it's really all good news for us, right?

And then from kind of a top line and gross margin impact standpoint, it's all those 3 things added together, plus the launch of our Industrial segment share gains as we progress through the -- and these are ones that are already locked in. So we've got a favorable mix. We've got pricing actions underway. Yes, raws will be higher, energy costs will be higher and logistics costs will be higher. But we feel good about the playbook and the actions that are in place to drive not only the price cost side of the offsets, but also these other really PPG portfolio differentiators that will drive elevated mix and volume as we move through the second half.

Yes. And baked into our guidance, Chris, if you recall, we still have cost actions we're taking. We have several plants coming out in Europe in the second half of the year. And so that will help from a cost structure perspective.

Your next question comes from the line of David Begleiter with Deutsche Bank.

First, the best to John's family. And Vince, congrats and thank you sincerely. Tim, just on the 20% -- on the price increases you've announced, how should we think about the realizations that you will realize? And beyond the current spike in raws, the sustainability of these increases when and if oil prices and other feed input costs come down?

Yes. So thanks, David. Thanks for your support. So we announced -- I announced to the world price increases up to 20%. And that's because I had to notify our customers around the world that there are some products that will have to go up that much, right? It will be -- we'll have -- the actual realization will be spread out depending on customer size, depending on what products they actually buy and depending on the actual cost impact of those products.

So in order to offset the mid-single-digit cost of goods sold increase that we're expecting for the remainder of the year, we need to realize low single digits to offset that as a total company. And then we're ready if the situation gets worse, if we have to flex more. Moving through the year, we'll do more, and we'll drift our price up to mid-single digits. But right now, based on today's operating environment, net-net, we need to get solid low single digits to offset mid-single-digit COGS inflation.

Now what happens if and when it comes down the other side, just like there's a lag going up, there will be a lag coming down. And also, what's yet to be determined, Dave, is what's the impact of the structural damage to petrochem facilities in the region that may stretch out when -- how and when things come back down.

And just a reminder to everybody, in the prior cycles, in almost every business, we went out for more than one price increase as the situation has developed. So again, this is not uncommon that we price for what we know today, and then we adjust as necessary.

Your next question comes from the line of Frank Mitsch with Fermium Research.

Yes, rest in peace, John. We lost a truly great one. Vince, I'm roughly calculating that this is your 80th conference call as IR or CFO. I was wondering if you could take a moment or 2 and recap the highlights of each one of those conference calls and perhaps they'll put a plaque in the conference room where these conference calls are held. But my business question is free cash flow generation was negative in the first quarter as is typically the case. I was wondering how you look at the potentials for free cash flow generation in 2026 and feel free to be as bold as possible so you can give Jamie a stretch target.

Thank you, Frank. If you look at our cash from ops, we were up about $50 million versus the prior year. We did have elevated capital spending lower than the prior year, which was our target. So again, our cash forecast do not change versus what we gave in January. We're expecting a good, strong cash year. Can you talk about the priorities?

Yes, yes. Look, first of all, we were thinking about a dartboard rather than a plaque here. But we expect a good proxy walking around number for us is for our cash flow to be about 10% of our sales, right? And then the prioritization of that, of course, we got a dividend that not everybody has. We'll keep that going. We've got some really good organic investments like what we're doing in aerospace, for example.

We've been looking at M&A. It's not our #1 priority. It's not the tip of the spear for us, but we will do deals when they make sense for our shareholders. In my 3.5 years, we've done 2 small bolt-ons. So we'll use that if and when the right asset comes along at the right price. But beyond that, I think we're now at 10 straight quarters of doing repo, and you should expect me and Vince and my new CFO to follow that same pattern.

Your next question comes from the line of Jeff Zekauskas with JPMorgan.

A two-part question, one about the present and one about the future. In the quarter, what was the currency benefit to EBIT year-over-year? And you speak about getting ahead of raw material cost inflation, but you do sell to the auto OEM industry. Do you think that that's an industry area where you will be ahead of raw material cost inflation or behind? And in your spending for aerospace, you speak about being capacity constrained. At a point in time, should your volume growth rate elevate because you have more capacity available as a base case or it doesn't work that way?

Jeff, we might have lost you at the tail end of your questions, but I think I got all 3 parts of them. So I'll take auto -- go ahead, Jeff, please. Yes, you're very choppy, Jeff. We lost you at the end.

But what I...

Yes, go ahead, please.

Just try to answer the questions, we'll go from there.

Okay. Thank you, Jeff. I'm going to take the 2, and I'll let Vince take the currency one. On auto, I mean, look, we all know it's the toughest of our businesses to get pricing, but we get pricing. If you look at the last cycle, we got pricing coming out of COVID and on the Texas freeze. One thing that helps with this situation actually, Jeff, is it's such an acute and well-known event and driver to inflation and petrochem feedstocks that you start from a stronger point of not having to demonstrate and explain and convince.

Now that said, as you know, we also have some index contracts that will automatically move, but will automatically move with some time lag. So in our guide, in our normalization by -- run rate normalization by the beginning of '27, Q1 of '27, we've got all of that factored in, okay? Now aero, absolutely, you will see increases in output volume and therefore, revenue for our aerospace business going forward.

I would put it in a couple of different buckets. One, we're continuously improving output with some of these incremental debottlenecking kinds of investments that we've been making. Round numbers over the last year or so, we've put about $150 million into those kind of investments. And they're paying off as we go. You'll see some improvement in late '26 into '27 coming out of those investments.

Second, we announced a new plant to the tune of about $380 million, that will be more of a step change in volume output as we get out into like the '28 time frame. The third category, Jeff, is we've got a lot of engineering work happening right now. We're not done with investments, and I can't get ahead of my board or anything, but we're still working on additional investments. So you should, going forward, expect to see a nice increase in our aerospace revenue.

Vince, do you want to take the currency?

Yes. Jeff, the currency impact for Q1 was less than $0.10 year-over-year positive. That was included in our guide for the year and for the quarter. If you look at the balance of the year, so the remaining 3 quarters, the total is going to be less than half of that and most of that in Q2. So again, all included in our original guide back in January.

Your next question comes from the line of Kevin McCarthy with Vertical Research Partners.

Vince, congratulations to you. I appreciate all of your help over the last 20 years or so, and you'll be greatly missed, as will Mr. Bruno, of course.

My question maybe for Tim is on the subject of M&A. I think you made a small acquisition recently in Ozark as part of Traffic Solutions. Curious about that deal. But maybe more importantly, can you put external growth into forward context for us, Tim? I think you've been quite focused on organic growth. Now that you have 5 quarters of expansion under the belt, do you feel like you have a little bit more license to grow externally? Or should we expect PPG to remain highly disciplined as you have in recent years?

Yes. Thanks, Kevin. So Ozark, I would call that an opportunistic asset, highly synergistic for us with double underline under highly. We paid -- we got a good price relative to what it was sold for a number -- just a few years ago. Walking around number, Kevin, about $100 million in revenue. So it's a small bolt-on, but what it does because of the highly synergistic nature of it is it actually helps our margin position and cash generation position for that small business for us of Traffic Solutions. So it raises its margin profile a little bit.

But the reason we have that in our portfolio is it's a really consistent cash generator for us that we can use to then deploy that cash on things like new aerospace plants. And it's steady because it's safety in infrastructure, it's very, very stable. And so it just kind of spits off cash for us year-over-year. And now what those are, they will deliver financial -- great financial returns for us and our shareholders because of the high synergies and the relatively low purchase price.

Now more broadly, I am very pleased with how the teams have grown that organic growth muscle. And Kevin, I remember some of our conversations 4, 5 years ago. And so we're not done, but we're pleased with 5 straight quarters of organic growth and by the way, outperforming market over those 5 quarters. So I think we've always had a license. We've always had a strong enough balance sheet to do whatever M&A we want. But the way I think about it is, first of all, it's got to be the right asset. I'm not interested in just buying something so that I can put another flag somewhere or buying something purely for the sake of raw material synergies. I want to buy something that adds to our future organic growth and margin profile.

Second, it's got to be the right time. The last few years has not been the right time as we've been, first of all, exiting some things in our portfolio and tripling down on organic growth. I think we can handle some deals now, but it still has to be at the right price because I've got some pretty darn good organic investment opportunities that have great financial returns. And so I'm really -- to use your word disciplined, we will continue to be disciplined. But I do think we have the right -- the license to do selective M&A. And you've seen us with 2 small bolt-ons this year. We actually did kind of a productivity outside the can, Allied Products acquisition earlier in the year to help industrial refinish pipeline. So it's still not the tip of the spear for us. We will still be extremely disciplined. We will look at every asset that comes available, but it's got to meet the right asset at the right time and the right price.

Your next question comes from the line of [ Duffy Fischer with Vertical Research Partners ].

Two questions on refinish. So first, when you anniversary Q2, revenue will be down about 10%. Has that done anything structurally to the margin there? Do you need to do any restructuring to reset that on a profitability basis?

And then second, once we get through the snapback in the second half, should we think about that business structurally being kind of flat volumes and price up 2% to 3% going forward?

Yes. Duffy, I think you're pretty close there. We don't -- as far as the go forward, right, the go forward, it's not going to be a high-volume growth industry, but it's still a good revenue growth and EBITDA growth machine for us because of our ability to capture value for the total value that we deliver, because of the work we've been doing to expand our TAM, right? We're selling more into the body shops now than we ever did beyond just the coatings, right? So when you think about digital tools, MOONWALK, Allied Products, we just have a bigger target TAM that's enabling us to grow.

And then we've had a really good run of share gains there. And so as the market normalizes, this will be -- it will never be our highest growth business, but this will be a nice low single-digit growth business for us with really good margin and really good cash.

Now to the first part of your question, we have not had to do massive restructuring with this decreased volume. So what you should expect instead is as things normalize in the second half, you should expect outstanding leverage because you've seen some of that negative leverage in the second half of last year, right? So you should expect a really nice snapback in margin leverage. Now defined snapback, though, that's really a bottom line snapback. We -- this industry, we expect to return to normal over the last X number of years and normal being a minus 1, minus 2 industry volume. We'll do better than that because of our expanded TAM and then a really nice EBITDA machine for us.

Your next question comes from the line of James Hooper with Bernstein.

I'd like to go back to aerospace, please. We've got Europe running out of jet fuel flight cancellations and other potential issues if the conflict continues. Can you remind us what your split of OEM and aftermarket is? And can you give a little bit of detail about how aerospace growth could be affected if flying hours are materially down for the rest of this year?

Thanks, James. I'll give you the spoiler alert answer first, and then I'll give you a little more details. We see no impact of the potential slowdown in flight miles in some parts of the world in 2026. And now here's why. First of all, the business is balanced roughly 50% OEM, 50% aftermarket. And then it's balanced across commercial aviation, general aviation and military. So kind of one of those subsegments may be affected from a flight mile standpoint, but it's one of many subsegments. And then even that subsegment has learned a very hard lesson coming out of COVID.

What the commercial customers did is they radically depleted their inventories of aftermarket products, including a lot of what we sell. And because of the strength across the breadth of this industry, that has never been able to be rebuilt. And I still get phone calls like literally weekly about restocking and our ability to keep aftermarket parts and components in stock and rebuild. So what you should expect, if that does happen, I think we would be rebuilding aftermarket inventory for some time period while the -- all the other segments that I mentioned remain red hot.

And I think, if anything, it could be an improved mix for us because typically, your aftermarket mix is a little richer than your OEM mix. So I watch the news like everybody does. I see the impacts, and I see my customer CEOs talking about this on the news, but we see really no impact here because don't forget, because of what's going on in the world here and the NATO rebuilding their own defenses, the military side of the business growing tremendously on both OE and aftermarket as well, okay.

Your next question comes from the line of John McNulty with BMO.

Give condolences to John's family, a great guy. And Vince, it's been a really, really great ride. So I appreciate all the help.

Just a quick one on the protective and marine business. I think the expectation was that we were going to see that the growth in that business moderate just given the huge success you've had over the last 1.5 years or 2 in that. And yet you still put up high single digits. I guess, can you help us to think about what drove that presumably stronger-than-expected volume and how we should think about that throughout the rest of 2026?

Yes. So we did -- we have been stacking like lots of double-digit and high single-digit quarters for multiple years. So just by the laws of big denominators, we did expect that to come down somewhat, but we are very pleased that in Q1, we still put up high single digit, high single-digit growth off of a much bigger denominator. I'd say in the short term, the real strength is Asia and has been Asia. And both marine new build and marine aftermarket have been stronger. But we -- look, there's a lot of protective coatings work going on around the world. There's a lot of data center work going on around the world. We just launched and announced a comprehensive end-to-end offering for data centers. There's a lot of infrastructure work going on. So we see that business continuing to be a growth engine for us for the rest of '26 and frankly, beyond because it's got some strength in some segments that are relatively unaffected by some of the macro issues that are affecting other places.

Your next question comes from the line of Vincent Andrews with Morgan Stanley.

Congrats and thank you, Vince. And my condolences, of course, to the Bruno family. John, he was a wonderful man.

Could I ask you to talk a little bit about the industrial coatings margins. They came in a little bit softer than expected. You did call out Chinese mix on the auto OEM side. And I guess there was a little bit of negative price, I think, is a function of the index contracts. But can you just help us understand why the margin contraction was so great and how to think about it through the balance of the year?

So Vincent, you could answer the question for me because you nailed it, right? So let me just give a little more color to it. See the biggest impact was China auto. As predicted, it was going to be down. I think it was down well into the double digits as far as China auto builds for the quarter. And that -- we outperformed that a bit because of some of our wins, but it's still down significantly. And that is -- that's a really good operating margin business for us because if you think about it, 1 out of every 3 cars in the world is built in China. So the scale and the leverage is stronger on the upside when things are being produced in China, but the negative also happened. So that was the biggest.

The second was even though we're all -- we're talking constantly over these last 2 months about raw material increases, we were still rolling off some index contracts from the deflationary cycle, mostly in our automotive and our packaging businesses, which are both in Industrial segment. We should be wrapping up the roll-off of those in Q2. We've got a few more that have to roll off, but that's really been the drivers. Number one, automotive OEM builds in China; and number two, index contracts.

And just to add some more color on China auto builds. So last year, as Tim mentioned, a very, very strong quarter for the industry for PPG. This year, the reverse. On a 2-year stack basis, we're almost flat in China. So again, we had -- the comp issue is really what we're dealing with.

Your next question comes from the line of Josh Spector with UBS.

I echo my congratulations to Vince and Jamie and of course, my condolences to John and family, he'll be sorely missed.

I did want to ask on pricing and surcharges specifically. How much are you using surcharges this cycle versus prior years? And then kind of similar again on auto OEM, have contract structures changed to allow that? Or has the cycle of recovery become a lot faster in that part of the business?

Yes, Josh, we do -- we are using surcharges in some of our businesses more this time because freight costs are up, right? Whereas most of our contracts and even noncontractual businesses, we're typically talking about raw materials, but we've got 2 additional ones that don't get as much attention, but are pretty significant to that MSD contributor, and that's logistics costs because of diesel fuel and European energy costs because of what's going on. So I'd say in those 2 specific areas, we're using surcharges more than we typically have.

And beyond that, it's largely been our typical price increase, which we prefer. They're stickier. And again, on the auto question, most of the auto contracts are designed around raw material inflation, less so around freight and energy. But those are discussions that we should have with our customers first, and we've started those discussions. So more to come there. But most of the index contracts that we have in auto and packaging are pretty much limited to raw materials.

Your next question comes from the line of Matthew DeYoe with Bank of America.

Yes, just echo what everybody has been kind of saying. Vince, congrats on a great career. And clearly, the sentiment on John, he was just such a core salt of the earth guy. So yes, it's a huge loss.

I wanted to ask on the OEM side in China. There's often discussions in the market around Chinese competition or China moving downstream. And coatings is one area where I feel like maybe there's roadblocks to how far China can compete globally. But in that market, are you seeing better competition? Are there pushes to adopt local suppliers for the auto companies? And then on the refinish side, I mean -- well, I'll just stop there and I'll let you answer first.

Okay. Thanks. So there's no doubt that the China automotive OEM industry has gone through an absolutely radical transformation in the last couple of years with the Western JVs dramatically shrinking and the China domestics dramatically increasing. And there's also no question, Matt, that those Chinese domestics have worked hard to get Chinese supplier content on the vehicles. But I would say, thus far, that has all been on, let's call it, hard parts, rigid parts, widgets that Chinese companies can produce.

When it comes to automotive coatings in China, there is already more competition in the rest of the world because you've got the traditional 3 plus you've got 2 Japanese players and 1 Korean player. But the finished film on a vehicle, it's very hard to duplicate, very hard to reverse engineer all the way back to resin formulation, which is really the backbone of automotive OEM coatings. And so that gives automotive OEM coatings some protection. I don't know what my peers do, but I know we produce the secret sauce outside of China and ship it into China.

So the coatings by nature of you're buying kind of mixed chemicals and the end product is a finished film on the vehicles, which because of the transformation that happens in the application and curing process is different than the mixed chemicals. It does give a nice buffer of protection for automotive OEM coatings versus other automotive parts.

Your next question comes from the line of Laurent Favre with BNP.

I'd like to come back to the MSD inflation point, please. I mean we're seeing energy solvents, lots of spot prices on upstream chemicals at more than 50%, sometimes 100%. And I understand you guys don't buy products that are just out of the cracker, but still, I'm wondering how it's only MSD? Are those spot numbers not coming through in actual contract negotiations? Or are the intermediate guys producing resins and additives being squeezed? Or is it that you have contract protection for the rest of the year, but then you will see further inflation into 2027?

Thanks, Laurent. I'd say 2 comments on that. Of course, our suppliers are seeing that energy impact mostly in Europe. And we've got that built into that blue box of mid-single digits overall cost of goods sales inflation. And then the second piece of energy is logistics costs, and we've got that built in there as well. And so we have all of that, everything that -- you got to time stamp it based on our best estimates of today's operating environment. But we've got that all built in. We're absolutely seeing what you described, but we've got that all built into our guide.

Yes, Laurent, as you're fully aware, most large coating companies do not pay anything close to spot, especially when you have commodity inflation spikes. So we're contracted, and we are negotiated with most of our raw material supply, not only for the quarter, but for the full year.

And one final comment I'll make really, Laurent, on your question and even more broadly on the whole raw material and total inflation. One big difference between this cycle and the cycle coming out of COVID, which was a combination of post-COVID recovery and the deep Texas freeze. At that time, you'll recall that coatings industry volumes were very high. A lot of coatings companies could not keep up with customer demand. So that is a significant difference when it comes to what does a coatings company see, particularly a large coatings company see versus what is being seen upstream. Supply-demand economics still matter. And that's a big differentiator between this cycle and the last cycle.

Your next question comes from the line of Patrick Cunningham with Citi.

I'd like to echo my deepest condolences to John's family and the PPG family, and thank you to Vince for your partnership over the last few years. For architectural EMEA, I think you mentioned closing 4 manufacturing plants in the second half. Could you quantify the fixed cost savings there and cost to deliver? And then maybe more broadly, how you are thinking of the long-term strategic value for the business...

Yes. Are you there, Patrick? We lost you a little bit.

Well, I'll just try again. For architectural EMEA, you mentioned...

Yes, yes. Okay. I got it.

And then the long-term strategic value.

Right. So yes, 4 plants, here's a good walking around number for you. You'll see the savings in 2027. But a good walking around number is about a $25 million reduction in our fixed cost base from the closure of those 4 plants, and that will go on in perpetuity for us. Now in total, you'll see about a $50 million structural restructuring benefits for our company this year. You'll see another $50 million next year with $25 million of that $50 million being tied to these 4 plants. Now that's not the only kind of fixed cost reduction initiative. We've got some restructuring, some back-office people costs being reduced. We've got a lot of formula optimization costs going over there as well.

So the value of this business, when markets are even flat, this business delivers really good earnings and really good cash to us. That's the value in the portfolio. We have, over the last couple of months, seen a little better volume. We had a good March in architectural Europe. So as you think about this market getting to flat volume and the mission of this business in our portfolio is to spin off good earnings and good cash so that I can deploy that in some of our higher growth, higher technology businesses.

Every -- we're constantly evaluating each of our businesses' mission and how they're performing to that mission in our portfolio. But that's how we're viewing it today. And we've got -- we're not waiting. We're not sitting around hoping and waiting for a European recovery. We're building a business that can perform well at flat volume.

There are no further questions at this time. I would now like to turn the call back over to Alex for closing remarks.

Thank you, Tracy. We appreciate your interest and confidence in PPG. This concludes our first quarter earnings call.

This does conclude today's call. Thank you all for attending. You may now disconnect.

Good morning. My name is Warren and I will be your conference operator today. At this time, I would like to welcome everyone to the Fourth Quarter and Full Year 2025 PPG Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Alex Lopez, Director of Investor Relations. Please go ahead, sir.

Thank you, Warren, and good morning, everyone. This is Alex Lopez. We appreciate your continued interest in PPG and welcome you to our fourth 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, January 27, 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 a 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 the potential effect on PPG'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 filings with the SEC. Now let me introduce PPG Chairman and CEO, Tim Knavish.

Thanks, Alex. Good morning, everyone. Welcome to our Fourth Quarter and Full Year 2025 Earnings Call. I'll start off by providing some highlights on Q4 and full year 2025, and then I'll move on to our 2026 guidance.

I'm pleased to report that 2025 was a year of solid commercial operational innovation and financial performance for PPG. The year also demonstrated the strength and resilience of our diversified portfolio as well as the dedication of our PPG global team.

Despite a very mixed and dynamic macroeconomic environment throughout the year, we delivered consistent organic growth, both volume and price, capping the year off with our strongest organic growth of over 3% in the quarter.

We also continued our legacy of driving structural cost improvements for our self-help actions and maintained our heritage of strong cash flow generation and disciplined cash deployment, including returning cash to shareholders.

For the full year, net sales totaled $15.9 billion with 2% organic growth which was driven by a combination of higher selling prices and volume gains across our segments. Our adjusted earnings per share came in at $7.58, underscoring our ability to maintain solid profitability in a dynamic environment.

Our cash from operations totaled $1.9 billion, up about $0.5 billion year-over-year, supporting a robust free cash flow yield of 5%. This strong cash performance enabled us to return $1.4 billion to shareholders through dividends and share repurchases. Our segment EBITDA margin for the year was a healthy 19%, reflecting ongoing operational efficiency and cost discipline.

I'm pleased that we have delivered on our organic growth commitment, with sales volume and selling price growth resulting in a full year increase of 2% in organic sales, which outpaced the estimated market decline of negative 0.2%. This is the result of our productivity solutions for our customers as well as the share gains in our core technologies.

Turning to the fourth quarter. We further accelerated our growth momentum. Net sales were $3.9 billion, up 5% year-over-year with 3% organic growth driven by positive sales volume growth across all regions. We achieved record aerospace coating sales and earnings led by strong demand for our technology advanced products. Auto OEM net sales increased 6% and well outpacing the industry, driven by share gains and customer mix. Architectural Coatings in Latin America delivered high single-digit organic sales growth aided by the sequential quarterly recovery of project-related sales and continued strong retail performance.

We delivered positive sales volume growth in all regions, with Asia Pacific leading the pack achieving mid-single-digit percentage followed by low single-digit percentage in U.S., Latin America and Europe. Our segment EBITDA margin for the quarter was 18% and reflecting solid execution despite some macro headwinds that impacted certain end markets.

Adjusted EPS for the quarter was $1.51 as the improved organic growth and improved operational performance were more than offset by higher interest costs and increased corporate expenses.

Now looking at each of our segments in the Global Architectural Coatings segment, Fourth quarter net sales rose 8% to $951 million with 2% organic growth. This was driven by Mexico's strong retail performance and sequential improvement in project-related spending as well as favorable foreign currency translation.

Project-related spending was weak in the first half of 2025 driven by uncertainties related to tariffs. However, the second half of 2025, we experienced consistent recovery and expect this to extend into 2026 based on leading indicators and discussions with our customers. Architectural coatings demand in Europe was mixed, a low single-digit percentage decline, which was partially offset by favorable pricing. We have now delivered positive pricing for 39 consecutive quarters in this business.

Segment income increased 16%, driven by improved pricing and cost management, and EBITDA margins improved nearly 100 basis points. We expect positive organic sales and margin momentum to continue in the first quarter of 2026 in this business.

The Performance Coatings segment delivered 5% net sales growth to $1.3 billion led by double-digit organic growth in aerospace and consistent gains in our Protective & Marine Coatings business, which now has delivered 11 consecutive quarters lower.

As expected, automotive refinish organic sales decreased by a high single-digit percentage as sales volumes were lower reflecting customer order pattern order patterns stemming from distributors more heavily weighting their purchases to the first half of 2025.

However, one closely watched data point in the industry is U.S. accident claims. And the December year-over-year claims were down only 2% compared to high single-digit or low double-digit declines throughout the year.

As we communicated in our third quarter earnings call, the industry claims normalization and our 2025 distributor order patterns will result in a difficult sales comparison for PPG in the first half but incremental volume growth during the second half of 2026.

Segment EBITDA margin decreased driven by lower automative refinish coating sales and higher growth-related investment spending in aerospace and protective and marine coatings, partly offset by higher selling prices, and we expect margin contraction for the segment during the first half of 2026 with margin growth during the second half of the year.

As you know, our aerospace business is an important growth engine for the company, and I want to take a moment to talk about the momentum and industry growth. And the demand for our highly specialized qualified products. The business is equally weighted to OEM and aftermarket customers with margins that are accretive to the overall reporting segment and has a strong presence in commercial, military and general aviation.

During our second quarter earnings call, we presented a significant expected aerospace OEM growth given the increased build forecast for the next several years.

In addition to the OEM growth, forecast for higher aftermarket demand translates into sales growth CAGR of high single-digit percentage growth for the foreseeable future.

For PPG, this is a business that is more than just coatings with the majority of the portfolio being represented by transparencies sealants and adhesives and service and materials. For each one of these verticals, we compete with peers that do not have a strong presence in overlapping technologies. This makes our business very unique with a much stronger segment presence than any traditional competitor in our space.

Moving to the Industrial Coatings segment. Fourth quarter net sales grew 3% to $1.6 billion, with organic growth fueled by share gains that led to 5% sales volume growth well outpacing industry demand as we realize the full 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 a 6% increase in net sales with growth above market as a result of our share gains. We expect to outgrow the market in the first quarter and for the full year in 2026 in this business.

Organic sales for our Industrial Coatings business were flat as sales volumes growth in Europe and Asia Pacific region offset lower index-based pricing. Packaging Coatings organic sales increased by a double-digit percentage year-over-year, growing significantly above industry rates. These results reflect the positive momentum in share gains led by Europe and the U.S. as a result of the technology shift favoring our sustainable product portfolio.

Segment EBITDA was up 6% year-over-year and EBITDA margin improved by 30 basis points to 15.1% and reflecting the leverage from the organic sales growth along with our manufacturing productivity and strong cost control actions.

Now looking ahead, we expect some softness in global industrial and automotive demand to impact organic sales and margins in the first quarter 2026.

Now let me talk about our balance sheet and cash Strong cash flow generation remains a key pillar of our strategy. As I said, our operating cash flow increased by over $0.5 billion year-over-year to $1.9 billion in 2025. We returned $1.4 billion to shareholders through dividends of $630 million and share repurchases of $790 million, which represents about 3% of our outstanding shares.

We ended the year with a strong cash balance of $2.2 billion and a net debt position of $5.1 billion, with $700 million of debt maturing in the first quarter of 2026, which we intend to pay from our current cash position. Our balance sheet is strong, which continues to provide us with financial flexibility, and we remain committed to using this strength and flexibility to drive shareholder value.

Our capital expenditures for the year totaled approximately $780 million, reflecting our investment in growth initiatives, including expansions in aerospace in Mexico, and our digital and AI capabilities. 2025 will represent the high watermark of these growth investments and we expect to sequentially pace back to our historical levels of approximately 3% of sales by 2027.

Looking ahead, I'm encouraged by our organic growth momentum and what we will achieve in 2026. We anticipate that demand in Europe and global industrial end-use markets will remain challenged. However, despite the macroeconomic environment, we expect sales volume growth will be driven by aerospace, architectural coatings in Mexico and about $100 million of share gains in the Industrial Coatings segment that will be realized in 2026, including $50 million of carryover share gains announced last year.

We expect overall price for the company to be positive with strength from our performance in Architectural Coatings segments, which were partially offset by modest contraction in the Industrial Coatings segment. This will result in organic sales growth in the range of flat to positive low single-digit percentage.

Raw material basket remains favorable to coatings producers and we are consolidating our supplier base, which will help us offset the impacts of already enacted tariffs, resulting in expected overall flat raw material costs for the year.

Finally, during 2026, we expect growing benefits from operational and excellence programs, reducing our cost by another $50 million. This, combined with the leverage from acceleration in volume growth is expected to drive earnings per share growth that at the midpoint of our guidance represents a mid-single-digit percentage increase.

We expect earnings per share to be flat to growth of low single-digit percentage during the first half of the year and increasing to high single-digit percentage in the second half of the year.

In closing, I'm excited about the increasing momentum we have demonstrating during the fourth quarter that allows us to start 2026 on strong footing. We are laser-focused on executing our enterprise growth strategy which emphasizes high-margin business growth, strong cash flow generation, disciplined capital allocation and operational excellence. Our portfolio pruning completed in 2024, enables us to more effectively win with our customers and drive shareholder value.

Additionally, we are investing in customer innovation, including digital and AI capabilities to maintain our technology leadership in coatings, sealants specialty materials and productivity solutions for our customers. As always, we remain disciplined with our cash deployment to drive shareholder value. We're confident in our strategy and the strength of our business model to deliver sustainable long-term growth. 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. I look forward to discussing our results and outlook in more detail during today's call. Warren, please open the line for questions.

[Operator Instructions] Your first question comes from the line of Chris Parkinson with Wolfe Research.

Most of us would still call the macro muted or even meager, and your organic growth with maybe one exception has been pretty solid across a lot of the kind of the substrates and the fastest you've been focusing on the last few years. Could you just add a little bit of insight on what you saw in the fourth quarter and how you're thinking about everything in 2026 in terms of breaking that growth down as was the macro actually slightly better than you anticipated? Is it all share gain? Is it new product introductions? If you could just kind of just break that down and how that breakdown would actually lead you to think about your '26 guidance that would be particularly helpful.

Chris, I guess a high-level answer, and I'll get into some details for you here. The high-level answer is macro is not better than we expect. And to your questions about is our growth based on macro share gain or technology introductions. The answer is yes, yes and yes.

So the spaces where we're seeing macro help aerospace, right? That continues to crush it for us. The sequential improvement in Mexico that helps us. And I'd say, still a pretty strong, robust PMC market.

When you look across the rest of our businesses well, and those businesses, if you think about auto OEM, S&P has Q1 down. The rest of the year, call it, flat-ish, but we're committed to outperforming that, and we will grow.

Packaging industry is very mixed bag, and we're crushing it there with multiple quarters of double digit. And that's largely share gain, and I would tell you, largely Europe, where we're doing quite well there. If you look at the other businesses, Architectural Europe still flattish industrial or general industrial, which, as you know, is the catch all. It's -- some segments are up, some are down. Overall, I'd still call it pretty flat. So really, there's a few markets where we're getting macro help. Most of our businesses were getting share gain help.

And to the technology question, A lot of the share that we're gaining in packaging is technology driven. A lot of the share that we're gaining in refinish, even though the destocking is covering this right now, a lot of the share gain is driven by the productivity tools that we launch.

So it's really a combination of all three. But high level, I don't think anything has changed significantly with our view of the macro.

Your next question comes from the line of Aleksey Yefremov with KeyBanc Capital Markets.

Thanks for providing all the color on end markets. I was hoping you could just give us some details on total volumes and price for organic growth in '26?

Sure. Let me do the easy one first, and that's pricing. You should expect to see a positive price and virtually all of the protective businesses -- I'm sorry, performance businesses and the architectural businesses. You heard my -- even our most challenged region for architectural in Europe, we've gotten price 39 straight quarters. I don't see us breaking that streak. And of course, our position, our strength in Mexico, will capture price there. So you'll see price there.

Refinish, aerospace, to a lesser degree, PMC. So those two segments will definitely have a positive price. Now in Industrial segment, I would call it flat-ish, but we do have two slight negatives. We still do have a little bit of index pricing carryover and automotive -- frankly, in automotive in China, we see some low single-digit price declines, frankly, that are offset by lower raw materials than we expected in China. But all in, you'll see performance and architectural offset a little bit of decline in industrial.

Volume-wise, we're on a pretty good trend you'll continue to see volume growth in aerospace, PMC, packaging, modest volume growth in architectural. You'll see volume growth in auto OEM. Frankly, we've had second 2 quarters in a row of being market there, and we're optimistic about doing that throughout 2026. And that's driven by share gains.

And then as we move through the year, I think you'll start to see some more in general industrial, where some of the share gain wins that we've had will actually come to launch. So thank you for the question, Aleksey.

Your next question comes from the line of Kevin McCarthy with Vertical Research Partners.

Tim, it was nice to see you finish up the year at plus 3% on organic sales growth. If I look at the EBITDA line, though, it was relatively flat. And so I was wondering if you could walk us through your thoughts on operating leverage. It seems though as though raw materials are pretty benign and you've been taking costs out of the company as per your restructuring. And so maybe why did EBITDA not grow more in the quarter? And more importantly, how do you see that trending as 2026 progresses?

Kevin, there's several contributors, but the one that, by far, drives that math is the refinish destocking. As you know, that refinishes one of our higher-margin businesses. So when it's down, you've got destocking, I think we were down double digits in Q3, high single digits in Q4. That just -- it overwhelms the positivity of the other businesses' organic growth just given its margin profile.

So what we -- what you should expect to see there, unfortunately, you'll see some of that in Q1 and Q2. I think you'll see it sequentially get better as the other businesses kick it in more and more pricing kicks in, more of our cost out and productivity kick in. But really where you'll see that flip is once we get back to the normal buying patterns, which will be the second half of the year.

Yes, Kevin, let me -- this is Vince. Just let me remind everybody, our segment earnings did grow in the fourth quarter. So they were up about $20 million year-over-year.

Your next question comes from the line of Vincent Andrews with Morgan Stanley.

I wanted to dig in a little bit more on Refinish. If I think of some of the metrics that have been discussed over the last couple of calls, I think third quarter claims were down mid-single digits, but 4Q claims are back down high singles. So you noted, Tim, that December was only down 2%. And I believe in the answer to Kevin's question, you're still anticipating the sort of second half recovery and normalization of customer shipments. So could you just help us tie all that together with sort of the latest update and what you're hearing from customers as well as not just -- and how you're interpreting all that claims data.

Yes. Thanks, Vincent. And if you don't mind, I'm going to take a rather holistic answer here, try to answer all the refinish questions here. So I want to make sure really plan to get to everything in the portfolio here. So I'm going to answer maybe your question and more when it comes to refinish.

So the headline I'd say is there's nothing that indicates a huge change for us versus what we told you at the end of Q3 relative to the industry and to our trajectory.

However, we are seeing what I would call some reinforcing green shoots as we moved through the quarter, okay? So we still -- we're still very confident in our best-in-class productivity solutions to grow share, and that's happening. We have market share momentum, and that's happening largely in the U.S. but also across Europe.

This is and will be a very good business for PPG as we work through this transitory kind of period, just given the strength of our position versus others.

I will also add that there is clearly industry anxiety out there, partly driven by the pressure that body shops have been on for the last 18 months. but also driven by consolidation, divestitures in this industry and what all of those anxieties play to our strength, one, because of the strength of our productivity offering, but second, because of the certainty of continuity that we provide.

Insurance rate spikes were really the key driver to the disproportionate drop in claims over the last 1.5 years or so, okay? And that led to -- or leading to multi-quarter destocking in our channel. I mentioned last time, how it ties to our rebate structure, et cetera. And we said at the last quarter, we expect normalization of buying patterns from our distributors in the second half of 2026.

And normal, I'll remind everybody would be kind of low single-digit claims down. And that's very good. Normal is very good for PPG because our track record for decade shows that at that kind of level, we can put up record after record because of the strength of our offering.

Now if you look at our guide, I'll remind you to everybody that we had a very strong first half of 2025 combined with a pretty weak second half of 2025. So when you combine that with what we're saying now, which is, okay, destocking for 2 quarters, sales volume and EBIT growth in Q3, that really explains a lot of the EPS difference between the first half of the year and the second half of the year. So that's kind of the fundamentals.

Now updates everything we're seeing and hearing from our customers since we last spoke, is playing out as expected. Distributors are destocking as we expected. Body shops are starting to see beginning signs of normalization as we expected, and thus, we reinforced our guide today. the few points of reinforcement and green shoots because of two things: strength of our productivity offering and the anxieties in the marketplace that I mentioned we're winning a lot of share. We saw -- you saw one public announcement yesterday. There's a lot of other ones happening that are not publicly announced, and there are more to come.

Second, insurance premiums are normalizing, okay? So kind of the catalyst for this whole cycle is beginning to normalize. We continue to reinforce the strength of our productivity offering. Two things we did just this quarter, we launched the next chapter of digital tools for the body shops, Beyond Moonwalk, Beyond Link, Beyond Visualized, we launched a new digital tool called Mix & Shake, which drives further body shop productivity savings, and that's being well received. And we also launched our first AI formulated product and Refinish to, again, to help body shops be more productive.

So the industry is playing out as we expected. We're winning share with our solutions, it reinforces our guide to see destocking in the first half normalized order pattern in the second half.

Two other things that happened, notably in December, you did see the minus 2% claims one data point. I get that, but you got to start somewhere. So let's watch that closely as we move through the first half of '26.

And we did start to see what we call fill-in orders from our distributors, okay? So this multi-quarter destocking, you can only destock so far before you've got to supply the body shops. And that's when you start seeing fill-in orders. And we did start to see those in December. So another reinforcing side.

So all that added up. We expect a muted first half for continued destocking, second half return to sales and EBIT growth or finish in a more normalized distributor buying pattern. So just one other thing, more for the segment and to speak to the strength of our portfolio despite a challenging back half of the year, in one of our best margin businesses.

The Performance Coatings segment still put up a record sales year and record earnings here for the full year in '25. So the strength of our portfolio just really comes through there when things like PMC aerospace and traffic can offset this transitory period refinish. So Hope I answered your question more on refinish, it's playing out as we expected and obviously, more data points to come as we move through Q1 and Q2.

Your next question comes from the line of David Begleiter with Deutsche Bank. .

Tim, on aerospace. Can you tell us what the growth -- the sales growth was in 2025? And are you at all capacity constrained in '26 ahead of the new supply capacity coming on next year?

Yes. Thanks, David. The growth rate for 2025 was double digit. By the way, it was double digit in '24 as well. So we expect continued growth. You're starting to lap double-digit on top of double digit denominators are getting bigger. By the way, this business is almost the same size as refinish now. So the denominator is getting bigger and bigger as you start lapping multiple double digits. So we're guiding high single digits for 2026, I think, for aerospace.

We are capacity constrained. No doubt about it. We -- that's why our CapEx has been above our historical norm for the last couple of years. Round numbers, I approved about $120 million of CapEx last year that I would call incremental aerospace debottlenecking CapEx expansion.

We've also brought in a number of consultants to help us just with debottlenecking on the expense side, and that's why you see some of the margin challenges that I think Kevin asked about. And in addition to that $120 million or so, we announced $380 million new factory. That will take about 2 years to bring online for the sealants and coatings side of the business. And we're working on some other capacity expansions. I can't get ahead of my board here, but we're not done.

This business will be growing likely for the rest of my career. And hopefully, that's longer than Mr. Morales' career here. But -- so we see that coming for -- as far as our forecasts go.

Your next question comes from the line of John Roberts with Mizuho.

Congrats on a long career, Vince, and best wishes. Could you talk a little bit more about the depth of the AI reformulation activity going on. You launched the first product in refinish. And how broad is this across the industry? Is PPG have a differentiated position or the consultants sort of bringing AI to all the coatings companies?

Yes. John, we're super excited about this. There are things in AI that consultants are bringing to everybody. And I would say that's more kind of back office, customer service, the finance transaction processing. Those are things that are kind of table stakes that everybody is doing.

Formulation AI. This is internally developed, working with a few partners but is organically internally developed, and we believe it's a differentiator. Now I'm guessing our competitors are out there trying to work on it and catch up, but we believe we're definitely out front here.

And we've launched commercialized a refinish clear code that optimizes performance of the end coding as well as productivity in the body shop for our customers. We launched that as a first product fully developed using AI. But it's not based on anything public. It's based on scraping all of our internal formulations that we've developed over 100 years and optimizing. So that is commercialized.

Beyond that, we've launched another 50 products already where they were existing products in the marketplace that we've used AI to optimize both from a product performance standpoint and a cost to PPG standpoint, 50 products already since we made that first announced.

Going forward, we'll continue to both optimize existing formulations, but we've got development projects like we did in Refinish across virtually all of our businesses. So more to come there. And hope you hear a little kick in my step on this one, John, because I'm pretty excited not only about where we are, but where we're going.

John, this is Vince. Let me add a little here. The precursor to this was really the scraping of the data that Tim described. So we were fortunate a couple of years ago. We digitized a lot of our data, so that we think that puts us in a -- maybe the pull position, certainly in the front row in the industry because of that activity was very time-consuming and we did it a couple of years ago that allowed us to now take advantage of that digitized deal.

Your next question comes from the line of John McNulty with BMO Capital Markets.

So Tim, over the last couple of years, you've dialed back investment in inorganic growth. You've really focused internally. And it seems like it's delivered. You've gotten share gains like you were saying from technology, from service the whole nine yards. And it seems like you're able to outpace your markets right now. I guess, as we look forward, just given the strength of the balance sheet, the strength of the cash flows, is that still pretty much the main focus where, look, inorganic growth really isn't necessary for PPG going forward, and you keep focusing on the internal opportunities. Or have you played a lot of that out, and now that you're in a stronger position, do you start looking maybe a little bit more aggressively at acquisitions? I guess, how should we be thinking about that?

So John, great question. So -- they're both important to us. But the tip of the spear, as I always say, continues to be building this organic growth and margin engine because I believe, in many, if not most of the cases, we can deliver better shareholder returns by making those investments in organic growth, organic productivity, organic cost out, et cetera.

Now we still will do acquisitions, either bolt-ons or some day transformational. We still believe that the industry needs some consolidation, and we're supporters of that. We still believe there are acquisitions that will add value to PPG's customers and shareholders that can be tuck-ins from a technology standpoint or reinforce our position somewhere.

But I would say that it's organic first. We still look at every opportunity. We put it through a filter of is it the right asset that's consistent with our enterprise growth strategy where it gives us a strong #1 or #2 or reinforces the strong #1 or #2. Is it the right ask? Is it the right time given everything else that we have going on so that we can ensure that we can not fall back in a trap where we had built this excellent inorganic muscle, but not an excellent organic muscle. So is it the right time that we can still do both, if you will?

And most importantly, is it the right price? Especially given where our depressed undervalued stock prices, when you do the mathematics and say, well, okay, it's organic first and on some of these inorganics, man, I'm better off buying shares. So I want to make sure everybody recognizes that all of those are on the table, organic investment, inorganic investment, share repos but we run them through this filter to make sure that all of our decisions are maximizing shareholder value.

Your next question comes from the line of Matthew DeYoe with Bank of America.

I'd also echo John's comments, congrats on the career and the retirement. I wanted to walk through some of the corporate cost inflation and bucket some of the stuff out across potential sources. I mean you're not the only coatings company to talk about health care inflation, and I get that. But where is that coming in? And kind of related, does it make sense to align compensation fully to organic growth if there isn't commensurate EBIT accretion because it's helping the top line, but it also seems to exacerbate the headwinds from some of the other unabsorbed fixed costs.

Yes. Matt, I'll take this first, and I'll let my short-timer CFO here, take it from there. The leading answer here is medical claims in Q4, and Vince will explain it, we're a pay-as-you-go company, they exceeded our expectations.

The second piece is incentive comp now remember, some of that is a year-over-year comp issue, right? Because we were drawing down our incentive comp accruals in Q4 of last year because of overall performance. And in this year, we were -- we had done the same, but then we came in stronger in Q4, much stronger in Q4 on two of our three metrics that guide our incentive payout or short-term incentive payout. But it's an important point, the short term versus long term. I'll get to that in a second.

So our short-term incentives are based on three metrics: organic growth, EPS growth and cash, cash flow. So on two of those three, we finished better than expected, so that increases the payout. But a lot of that all came in Q4, so we had to catch up for the full year, right? So when you compare that to last year's comp, it looks like a big number.

I want to reinforce that we are not overpaying our sales or our team because the total payout is still less than target.

Now another point to your point about kind of how do you balance all these different metrics. If you look at the grand total compensation for our executives, including myself, the TSR payout, which is an important factor, if you look through our proxy, that is not paying out. We have not performed that.

The other one is on our restricted shares. We did not meet our EPS growth for that payout. So some of our longer-term payouts for the year will be significantly below target but that kind of just explains how and why you see that delta in the Q4.

Yes, Matt, I'll just add a good summary by Tim. The prior year, again, we lowered our incentive comp as we ended the year rather than we expected when we came into the Q4 this year, strong fourth quarter organic growth exceeded a strong cash flow, especially the latter part of December in receivables, welcomed. And our cash from ops was $500 million higher than the prior year. As Tim mentioned, we did not hit our EPS target. So we are not getting a target payout for that.

Flipping back to the medical. We are a company that's pay you go as I talk to my peers in the industry, we do see folks, we think pulling some medical expenses into 2025 ahead of some potential inflation in 2026. So our medical costs year-over-year were up significantly in Q4 and particularly in December. So hopefully, that answers some of the questions you had on corporate expenses.

Your next question comes from the line of Michael Sison with Wells Fargo.

A couple of quick questions. On Architectural EMI, that's a business that has struggled to grow. I mean, end markets, I understand. But why is that a good business for you all to keep longer term? And maybe what's the growth algorithm there? And maybe similar on Industrial Coatings. Again, I understand end markets have been tough, but how do you see those two businesses grow longer term? And then -- and just curious if Vince is going to take the browns coaching job because I don't think anybody else wants it.

Let me answer that question first, Mike. I think that's a hopeless job. So I'm trying to retire, not going to hopeless job.

I think he's already declined in officially, too. So Mike, the two answers to the two businesses you asked about are very different. One is an ongoing macro issue, and that's architectural Europe. The other one is really kind of a tariff and time stamped issue, and that's general industrial.

But let me talk about architectural Europe it's been a depressed volume market for years, as has much of the European economy. 2 years ago, I guess, 3 years go down, 2023, which was depressed, we generated record earnings and record cash that goes all the way back to 2008. So even in depressed markets, we can generate good earnings and good cash, and we don't spend that cash within the business. We use that cash to supplement what we're trying to do in some of our higher growth businesses.

What's happened these last couple of years is the volume decline has been pretty pronounced. At this point last year, one of the things we missed, frankly, was we were projecting some upside in the market. We are not projecting upside in the market this year. We're saying flat, flattish for the whole year. But we're not waiting. We're not sitting around waiting for this macro to improve. It still makes good money for us. But with the actions we've started to take and will take throughout the year, we'll see margin expansion cash generation expansion out of this business as we move through 2026.

So it's not our best growth business certainly but it can deliver has delivered good earnings, good cash in a challenging macro.

Yes. Before Tim goes on to Industrial, Mike, I just want to remind everybody that this is a maintenance cycle business, we did have significant growth during COVID sort of 2020, 2021. So the maintenance cycle clock reset. Typically, this is a 5- to 6-year maintenance window. So we're now getting to that fifth year where repaint typically would occur. So some of the volume declines in the past couple of years really have been because we pulled forward maintenance into those COVID years.

In Industrial, very different. It's a bit more cyclical than probably our most cyclical business is auto. Second most will probably be our general industrial because you're essentially painting big hunks of metal that get moved around the world. And so with the tariff uncertainty and what that's done, the confidence of some of our customers, that's been dialed back. And then what's that done from consumer affordability. So some of those folks are struggling. But we do see sequential improvement in this business.

What's interesting is we see really good sequential improvement in places like Europe, in Latin America, largely driven by share gain, we see sequential improvement in things like heavy-duty equipment, not ag-related but construction related. We see some sequential improvements in transportation and powder and in a broad category of general finishes, but we still see challenges in the U.S. market, and we still see challenges in a small part of what we do in China is exported to the U.S., about 10% of what we do in China and think electronics and kitchen and bakeware, those kind of things remain depressed a bit.

So the industrial story is more of a timing one, and we are starting to see green shoots. We are starting to win share, and we'll start to launch those share wins as we move through 2026.

Your next question comes from the line of Jeff Zekauskas with JPMorgan.

Your Performance Coatings revenue expectation for 2026 is flat to up low single digits. And in that segment, you've got aerospace and you've got auto refinish. If aerospace grows at a high single-digit rate in order to meet that guidance, refinish has to contract at a high single-digit rate or a mid- to high single-digit rate. Is that the correct conclusion to draw? And for Vince, how many shares did you buyback this quarter and what did you spend?

Jeff, I'll take the first one. I don't think we're seeing that much of a decline more like low to mid low to mid for refinish in the first half. If you think sequentially, what did we see in Q3, Q4, we saw double digit, then we saw high single-digit. So I'd say you ought to say that slow continued towards normalization as we move as we move through the quarter.

Remember, I mean, traffic is quite small there, but we also have a nice PMC business in there that's not small that will contribute to some of the grand total of what we guided to for the year.

Yes, Jeff, for us, from a share repurchase perspective, we bought just under 980,000 shares at an average price of about $102 and we spent, as we said in the press release, around $100 million in the fourth quarter.

Your next question comes from the line of Ghansham Panjabi with Robert W. Baird.

Thanks, Vince, congrats from our team as well. I wish you the best in retirement. [indiscernible] one on raw materials -- sorry?

I'm still here until July, but thank you.

Yes. I understand. Just an early congratulations. On the raw material side, as it relates to guidance, can you just give us a bit more color as to the constituents as you think about some of the major ones that [ TiO2 ], Petros, et cetera. It looks like you're guiding flat for the year and also flat for the first quarter, but some of the spot markets were weaker in the fourth -- from the fourth quarter of 2025. So just curious as to which categories may be inflating as well.

Yes. So far as Ghansham and a public service announcement for everybody, this is not Vince's last earnings call, and I don't want Vince to think in his last earnings call. He still has six more months of work to do here. So -- but thank you for the kind words. And we'll have lots of kind of words as we get closer to his actual date.

But Ghansham, high level, it's still a very favorable to us supply demand balance. So across the board, that generally means good pricing for us. But what offsets that a couple of things. I put them in three categories. Epoxies are up a bit because of tariffs, right? And that's included in our guide. And that obviously affects more of the industrial businesses. So it doesn't affect Deco companies because most Deco products do not have epoxy. So when you compare to what others might say, the epoxy is one.

The second one is pigments, but let's not put [ TiO2 ] in that. I'd say more of the specialty pigments. We are seeing some inflation there driven by tariffs because those things come from all over the world, okay?

And the other category that's up is metal packaging and everybody knows what's happening on the aluminum and steel tariffs. Those are really the only categories that I can think of that are up in our guide. [ TiO2 ] is still pretty soft. Just given the supply demand, we've been doing some supplier consolidation. We've been working volume commitment deals for pricing. So that one is still pretty soft. You know what oil is doing. So that drives solvents to be. And then across the board, everything else is still in a very long situation. Add it all together, and we come up with flat for Q1, flat for the year.

Yes. And I'll just remind everybody what we said at the outset, we do have targeted pricing that we instituted it in the back half of 2025, where we'll institute in 2026, including in Q1. So we do expect higher pricing for 2026.

Your next question comes from the line of Josh Spector with UBS.

I just wanted to ask on Mexico. I don't know if there's a way you can maybe index your volumes from where you are today in fourth quarter versus a year ago? Because obviously, there's some easy comps in first half with all the Liberation Day disruptions. But it seems like the fourth quarter performance might say you're even above where you were coming into last year. So can you help us square that away a little bit, it would be helpful.

Yes. Let me give a high level and then I'll let Vince give the details because he's doing the math in his head here. So we definitely finished pretty strong in Mexico. And if you look kind of sequentially at how we move through the year, we're down, call it, mid-single digits in Q1, up low single digits Q2, up mid-single digits Q3, up high single digits Q4. And where that puts us relative to year-end '24, I'll give that to Vince.

Yes, Josh. If you look at the fourth quarter as a stand-alone basis. And again, there's two parts of our Mexican business, there's the retail or consumer segments. There's also the project segment. The retail segment has continued to grow. The project segment is the one that had contracted the most in the first half of the year. Fourth quarter over fourth quarter just on the volume basis. We're right around mid-single digits higher. And again, some of that's recovery. And we expect, again, in the first quarter, good volume based on an easier comp.

Your next question comes from the line of Laurent Favre with BNP.

I want to go back to the, I guess, M&A discussion. I understand what you're saying on buybacks versus M&A. But there are some pretty obvious situations with assets coming out or potentially coming out of the recent announcements in Germany, Amsterdam and [ Philip ]. Now I think it's unlikely that we'll have any clarity before the second half of 2027. So am I right to assume that this might be a very quiet year for buybacks as you wait to get clarity on what's happening on those situations.

No. I wouldn't say that, Laurent. I would say, look, our balance sheet is strong enough that we've got optionality if something gets spit out of either of those two deals and if it makes sense to us at the right price, we've got optionality to do something there in 2027 and without it impacting our ability to do buybacks in 2026. We're -- I think we're on 9 straight quarters of buybacks now. And we run a play, Vince, myself, our Treasurer and our corporate development guys sit down every quarter and say, what's the pipeline look like? What's cash flow look like? And we make a decision on buybacks.

And we'll continue to do that because even if we make a buyback and then all of a sudden, I get a phone call saying, hey, there's something on the table here from one of these deals that's being spun out I'm not worried about my ability to do both.

Your next question comes from the line of Frank Mitsch with Fermium Research, LLC.

Thank you Tim, I hope you can understand some of the confusion we have regarding Vince's retirement date. Since many of us had already assumed that he was. So I appreciate your clarification there. I want to drill into a little bit about the first quarter here. In the script, I don't want to make too big a deal about it, but in the script, you described the first half as being low single-digit EPS growth. And in your comments this morning, you talked about it being flat to low single digits in the first half of the year.

Obviously, you didn't provide any 1Q guidance. Can you just speak to your expectations in terms of 1Q? I mean, I guess, flat down modestly up. All that's in the case as we sit here in late January?

Yes. Frank, by the way, I made that clarification not only for you, but I made that [indiscernible] fixed so -- and I will publicly acknowledged that you were right a year ago that Aaron Rogers would be better with us than anything he could do with the jet. So we'll leave that out there.

So look, here's the easiest way to say it. We're going to ramp up in our EPS growth. I said flat to low single digits for the first half. So I would interpret that as flattish for Q1, low single digit-ish for Q2 and then stronger in the second half of the year.

Your next question comes from the line of Mike Harrison with Seaport Research Partners.

In response to one of the first questions you were asked on this call about organic growth and kind of what was running ahead of expectation. I was surprised to hear a specifically mentioned China, it sounds like a little bit specifically was ahead of expectation can you talk about what you're seeing in China thinking. What are you as we're kind of in a new year in a recovery for most new year.

Yes. Mike, I'm glad you asked that question because I want to clarify, I was responding by business, by vertical, not as much by geography. So I appreciate the opportunity to do that.

Despite all the headlines, we're growing in China. We grew in Q4 in China and will grow in 2026 in China. It's because we have a strong position of local-for-local businesses, we're well positioned in the kind of the right industries. But more broadly, Asia Pacific is very strong for us because India is doing great for us. parts of Southeast Asia are doing great for us.

So if you look at specifically China going forward, we'll see low single digits kind of growth, maybe mid-single digits kind of growth in 2026. So it's not the growth of a decade ago, but it's also not the gloom and doom that you see, at least for our portfolio because we're in the right places with the right kind of offering for the customers.

If you move to India, India has delivered double-digit growth for us throughout most of 2025. We expect that to continue into 2026. So part of that overall Asia Pacific story is China still putting up growth numbers, India contributing with double-digit growth numbers.

Your next question comes from the line of Eric Boyes from Evercore.

My question is question back to Aero. I appreciate the intra-business mix breakdown as Aero becomes a bigger percentage of the segment from a profitability and margin standpoint, how would you rank order Aero coatings transparencies and sealants. And then maybe also on customer mix, military versus G&A and commercial? And then I think you mentioned the OEM tailwinds, but how do you see the product mix for transparencies and sealants evolving in '26 and beyond?

Eric, this is Vince. As we've never done, we don't give our inter business profitability by product or by end market. As Tim said in his opening remarks, or in one of the Q&A questions, it's certainly one of our better performing businesses due to the technology and specification requirements. So -- but we're not going to give product-specific profitability.

Yes. And as far as some of your other questions, mix of OEM, military and general aviation. I think we provided that pie chart and the gross rates among those three are very similar, which helps the portfolio.

And to Vince's point, look, we're giving more detail on aerospace because we don't believe it's fully understood because we have a competitor that has a very -- I'll give them crops. They've got a very good aerospace coatings business. This is much more than that. And as I said in my opening comments, coatings is actually the minority of our total profile here.

So I don't know if I've addressed all your questions. I know you're particularly interested here because I believe you're a pilot or Air Force pilot. So be happy to show you how we make F-35 canopy someday or F-16 canopies not sure which bird you flew.

Yes. And if you look, again, by end market, we do sell to OEM. We sell to military and general aviation. All those markets right now are sold out. All the products we have are sold out, hence, the capital increase we've had the last couple of years. Also the operating expense increases we have folks trying to debottleneck our existing operations. These operations are specified and qualified. So they do require significant handholding as we change the processes.

Yes. And one more point and then we can go on, but it's also significant R&D in this business. That's why we're able to command a better margin, better than rest of -- or better than many parts of our portfolio. because of the significant long-cycle R&D investment that it takes to win in this space.

Your next question comes from the line of James Hooper with Bernstein.

My question is on auto OEM and the share gains there. Can you unpack a few more of the drivers for us, please? Is this to do with kind of your positioning in China? Or is it to do with your customers gaining share of the auto OEM market? And can you give us a little update about some of the technology offering there? Is that a driver of share gains?

Yes. Thank you, James. It's a little bit of all of those. I mentioned there is some element of customer mix there where one of our customers where we have a fairly large share wallet at a rough couple of years, they're recovering now, and that helps us to some degree. But most of what we're winning on, we've been introducing lower cure products. We've got a new electric code product out there that is -- brings more productivity and some sustainability benefits to our customers.

We've been doing very well with automotive parts in that business. We've been doing well with a particular large EV manufacturer based in China who despite some headlines of what's happening to the EV market is doing very well, both domestically and export, not to the U.S., obviously, but to many other countries. So it's a combination of some customer mix, some new technology wins, and some, as [ Alicia ], who runs a business for us, calls it targeting the win with the winners, partnering with those that are going to win in the marketplace and developing and bringing them their best value proposition and then growing with them.

Yes. As we said all year, we did pick up some significant share in South America as one of our competitors exited the market. We've realized the full quarterly benefit of that in Q4. We had some benefit in Q3, full quarterly benefit in Q4. That will carry over into the first half of 2026.

We've also got, as I said in my opening remarks, in addition to the carryover there's another significant double-digit millions share wins that will launch throughout 2026 that we won in late 2025.

Your next question comes from the line of Patrick Cunningham with Citigroup.

Just a quick one on Protective & Marine. You seem to call out normalization to industry growth rates -- it seems like you still have some nice marine products that are ramping up. So are there any share losses offsetting in 2026? And what would you expect the overall industry growth rate to be across the platform?

Yes. Patrick, this is Vince. Just really two factors there. Tim mentioned 11 consecutive quarters of volume growth, organic growth, that's compounding. So we're running up against some very difficult comparables. This is a project-oriented business. So as projects roll off, we have to win new projects. So those are two of the factors. We do feel good about our technology, as you mentioned, that's going to continue to allow us to carry the day.

And you specifically mentioned Marine. Marine is a particular area of strength for us right now. We've been disproportionately winning in aftermarket, dry docks because of our Sigma glide technology. This year, we've also been disproportionately winning in Asia newbuilds. So Marine continues to be a real strength for us as well. Then on the prospective side, some of our specialty fireproofing products.

Your next question comes from the line of Arun Viswanathan with RBC Capital Markets.

Congrats on the impending retirement, Vince. Great, great work with you over the last several years. So I guess, first off, I just wanted to dig back into the operating leverage and corporate expense question. So it looks like you're guiding to about 4% EPS growth. If I back into it, it looks like about 3% EBITDA growth and as you show on the slide, flat to low single digit up organic growth.

So I think you mentioned price would be slightly positive, so that would kind of imply flattish to maybe even slightly down volumes. Is that correct?

And then I guess, as a follow-on, is it really that volume number that we need to see go higher that would drive the operating leverage or are the corporate expenses going to be structurally higher and kind of mute that in the foreseeable future? How do we kind of get to the point where you do see kind of a lot of the fruits of your labor paying off and you see that actual EPS growth come through.

Yes. Thanks, Arun. I'll take it first end Vince will fill in the details. First, we're not seeing structural change in our corporate expense going on, right? That's going forward. Vince will explain that. The biggest issue with our lack of leverage with the volume growth that we're getting today is first, second and third, the refinish destocking because it's just such a strong margin for us than a lot of the other gains until that stabilizes, and you'll see it in the second half of the year as normalization happens there. But that's like kind of #1, #2 and #3 is the reasons why you're not seeing more leverage.

We'll continue to gain incremental volume going forward, and that will bring incremental leverage. Pricing will bring incremental leverage. We've got the cost outs, which will continue, bringing incremental leverage. In the second half of 2025, all those happened, but they got overshadowed by two things. One, the refinish destocking and two, corporate and interest. So with that, let me throw it to Vince and fill in the details.

Yes, But, if you look at 2026, versus 2025, a couple -- the segments are going to grow mid-single digits or higher in aggregate in terms of segment earnings. We do have higher interest costs like most companies. We have some very low-cost debt rolling off. We had three maturities, two maturities in 2025 roll off. We have another maturity in early '26 roll off. We're replacing that in kind in absolute dollars, but not at the same interest rate. So unfortunately, our interest costs are higher in '26 versus '25.

In addition, and most companies are also seeing this, we're seeing a slight increase in our tax rate, and that's driven around on a variety of different factors, especially in different jurisdictions. So those two items are a bit of a detractor but the segment results, we are seeing growth year-over-year in 2026.

Your next question comes from the line of Laurence Alexander with Jefferies LLC.

Just two quick ones. First, on the AI investments, given it's you're leveraging internal projects, do you have enough data to see what your paybacks are like on incremental investments?

And secondly, on the share gains in industrial, do you expect those to be pro or contracyclical? If demand accelerates, you expect the rate of share gain to accelerate?

Yes. Yes, Lawrence. Let me take both and Vince can fill in anything the AI. So first of all, it's still early days, right? We are -- yes, part of our increase in operating expense and capital expense is because of the AI. We've got a few runs on the board that have delivered millions to the bottom line, not yet material to the company, but very favorable early indicators relative to the investments that we made that this will be a very good ROI for us as we go forward.

And you consider the fact that we've only "optimized 50 formulas" that are commercialized so far, and we've only launched one that was AI developed so far. And if you look at the size of our pipeline, the materiality is yet to come. But even today, we are booking savings to the bottom line with what's already been launched. So very confident in the ROI going forward.

Yes. On the industrial side, Laurence, we would expect our share gains to be additive if there's a cyclical recovery here. As Tim mentioned earlier, this is one of our early warning businesses, both up and down kind of the canary in the coal mine. We have seen in the past and expect some point green shoots in this business. And then with our share gains in technology, offerings on top of that would expect it to be additive.

There are no further questions at this time. I will now turn the call back over to Alex Lopez.

Thank you, Warren. We appreciate your interest and confidence in PPG. This concludes our fourth quarter earnings call.

This concludes today's conference call. This now disconnect.

Good morning. My name is Carlin, I'll be your conference operator today. At this time, I would like to welcome everyone to the third quarter of PPG Earnings Conference Call. [Operator Instructions] I'd now like to turn the call over to our host, Alex Lopez, Director of Investor Relations. Please go ahead, sir.

Thank you, Carlin, and good morning, everyone. This is Alex Lopez. We appreciate your continued interest in PPG and welcome you to our third 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, 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 the potential effect on PPG'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 financial measures to the most directly comparable GAAP financial measures. For additional information, please PPG's filings with the SEC.

Now let me introduce PPG Chairman and CEO, Tim Knavish.

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 Coatings segments once again outpaced industry demand reflecting benefits from share gains in both packaging coatings and automotive OEM tunings. Several of our businesses in the Performance Coatings segment over 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 Coatings 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 remained lower in the quarter this business has now delivered price growth consistently every quarter over the last 9 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 Coatings segment delivered record net sales with a 2% increase in organic sales. Within the segment, Aerospace delivered double-digit percentage organic sales growth with record le quarter sales and earnings. Customer order backlog 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 land, 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 glamor 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 refinish 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 tenth consecutive quarter of year-over-year volume growth with double-digit percentage organic growth in the quarter. Given this strong insistent 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 proposition.

Segment EBITDA margin decreased driven by lower automotive refinish coatings sales volumes and the higher growth-related investment spending in aerospace coatings and protective and marine coatings partially offset by higher selling prices. Our Performance Coatings 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 1/3 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 of a mid- to high single-digit percentage over the next 3 years. For PPG, this is a business that is equally weighted to OEM and aftermarket, with margins that are accretive to the overall reporting segment. We've experienced significant OEM growth and customers have recently increased their build 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 expecting in the future, we are increasing our investments in this business. This includes near-term OpEx investments in '25 and into '26 million to further debottleneck 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 $0.5 billion and are being completed in order to capitalize on the significant multiyear 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 Coatings segment. Third quarter sales volumes increased 4% outpacing industry demand as we realize 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 coatings sales volumes declined a low single-digit percentage as growth in Asia Pacific and share gains were offset by lower demand in the U.S. 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 and 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 Coatings segment, driven by our technology advantage products in aerospace and protective and marine coatings which will be offset by lower automotive refinish sales based on customer order patterns. We expect the 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 coatings 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 Coatings segment, the share gains in automotive OEM, packaging and industrial coatings 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 Coatings and Industrial Coatings segments. This will be offset by lower earnings in our Performance Coatings 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 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 midterm.

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.

[Operator Instructions] Our first question comes from John McNulty from BMO.

Tim, you posted some pretty solid growth across the bulk of the platforms. I think 6 of the 9 businesses were mid-single digits or better. So I guess one does stand out, which is the refinish business, which really seemed to be a trouble spot, it seems like it was kind of mid- to high teens decline. So I guess can you speak to why that hit is maybe quite as hard as it was, how you're thinking about the potential for that business to recover and the timing for that?

Yes. Sure, John. Look, let me talk about refinish, right? First of all, I'm confident in our best-in-class productivity solution that will continue to drive share gain. And that becomes important as I explained, kind of what's happening here. And we do have market share momentum in this business as we continue to introduce new productivity tools for our customers. Look, this is and will be a marquee business for PPG despite a transitory slump in collision claims. .

And the other thing I'll add is this kind of challenging environment in refinish for the next whatever number of quarters, which I'll talk about in a few minutes, plays to the strength of the stronger players, plays to the strength of those that bring the best productivity solutions because it's not just the coatings manufacturers, that's seen a slump in demand. It's the body shops, and the body shops need productivity to survive the journey. So we have a bit of a slump right now.

I'll also remind you, on a full year basis, our performance is outperforming the industry because of those productivity solutions that I just mentioned. So direct your question, here's what happened. We highlighted in July that we expected some destocking. The industry, not just PPG, the industry expected normalization of claims as we moved through the year. And the normalization of claims did not happen as early as expected. And so that's driven destocking further than what we expected as we move through the rest of the year. So what's happening out there, miles driven or still climbing, accident -- actually accident rates are okay. It's translating those accident rates in the collision claims that has been depressed or for some number of quarters now.

And that's largely driven by the insurance dynamic, affordability, availability of insurance that has kept some people from submitting claims for fear of losing their insurance or dramatic rate increases. If you look at the insurance rates from like 2022 to 2024, they were growing at about a 16% CAGR per year, right, 16% per year average. Now we have started to see that moderate in 2025 to about a 3% growth CAGR, which is normal, normal to be expected with inflation. So we're expecting that normalization of the insurance situation to drive normalization of collision claims going forward.

Now we'll have a couple -- we're expecting a couple more quarters of this normalization through the whole supply chain and collision network to flow through. From an industry standpoint, we're expecting that normalization to be seen in the middle of 2026. Now for us, we also have some destocking that will occur because of how our inventory -- or I'm sorry, how our distributors bought last year. But that's our expectation is normalization of the industry in the middle of 2026. Now normalization, I'll remind everybody, normalization is collision claims down low single digits, and that's been the case for more than a decade. And in normal situation, even with collision claims down low single digits, our finish -- our refinish business delivers record year after record year after record year of sales growth and earnings growth.

So again, it plays to our productivity, value proposition as we normalize. And right now, we're having a lot of discussions with several large potential customers that find our productivity value proposition even more attractive in these difficult times, because it resonates. It resonates with what they need to be successful in these challenging times, but also as the market normalizes. So tough market conditions played on our strength. Industry normalization happens in the middle of 2026. We are well positioned for that. And once industry normalization happens, we'll return to sales and earnings growth.

Our next question comes from Chris Parkinson from Wolfe Research.

When I take a step back and look at your business, I mean, the strategy is ultimately paying off. But at the same time, I mean, suffice to say, we're still in a very challenging macro. As the sell and the buy side kind of look out until 2026 and I look at your 3 new segments, what are the 1 or 2 things you think we should be all focusing on in terms of volume growth, subsegment market outperformance in terms of your end markets. new products, margin opportunities? Just how do you see the PPG story evolving if and when the macro, I'd say, eventually gets better over the next, hopefully, 12 to 24 months.

Yes. Chris, good to hear from you. Thanks. So I'll make -- '26, as you know, we normally give our guide in January, and we'll give numbers in January. But I'll make some high-level comments on how we're thinking about it right now to try and answer your question. And if I missed that thing, I'm sure Vince will fill it in. 2026, as always, there will be a lot of puts and takes. But I'll compare how we're viewing it today versus how we viewed it 3 to 6 months ago, some key factors, the macro, we're frankly not expecting much improvement in the macro with an exception. I'll talk about that in a minute.

So the macro maybe choppy, and it certainly has not recovered or gotten momentum that we or anyone else had expected to see at this point. It includes continued uncertainty with global trade, tempering somewhat, how businesses spend their money. And of course, as you know, we're tied closely to how our customers invest and spend on growth. Now specific to PPG, we see signs of several markets stabilizing in the middle of next year later than what we previously thought. You already heard me talk about refinish. So we do expect some carryover refinish volume challenges through the first half as that normalization doesn't -- in the industry doesn't really happen to the middle of '26.

And in addition, I remind everybody that we had a very strong first half of refinish sales in the first half of '25 as our distributor order patterns were very favorable as they were stocking up on inventory. So we do have that double effect of industry normalization happening in the middle of the year, plus the comp issue related to 2025 patterns. So look, a pretty muted industrial environment is our outlook for 2026 right now, Chris, with first half in particular, being difficult.

Now we're partly offsetting these headwinds with you mentioned, our increasing momentum in several of our businesses regarding organic growth, continuing our self-help cost reductions aggressive discretionary cost management. We do expect the raw material supply chain to continue to be very long supportive of coatings companies as we move through 2026 because of the benign macro that I just described. And of course, we'll continue to have cash, cash deployment. So I guess if I were to summarize, we've got several of our end markets that are in challenging market conditions. They're transitory, but they look worse and more extended than we thought as recently as a few months ago. And on the bright side, we continue to control everything we can control. And to your point earlier, we're winning. We have momentum. We're organically growing. We're taking share. We're getting cost out but all in, in 2006 look softer in the first half than what we envisioned earlier this year.

Our next question comes from Dave Begleiter from Deutsche Bank.

Tim, just on '25, can you talk to what drove the change in your full year guidance resulted in implied Q4 guidance coming in below consensus expectations?

Sure. Dave. Frankly, it's all refinished. The -- we did -- as I just described, I think it was in John's question, we were expecting industry normalization earlier. And then we had the double whammy of destocking as our distributors. We're also expecting industry normalization earlier. When that didn't happen, now they're focused on running their inventories down for year-end. So a little bit of a double whammy from refinish is really what caused us to lower our Q4 guidance.

Yes, Dave, this is Vince. If you look at more externally and we look at the claims data, which we get each month from the insurance industry, claims in the beginning of the year were down high single digits, in some cases, low double digits. Our latest claims data was down mid-single digits. So we do see that starting to improve, but still negative.

Our next question comes from Michael Sison from Wells Fargo.

Nice quarter. Just curious, maybe I'll pick it one of the other red arrows, architectural EME. What do you think needs to happen for that business to sort of turn around maybe sometime next year, maybe remind us the regions that is the most important for you and how that business gets back to growth?

Yes. Mike, thanks for the question. I thought you're going to ask me about the brown stealers this year, but we'll defer that for another day. But look, ACMA, first of all, I'll answer the last part of your question first. Our biggest markets are France, The Netherlands, U.K. and Poland, okay? Now beyond those kind of big 4, we're #1 in a total of like 12 to 15 countries over there, okay? But those are the ones that would move the needle the most. So what's happening, and we continue to see soft demand. I just got back from Europe, and it's consumer confidence driven, it's inflation, it's interest rate. It's the wars, there's just a lot of things. It's the energy situation in Europe.

So there's a lot of things holding back consumer confidence from construction and remodel standpoint. We have great brands. We have great products. We're getting price. You heard my quote earlier, 9 straight years, 36 straight quarters of increased pricing. So we're doing everything we can to control the controllables we're not waiting for things to recover over there. We are taking aggressive structural cost actions with the anticipation that plan, which we're getting close. We're very close to being flat year-over-year now.

Flat demand will be a really good situation for our business because of all the cost out and all the price in. So we'll get really, really good leverage as that thing -- I'm not going to say recovers as that thing stabilizes, and we are beginning to see those signs of stabilization. That will be great. and we're not waiting. Now we are seeing more recovery in the East right now. And again, on that side of the continent, we're #1 in Poland, we're #1 in Hungary. We're #1 in Romania. We're #1 in all of the Baltics. We're #1 across Scandinavia. So we're well positioned there as those start to recover. As soon as we see some stabilization in France, U.K., Netherlands, then you'll start to see that great leverage that we're expecting.

[Operator Instructions] Our next question comes from John Roberts from Mizuho.

Tim, I think BYD recently had its first down sales month in 2 years. How are you viewing the overall Chinese OEM vehicle outlook? And do you think anti-involution actions there are going to have any impact on the coatings industry?

John, yes, BYD did put up a quarter that for them was a bit disappointing. But the overall auto growth in China has been pretty strong all year, and we expect that to continue. And we're growing in China auto despite the challenges there. I do think -- I don't have insight into BYD's books, obviously, but I do think it is extremely competitive over there. And so perhaps that's driven a lot of their recent challenge but they continue to be the biggest winner.

We are working with and frankly selling to a lot of the other Chinese domestics. And it's win with the winners as Alicia, who runs that business for us, always says, picking the winners and making sure we're spread out nicely across a number of winners in the marketplace. So we don't expect the double-digit kind of growth rates of China auto that we saw in the past. But we do expect low to mid-single-digit growth there pretty consistently for the industry and for us.

Yes, John, this is Vince. I'll just add on, just to -- Tim mentioned this in the opening comments, but we approve the industry in China, but we got approved the industry in every other region as well. regarding anti-involution we don't see that as an issue, certainly in the short term or midterm. We think the chemical industry there remains long, and we think they'll continue to provide significant output to our industry even as other industries slow down. .

Our next question comes from Kevin McCarthy from VRP.

Tim, if I look at your Performance Coatings results, your sales actually grew year-over-year, notwithstanding the Refinish pressure that you articulated. And yet the operating income declined on a year-over-year basis, notwithstanding looks like a 4% contribution from price. So can you talk through that? Is that all to do with mix issues related to refinish? Or are there other items that you might call out that would explain that dynamic?

Kevin, thanks. I hope you're well. It's definitely part of it is mix. Refinish is an above segment let's say, nicely above segment average business. So when we take a pause in Refinish earnings growth and go to earnings reduction that drives some deleveraging from an EBITDA standpoint for the segment. But we are spending -- we are spending well above normal from both OpEx and CapEx in 2 businesses in that segment, aerospace and protective and marine because those 2 businesses have been consistently growing at double digit.

And we see a long runway for consistent growth capture. And so while that may hurt us in the short term, Kevin, I'm confident that it helps the company and our shareholders for the long term as we invest more to capture that growth.

Our next question comes from Duffy Fischer from Goldman Sachs.

Can I just follow up on that? So when you look at aerospace and protective and marine, you're trying to grow that business. what are their margins like today? Obviously, they're lower than the segment because Refinish is so high. But relative to, let's say, the company average, aerospace and protective and marine, where do their margins sit what do their incremental margins look like, let's say, over the next 2 to 3 years? And how much longer do you need to have kind of this plus up spending before you get to kind of a cruising altitude?

Duffy. So let me try to -- as you know, we don't give specific business margins, but let me frame it for you. So first of all, Performance Coatings segment, clearly our highest margin segment. That's public. We share that with you every quarter. Within that segment, I've always said Refinish is nicely above segment average. And I've already said, aerospace is nicely above segment average. And so that leads to other businesses, which must be below segment average with one of them being PMC, okay.

So that answers part of your question. I'll answer some more, and I'm sure Vince captured a few things. And how much longer do we need to spend more there I think, honestly, aerospace, it's a couple of years more because there's just such tremendous profitable growth to be captured there. Where I'd say PMC probably a little shorter where the investments are more incremental in PMC. The larger investments are in aerospace.

Yes, Day, Vince, I would add just to accentuate one of the things Tim said that this growth for our shareholders is important. But both of these businesses are mid- to long cycle businesses. So we do feel these investments, which are on the front end of this growth curve, will provide us benefit certainly in '26 and '27. Some of the investment aerospace, as Tim articulated earlier, our capital, some of them are OpEx.

The OpEx, we're going to continue to spend into 26 million. The capital will be longer, as Tim just mentioned. But we're trying to make sure we are well positioned on the front end of this growth curve that will benefit us for multiple years given the nature of these industries.

In every one of these investments, I can assure you, as IRRs significantly above our risk-adjusted WACC, so good investments for our long-term future and shareholders. .

[Operator Instructions] Our next question comes from Ghansham Panjabi from Baird.

Yes, thank you, operator. Good morning, everybody. Tim, can you just give us a bit more color on the operating environment in Mexico? I know for you, it's been sort of bifurcated between the retail component versus project activity. I'm just curious as to how you think about how that will evolve as we cycle into 2026.

Yes, Ghansham. Good to hear from you. So yes, Mexico, really important country, as you know. We're very pleased that we are seeing recovery there. going by memory here a bit, but that's been a consistent growth engine for us since we -- for 10 years, 11 years. And we took, I think, a dip, we were negative in Q2 -- or Q1, I mean, because even though Liberation Day wasn't until the beginning of the Mexico Canada tariffs were actually announced in February.

And literally overnight, we saw a dramatic reduction in spending by consumers and projects. So we were negative in Q1 and organic growth, which almost never happens for us in Mexico. We returned to positivity in Q2, low single digits. Q3 medium mid-single digits, and we feel good about -- we feel good about by Q4 as we see continued sequential recovery. So retail, in particular, has already come back and come back strong. And now on top of that, we're beginning to see some sequential improvement in the project spending because remember, a lot of these projects were already in flight.

And so they've got to be completed. And if you believe that a deal will be reached with Mexico then that's a huge accelerator to that project spending. So we do feel good that we're seeing recovery. And based on all of our networking in Mexico, we feel good that, that will return to what we all expect -- have come to expect from PPG Comex.

Our next question comes from Jeff Zekauskas from JPMorgan.

When I look at your aerospace capital expenditures going up more than $500 million, is the conclusion, that should be drawn is that your annual capital expenditures are going to stay around $700 million or $650 million over the next couple of years. And I know you don't forecast yet, but just order of magnitude.

And for Vince, it's a little hard to read some of the working capital changes that you've had, but it looks like cash flows from operations around $1.6 billion this year. Should they step up to closer to $2 billion in the out years because there isn't the same working capital drag? Or should it just move with that change in your EBITDA?

Yes. Jeff, good to hear from you. So aerospace CapEx, it will let's say, peak this year, '26 and '27. But overall CapEx, our mission is to get back to 3% of sales I think this year will be the peak of our CapEx spending, 2025. We'll go down a bit in 2026., a bit further in 2027 on a glide path to get back to that 3%. So this is really a temporary spike. And one of the -- honestly, Jeff, it's one of the reasons I called it out is because Previous to that, you were just seeing our total CapEx number, and everybody is like, why are you spending more.

We're spending more because one of our most profitable business has a tremendous multiyear, possibly decade growth trajectory that I believe it's in our company's best interest to invest and capture that growth. So I called that out, so you see it. but it doesn't change our long-term objective of about 3% of sales. And we do believe this is the peak and will start to trend down towards that.

On working capital, I know that's Vince's favorite subject, so I'll let him cover it. But one piece of it is, we did -- with all the tariff uncertainty at first, we did pre-buy a bunch of raw materials to capture it at a good price. That bought us time to work through other tariff mitigation actions so that we can control our inflation to that LSD number as we move through the year. We fully expect that, that inventory piece of it will normalize by year-end. And Vince, you can answer to that.

Yes, Jeff, good to hear from you. Again, just to echo what Tim said, we've had a step-up year-over-year this year. in working capital as we look at it as a percent of sales or DIO or whatever metric you want to use, that's a transitory step up. We would expect in the out years to get more leverage as most companies would on inventory. Inventory would be fairly stationary if our volumes grow. We don't need to have excess inventory storage at our plants as our volumes as we return to growth here. So I would expect our operating cash flow to grow at a faster clip than EBITDA in the future years.

Next question comes from Aziza Gazieva from Fermium Research.

You recently highlighted that epoxy resins have been inflating slightly. I was wondering if you could provide any outlook on that and maybe some of the puts and takes for the expectations for low single-digit inflation on raws.

Yes. is, I was going to ask Frank about how he's feeling about the fields for Roger swap that led to the Jet success, but maybe you can pass that question on for me. So epoxies were actually impacted prior to Trump, right? Last year, there were some antidumping and some tariffs on under the Biden administration. And so we already had that built into our contributors to the low single-digit inflation.

In fact, that's a differentiator between us and maybe companies that are more weighted towards architectural coatings because architectural coatings don't use epoxy but things like automotive, packaging, PMC, industrial, do use epoxy. So it's actually one of the key contributors. It's not a huge impact for us. And it's -- again, it's all built into our low single-digit guide for the year. And even as we look to next year, the supply/demand calculus is still very much in favor of us. And our purchasing team is finding that our upstream suppliers in many spaces, including Epoxy, are looking to do volume deals than price increases.

Yes, I'll just add on here working with our procurement team. One of the angles and we're working is if you recall during the supply chain crisis, most companies, including PPG, we expanded our supplier base to make sure we had a sure supply of many raw materials. Now that the supply chain crisis has passed, we are now in the process of contracting our supply base back to our prior weightings. So we're able to share more volume with fewer suppliers, which we also think will contribute next year to the raw material environment we're seeing today.

Our next question comes from James Hooper from Bernstein -- Societe Generale.

My question is about kind of a bigger picture question. It seems that a lot of the coatings players and your peers are all seeming calling out share gains. And this seems to be an increasingly competitive volume environment. So for example, if we take Refinish, you compared to the reported SSA so they gained share and grew mid-single digit. Are you seeing a more competitive in a volume environment? Or are you expecting more pressure across your businesses going forward in 2026?

Yes. James, I don't see any, what I would call, fundamental changes in the competitive structure within our businesses with 1 caveat, and that's China. China has more competitors. That's not a change. And so it's a more competitive environment. But specific to your point about refinish, I've said many times, there are -- there are 2 companies that kind of lead the pack with productivity solutions and we fight each other every day, and we win and sometimes lose to each other every day. .

But the bigger picture is that the companies that don't have as much of those productivity solutions are the net losers over time. And that becomes even more accentuated when the industry times are tough because, again, the body shops really need those industry players that have the productivity solutions. So am I surprised that one particular competitor gained share -- announced gainshare yesterday? Absolutely not. We are absolutely gaining share as well and quite confident, and we just introduced a couple of new -- we've been supplying digital as well as chemistry productivity solutions to our portfolio over finish to win even more share.

We just announced a couple of new ones this quarter. So as we continue to boost that value proposition, and I'm confident that we'll continue to gain share. And as I mentioned in my remarks, I think it maybe was to John's question, the first one. We're actively getting interest from some potential customers now that are fairly sizable and that we weren't previously because of the challenges in the industry and the value of our productivity solutions. So fundamentally we're seeing some fundamental change in the competitive dynamic out there, not really, but we are seeing increased pull for our value proposition.

James, this is Vince. Let me just add a comment there. I think we always measure the litmus test of the value proposition is if you're gaining share i.e., higher volume plus you have positive price. That shows you have a true value proposition. And I think when you look at our results, you'll see that across many of our businesses.

Plus, we get paid for those digital solutions in addition to the coatings that we sell. p.

Our next question comes from Patrick Cunningham from Citigroup.

Maybe a related question on share gains. So you've previously quantified some of the industrial share gains at $100 million. I guess, first, is that still tracking to plan? And how would you characterize your ability to price and the margin profile of some of this new auto OEM business or some of this new packaging business? Or is that not relevant?

Yes, Patrick, let me start here. I think what we've been talking about, and I know we've talked over the last couple of years, is volume plus volume leverage. And you can see that clearly in our Industrial segment results where we've had some volume growth, but significant leverage on the bottom line. And so our biggest earnings lever off that volume is that leverage we're getting on our fixed costs.

Yes. And to your question on the $100 million, I actually quoted that $100 million a year ago and all of that $100 million is -- is starting to flow through now. because most of those were launched or are being launched here in the second half of the year. None of that went away. But in addition to that, Patrick, we've been winning business throughout the year. And on these longer launch businesses, that's typically the case in industrial segment in packaging, in automotive and industrial you'll see more and more of those wins above and beyond the $100 million start to flow through.

Again, it won't, unfortunately, and particularly and in the first half of 2026, it won't be enough to offset some of those macro things I talked about earlier. It won't be enough to offset that refinish comp issue on distributor buying patterns but those are transitory items. So as the transitory pressure starts to come off, then we'll be better positioned as we go forward for the midterm.

Our next question comes from Vincent Andrews from Morgan Stanley.

Tim, wondering if you could speak a little bit about the M&A environment, both large and small. One of your competitors has made a big exit to private equity. Another on their conference call was talking up sort of potential for further consolidation in the industry overall, but not clear what it was going to be. .

So just curious how you're thinking about things you referenced your balance sheet and flexibility earlier in the call. You've been acquisitive and good at it in the past. So what are you thinking going to '26, both large and small?

Yes. Thanks, Vincent. I've said many times since I took over and been pretty consistent that the tip of the spear for PPG is to build an organic growth and margin machine. And we've been doing that, working hard on it. We're starting to see the fruits of our labor. We're winning. We have momentum, that organic growth and margin machine is working. Now consistent with that from day 1, I've also said we're not going to exclude M&A. It's part of the algorithm for growth for us long term, but it's not the tip of the spear like maybe it was a decade or so ago.

But we will look at anything that comes across our desk. I talked earlier about a couple that we did take a close look at with the Brazil architectural with the recent auto refinish and pretreatment opportunity, I think it's in our best interest, our shareholders' best interest to look at every opportunity that comes along, there are some bolt-ons out there that we look at and are looking at, I've also said it has to be the right asset at the right price and at the right time relative to that organic growth and margin machine.

And that hasn't changed and doesn't change now. It will continue to execute on building that organic growth in margin machine. We will look at M&A opportunities that come along. And we'll decide is that the best use of cash for our shareholders. If not, we'll move on and keep using that cash like we've been for the last 8 quarters, and executing on our organic growth and margin machine.

Next question comes from Aleksey Yefremov from Key Group.

This is Ryan on for Aleksey. There's been a lot of questions on refinish this morning, so I figured I'd tag a couple more on. Can you maybe just help us understand the differences in what's going on in the U.S. market versus maybe what's going on in Europe right now? And then just on share gains. I understand you and peers are talking about them in the refinish market. Can you maybe help us understand maybe which regions or segments of the market where you guys feel like you're kind of gaining share?

Ryan, this is Vince. Let me start and then Tim will add some color here. Specific to your first question on U.S. versus non-U.S. markets, I think it dovetails exactly what we're talking about, which is insurance premiums in the U.S. are up significantly. We're not seeing that dynamic outside the U.S., and we're seeing claims rates outside the U.S., more closely parallel accident rates.

So if we look at Europe, claims are down maybe mid-single digits, not double digits that we saw year-to-date in the U.S., same in other parts of the world. So again, that, I think, provides additional color around the insurance premiums being a causation factor in the U.S.

Yes. And on the share gains, we're gaining share -- most of the wins that we've been seeing have been across both the U.S. and Europe. And in the U.S., the competitor that the #1 and #2 are net-net winning, sometimes a 3 or a 4 or a 5, we'll talk about share gain is driven by maybe 1 shift of a customer but not the broad multi-hundreds per quarter net shop wins that us, and I suspect that, that other #1 or #2 delivers. .

So it really comes down to -- we're beyond just as an industry, providing solutions of chemistry inside the can of paint. And we are proud of the solutions that we now provide outside of the can of paint that drive productivity. And net-net, that is driving share gain across the United States and Europe for the most part. Of course, in the other smaller regions, there's also a share shift, but that's what's moving the needle.

Yes. And again, I know there's a lot of discussion about the refinish pie, if you will. And as Tim mentioned earlier, that typically would shrink a low percentage every year. What we've done, which is unique to PPG is we're reexpanding that revenue pie for us because we do have PPG-specific revenue streams with the polls Tim mentioned earlier, these are subscription -- typically subscription-based, somewhat volume agnostic and they're providing productivity so the customers are willing to pay incrementally for them. So again, for PPG, in particular, we're able to reexpand that pie from a revenue perspective.

Yes. So again, refinish is getting a lot of air time today, and that's, by the way, no surprise. So if you think about what I've talked about and Vince talked about, and now being forward to when we get through this transitory slump and get to normalization you'll have a PPG that has more body shops using our products. You have a PPG that has more body shops using our digital products. and you'll have a PPG that has more shops using our allied products, which are nondigital, non-paint complementary products that are used and consumed by the body shops. .

So we're really working hard and making great strides in positioning PPG for real strength in the refinish market as it normalizes in the middle of next year.

Our next question comes from Mike Harrison from Seaport Research Partners.

You mentioned, Tim, the new clearcoats product that was developed by AI or with the help of AI. I was hoping that you could give us a little bit more detail on the role that AI is playing on the innovation front.

Yes, we're really excited about this. We've been -- just -- and again, I'm not an AI expert, right? But fortunately, I have many of them working for us. that do the hard work. Essentially think of it this way. We've got 100-plus years of PPG proprietary formulation expertise around our laboratories around the world. And what we've done is we've developed tools working with some partners that really go out and scrape that history of formulation to optimize much quicker than humans can optimize the best performing product at the most competitive price point and with the best speed of launch to market.

And this is just the first product to do that, and it's not only refinish. We're expanding that across our other businesses. And by the end of this year, we expect about 50 products to be commercialized that have used what we call formulation AI. Some of those products are new, but some of them are just optimization of existing formulas using this technique across our 100-plus years of PPG confidential, proprietary data.

And I'd love to talk to you about all the other ways that we're using AI to drive both internal productivity but also customer-facing speed and optimization, but that will be a discussion for another day. But we called this out because it's really a milestone moment for us with the launch of this first of many products.

And Mike, just a clarification, when Tim says at the best price point, what that means for us is the best composition of raw materials at the lowest price for us, agnostic of vendor -- specific vendors. So we're able to put together the best raw material stack pricing and get the best outcome for our customers in terms of color performance, et cetera. .

Our next question comes from Arun Viswanathan from RBC.

I guess I just wanted to ask about the portfolio overall. It seems like we still get impacted by -- you're being impacted by several headwinds across many of your industrial-oriented businesses, are there further actions you can take there maybe to redeploy some of that capital into aerospace and other areas that are growing and maybe deprioritize some of the more cyclical businesses?

I know you've already taken some actions there with the silicas and architectural divestitures. And along those lines, are there any businesses where you're potentially a #3 or #4 competitor? Or has that also been addressed?

Arun, I'll let Tim add all the color here. But I do -- you did mention our 2 divestitures this year, which is architectural [indiscernible] and silica. And we did have about a $0.05 decrement year-over-year due to that, those divestitures in terms of segment earnings. So on a like-for-like basis, our numbers are actually up with our current business portfolio more than straight headline number.

I'd say -- look, I've been here 38 years. I think you know that. I'd say we've been more active in portfolio management in the last couple of years than we were since the big pivot from glass coatings, chemicals to coatings. So 1.5 decades or 2 decades. We're very active on the portfolio management. Architectural U.S., silicons, Russia, traffic solutions, exiting Africa countries that were holding us back and a number of other pruning around the corners.

One thing, if you look at the EBITDA, the segment EBITDA of our company before we did this portfolio pruning, we were typically -- if you look at '18, '19, '22, I ignore the -- the main COVID years, but '18, '19, '22, we are consistently like a 15% EBITDA company. we're consistently like a 20% EBITDA company now. So we're very pleased with the work that we've done to date from a kind of cleanup and optimization standpoint. We will continue to prune. I would tell you there's nothing that we're working on right now to exit that would move the needle. It's more pruning around the edges.

But I hope that with what we've done over the last couple of years, I hope that, that's given us some credibility that we are constantly looking at our portfolio. It's one of my main jobs as a CEO, and I will continue to do that going forward.

[Operator Instructions] Our next question comes from Josh Spector from UBS. Josh.

Just a quick one relating to capital allocation again is just if I look at buybacks, you're buying back less in the second half this year than you were last year. Your stock is lower. You guys have Obviously, some view of a delayed improvement in the second half, but all the comments around organic investments seem as positive as they've been. So the question here is, why aren't you buying back more stock now? What's holding you back?

Yes. Josh, we didn't squeeze you in. We love to have you in. So please keep the good questions coming. Good to hear from you. I hope if nothing else that you guys will recognize that I've been consistent since I took over. And I said I will not let cash grow on the balance sheet, and 11 straight quarters, I've been saying that, 3 of those quarters, we had to pay down some high-cost debt after Tikkurila. And the other 8, we have been buying back shares, 8 quarters in a row.

So for the 12th quarter, I'll continue to say, I will not let cash grow on the balance sheet. I would deploy it in a way that maximizes shareholder value. unlike some others, we do pay a nice dividend. We will -- we have this extra investment for a transitory period to capture future growth. We will continue to look at M&A on an opportunistic basis. And if we see a great deal that maximize the shareholder value, we'll jump on it. And what for all of those, you should expect the behavior that we've done in the last 8 quarters.

Now remember, some of what we did fourth quarter last year, first quarter of this year, we got proceeds from the sales of some businesses. So we deployed those and bought more shares back. And look, your point on stock price, yes, it's absolutely undervalued right now. And so that's a pretty good use of the cash that we have. And so you should expect me to continue to behave and operate in that way.

Yes. And just a point of clarification. We do have a little bit of a gross-up cash balance now, but we have a gross up short term. We have some debt coming due in the fourth quarter that we're going to pay off here in a couple of weeks. So that cash balance at the end of the quarter reflects that debt payment coming due here.

Our next question comes from Laurence Alexander from Jefferies.

Just pretty quickly on aerospace. If memory serves your content per plane over time should grow about 1% or 2% faster than inflation. Is that roughly right? And as you think about adjacencies or innovation platforms. Is there -- what can you do to accelerate that?

Thank you for that question, Lauren. That's my favorite one. By the way, we are growing much more than 1% or 2% per year in content, we capture price because of the great value that we add, and we also grow our physical content significantly in this business. And how do we do that? Well, the biggest piece of this business is our sealing business, right? And that we have a very strong technology differentiation, and we're constantly growing content per build across the sealant space.

And it's tremendous value-add content because we don't just supply the bulk sealant. We supply it in specialty packaging or actually in frozen cap format to really help our customers not only with the performance of the sealant itself, but with productivity and applying it. And we continue to innovate new ways of applying that value-add sealant, including 3D printing.

We 3D print some sealants for military aircraft. So it's the chemistry plus those outside of the can activity tools that grow our content. Our second biggest piece of that business is our transparency business, where we are we're providing canopies and windshields for just about every aircraft type in the world, military, general aviation and commercial. With each new design of an aircraft, the content per canopy gets higher, right? There's all kinds of additional coatings and some military attributes that I can't talk about that grow content as new and improved aircraft come out.

Then we also have the traditional coatings and that, I think, is a space that we're all pretty familiar with. And then we also do a bunch of other value-add services as the fourth key component to our aerospace portfolio. And that's why, honestly, you'll hear me and you may have heard it in my opening remarks, I don't call it aerospace coatings. I call it aerospace, because we do so much more than just the coatings. And I think going forward, we'll try to provide more and more visibility into that outstanding business as it has become a large part of our company portfolio, and we'll continue to grow at a higher rate than the rest of our portfolio. So we become more and more of an aerospace solutions provider.

We currently have no further questions. So I'd just like to hand back to Alex Lopez for any further remarks.

Thank you, Carli. We appreciate your interest and confidence in PPG. This concludes our third quarter earnings call. .

As we conclude today's call, we'd like to thank everyone for joining. You may now disconnect your lines.