Ppg Industries Inc Q1 FY2025 Earnings Call

Good morning all and thank you for joining us for the First Quarter 2025 PPG Earnings Conference Call. My name is Carly and I'll be coordinating the call today. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question-and-answer session. I will now turn over to our host Alex Lopez. The floor is yours.

Thank you, Carly, and good morning, everyone. This is Alex Lopez. We appreciate your continued interest in PPG and welcome you to our first quarter 2025 earnings conference call. Joining me today from PPG are Tim Knavish, Chairman and Chief Executive Officer, and Vince Morales, Senior Vice President and Chief Financial Officer. Our comments relate to the financial information released after U.S. equity markets closed on Tuesday, April 29, 2025. We have posted detailed commentary and the accompanying presentation slides, which are being shown on this webcast on the Investor Center of our website, ppg.com. Following management's perspective on the company's results, we will move to Q&A session. Both the prepared commentary and discussion during this call may contain forward-looking statements reflecting the company's current view of future events and their potential effect on 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 filings with the SEC. Now, let me introduce PPG chairman and CEO, Tim Knavish.

Thank you, Alex, and welcome everyone. I'd like to start by providing a few highlights on our first quarter 2025 financial performance, and then I'll move to our outlook. The PPG team delivered sales of $3.7 billion. This is a decrease of 4% compared with the first quarter of 2024, primarily due to unfavorable foreign currency translation and the impact from business divestitures, including the Silicas business. We are beginning to realize the benefits of our enterprise growth strategy as organic sales grew year-over-year with increases in both sales volumes and selling prices. Regionally, we delivered year-over-year organic sales growth in Asia, driven by strong performance in China, India, and Vietnam. In the U.S., after six quarters of declines or flat performance, we achieved 4% organic sales growth, led by share gains in several of our businesses and improvement in industrial production. Organic sales in Latin America were up slightly, with growth tempered by the recent geopolitical environment. European organic sales were down 1%, which was a significant improvement versus prior quarters as demand for our products was stabilizing in the region. Our top line results reinforce our positive organic growth momentum and contributed to improved manufacturing productivity. As we noted in our earnings materials released last night, our first quarter segment EBITDA margin was 19.4%, and adjusted earnings per diluted share was $1.72. Also, we repurchased approximately $400 million of our stock and ended the quarter with a strong balance sheet. Before we go through the quarterly details, let me first talk about how our results and momentum reflect the consistent, disciplined execution of the enterprise growth strategy that we launched in 2023. We are beginning to benefit from the actions we have taken to optimize and focus our portfolio. The development of PPG's organic growth muscle and strategic investments in innovation are driving positive momentum. The company has aggressively managed the bottom line, including decisive self-help, combined with our disciplined capital allocation and strong balance sheet, critical in today's environment, PPG is in a great and differentiated position to prevail in the current economic conditions. Looking at our segment performance. In the global architectural coating segment, first-quarter net sales were significantly impacted by unfavorable foreign currency translation, which decreased sales by 7% as both the Mexican peso and Europe weakened year-over-year compared to the U.S. dollar. In architectural coatings EMEA, organic sales were flat versus the prior year with improved selling prices offset by slightly lower sales volumes. Sales increased in Central Europe and in the Nordic region, while they declined in Western Europe. Our volumes in Europe were slightly unfavorable, but stabilizing, and we expect flat to higher volumes year-over-year in the second quarter. We are making rapid progress, reducing structural costs in this region and anticipate strong incremental earnings leverage as demand trends improve. In architectural coatings, Latin America and Asia Pacific, sales volumes declined, reflecting a pause in project-related business and governmental spending in Mexico due to recent geopolitical related uncertainty. However, core retail sales were solid. We anticipate economic activity and project spending in Mexico will resume in the upcoming quarters as more certainty regarding regional trade evolves. With its structural advantages, Mexico will remain a strong growth country for PPG. Segment EBITDA margin decreased 310 basis points versus prior year, driven by lower sales volumes and regional inflation stemming from the weaker peso, partially offset by cost control actions. In the performance coating segment, first quarter organic sales increased 9% with both price and sales volume improvements. Within the segment, aerospace delivered double-digit percentage organic sales growth with record first quarter sales and earnings. Customer order backlogs were stable at $300 million even with growth-related investments that improved our output in the quarter. The backlog demonstrates excellent industry dynamics and strong demand for our technology advantaged products. In automotive refinish, global organic sales increased a low single digit percentage versus the prior year. In the U.S., sales volumes improved the mid-single digit percentage, with benefits from customer order patterns and share gains, offsetting lower industry collision claims. In the first quarter, the company grew the number of linked subscriptions as well as Moonwalk installations, which now total more than 2700 in service, further supporting customer productivity and partnerships. Protective and marine coatings delivered double digit percentage organic sales growth supported by increasing global demand for our technologies and our recent share gains in marine. This was the eighth consecutive quarter with positive year-over-year sales volume growth in this business, and we are increasing our growth-related investments to support demand. Traffic solutions delivered above market mid single digit percentage sales growth in the quarter. Demand is expected to remain strong for this business throughout the year, including in the second quarter when demand steps up seasonally. Segment EBITDA was up 8% year-over-year, a new first quarter record, reflecting the organic sales growth as our various growth investments in the segment are yielding benefits. In the industrial coating segment, net sales declined compared to the first quarter of 2024, primarily due to the impact of foreign currency translation and the divestiture of the silica products business in 2024. These items combined lowered sales by 6%. Organic sales for the segment were down less than 2%, which is a significant improvement versus the fourth quarter of 2024, which was down 6%. In the first quarter, selling prices declined 1% due to carryover of certain index-based customer contracts. Segment sales volumes also decreased 1% as strength in industrial coatings and packaging coatings was offset by soft automotive industry builds. From a business unit perspective, automotive OEM industry production was lower year-over-year in the U.S. and Europe, and our results followed that lower demand trend. We partially mitigated this volume decline with growth in Asia and Latin America, including our share gains in Brazil. During the first quarter, we narrowed the gap in our volume performance versus auto industry builds. We expect to grow above industry levels starting in the third quarter of this year, driven by already won share gains and our market outperformance in Asia. Industrial coatings organic sales were flat with lower index based pricing offset by improved sales volume after several quarters of weak industrial production. Demand for PPG's industrial products grew in all regions, but varied across subsegments. Packaging coatings organic sales increased by a low single digit percentage year-over-year, driven by share gains on top of strong growth in the prior year. Segment EBITDA margin declined 90 basis points year-over-year as lower sales volumes and price were partially offset by strong cost control and productivity actions. For the industrial segment, we expect organic results in the second quarter to be generally similar to the first quarter, with share gains aiding organic results in the back half of the year. Now, let me talk about our balance sheet and cash. We issued EUR 900 million of debt during the quarter at 3.25%. We have euro debt maturities of 300 million and 600 million due in the second and fourth quarter respectively. During the quarter, we completed approximately 400 million in share repurchases and paid approximately 160 million in dividends. We have repurchased $1.2 billion in our stock over the last 6 quarters and paid 930 million in dividends over that same time period. Our balance sheet remains strong, which continues to provide us with financial flexibility, and we remain committed to driving shareholder value. Looking ahead, obviously the current macroeconomic environment is highly dynamic. Our business model has historically proven to be well positioned to navigate and perform during periods of uncertainty. As it relates specifically to recent tariffs, let me highlight a few relevant business traits that provide structural resilience for PPG. We have a balanced global business portfolio without reliance on any single country, region, or end market. We primarily buy, make, and sell local for local. We are flexible batch process manufacturers, which results in an asset-like footprint that is easily adaptable to volume shifts. We have a highly variable cost structure that allows us to adjust our conversion costs according to demand. Our input cost model is very dependent on commodity materials, including oil that are reliant on supply and demand. Historically, we have been successful in adjusting our selling prices, including through surcharges to account for any changes in our delivered cost of raw materials. Finally, we have a demonstrated track record of consistent cash generation through all stages of the business cycle to complement our strong balance sheet. While these structural advantageous attributes of PPG provide a buffer for macro impacts, we are not immune to lower economic demand and continue to closely monitor customer order patterns and quickly adjust as necessary. Like all companies, we have potential downsides if overall demand significantly weakens and we are diligently monitoring these conditions. With regard to our supply chain, we are executing our contingency plans and already working with suppliers on alternative sourcing, and you should expect us to aggressively manage our costs and productivity. Now a few more details of what we're seeing. In the first quarter, we already realized a step down in demand in Mexico as project-related spending was paused, yet the overall PPG enterprise still performed. Beyond Mexico, we did not see any other significant changes to demand, and we did not experience any noteworthy customer pull forward into the first quarter. This pattern has continued for the first 4 weeks of the second quarter as we have not seen evidence of any curtailment of customer orders in our businesses. Some customers, however, have publicly expressed the need to eventually assess their production, depending on the duration and eventual framework of trade outcomes. Additionally, we have not yet experienced any significant change to our raw material pricing as our suppliers continue to favor volume over-pricing. We're monitoring this situation and we will react accordingly with pricing actions and or self-help cost actions to mitigate any impacts. When considering our guidance, we see structural strength in our performance coating segment driven by our technology advantage products in aerospace and protective and marine. We expect European architectural coatings volume trends to improve and also anticipate short-term tepid business conditions in Mexico, given the economic uncertainty. Demand for various general industrial markets improved in the first quarter, and we see increasing momentum in the coming quarters. While auto OEM industry demand forecasts were slightly reduced, our share gains are beginning to yield benefits, and we expect to outperform the market beginning in the third quarter. We sized our annual share gains in the industrial segment at $100 million and we are tracking to that annualized figure. Finally, we expect growing benefits from our self-help programs and other discretionary cost management programs, the pace and scope of which we have stepped up over the past few months. In closing, I am confident in our ability to successfully navigate this uncertainty given our improved business portfolio, the diversity of our regions and businesses, our self-help actions, and our share gain momentum. We are reaffirming a full-year earnings per share guidance range of $7.75 to $8.05. Thank you to our PPG team around the world who make it happen and deliver on our purpose every day. We appreciate your continued confidence in PPG. This concludes our prepared remarks. And now, would you please open the line for questions.

Thank you very much. We'd like to open the lines for Q&A. Our first question comes from David Begleiter with Deutsche Bank. David, your line is now open.

Thank you, good morning. Tim, just on global architectural, I know margins are under pressure here. How do you expect margins to trend in Q2? Any relief from the pressure you saw in Q1?

Yeah, I don't think we'll get some margin benefit from sequential volume improvement, David, but otherwise we've had positive price in that segment, so really it's a volume story for us, with Europe still being down a bit and then the project side of Mexico slowing down, it was really a volume story, so we fully expect that margin to recover.

And David, just a reminder, typically in Europe there's a seasonal step up in the business, so we'll get some leverage from that.

Got it. And Tim, just on Comex, how much was the business down in Q1 and what gives you the confidence that the business will come back over the next few quarters?

Yeah, look, the confidence comes from a couple of things. First of all, leading up to the tariff of April 2nd, prior to that, there was already a pause in project-related spending for business and government investment projects. This pause affected our architectural segment and EBIT in Mexico. It's very important to note that our retail sales, our core retail sales in Mexico remained very solid in Q1. Now, why our confidence, we're very well connected in Mexico with our scale and presence. We're very well connected to the project owners. We're connected to the project managers. We're well connected to key advisors that are close to the government and the economists in the country. And they all believe that things will continue to be a bit soft in Q2, but as we move through the year, the project spending will increase. Many of these projects are already in flight. We have not seen any cancellation of projects. We continue to see new projects coming on in our pipeline. So certainly if trade discussions and any reasonable framework for Mexico that would allow all this spending to resume fully. But even without that, we do expect the project spending to increase again and particularly in the second half, and we're still confident that given a multitude of factors, favorable business climate, favorable unemployment, favorable inflation, good workforce, good population demographics, proximity, we still believe Mexico remains a strong growth country for some time for PPG.

Thank you very much. Our next question comes from Duffy Fisher of Goldman Sachs. Duffy, your line is now open.

Yeah, good morning, guys. Just a question on refinish. If you look at the last four years, you were kind of down mid single digits, up mid single digits, down low single digits, up low single digits. So that business seems to have gotten much more volatile than what it had been historically. So just, you know, and you kind of see it in the insurance claims data as well. What's really happening in that industry is there are structural changes going on there and does that in any way impair your ability to get kind of that consistent pricing year-on-year in that business?

Thank you for your question, Duffy. I'll address the last part first. The fluctuations we observe in our sell-out are unrelated to our pricing capabilities in that sector, which we've successfully demonstrated year after year, despite the inconsistencies. This is due to the strength of our overall value proposition related to customer body shop productivity, where the actual paint cost is just a small part of the entire process, and our productivity solutions enhance that process. Therefore, it does not affect our ability to set prices. Regarding the variability, this sector has always had some level of inconsistency due to the two-step distribution model. The distributors are independent business owners managing their own cash flows, timing their decisions based on anticipated pricing and demand changes. Consequently, the business tends to be a bit uneven from quarter to quarter, and it's important to evaluate it on a yearly or multi-year basis. Now, looking at the long-term perspective in refinish, particularly in response to the decline in collision claims, this is a vital coatings segment for the reasons mentioned earlier. Our contributions, both in terms of chemistry and productivity tools, are crucial for body shop owners, especially given the shortage of skilled painters. For this reason, every coating company globally is eager to grow in refinish. Although collision claims have been decreasing for years, we have consistently grown and thrived during that period due to our exceptional total productivity value proposition. We possess the best paint chemistry available, and additionally, we create more value through external initiatives, including our digital productivity tools. We also engage in allied products related to the painting process but not directly in the paint itself, and we've achieved organic and inorganic growth in that area. The compound annual growth rate for those allied products has consistently been in the double digits, despite the year-over-year decline in collisions. Ultimately, companies that provide the best overall productivity solutions will continue to succeed and maintain pricing power, while those lacking these solutions may lose market share and face consequences.

Thank you very much. Our next question comes from Kevin McCarthy of VRP. Kevin, your line is now open.

Yes, thank you and good morning. I was wondering if you could unpack the sales guidance that you've provided on Slide 11 for global architectural coatings in particular. You were down 11% in the first quarter. I appreciate a lot of that was currency, which is swinging, but maybe you could kind of talk through your year-over-year volume expectations in that business. For example, would you expect the negative three that you saw in the first quarter to penetrate positive territory and any other color on that outlook would be much appreciated.

Yeah, thanks for the question, Kevin. I'm not going to comment on currency. I wish I were that smart as to predict what that's going to do. But, I will talk about price and volume. We will price as we need to price. We got some positive price in Q1, and we'll continue to monitor all the stuff that's happening outside of our business in the macros. So, you should expect that to be again incrementally positive like it was in Q1. On the volume side, we do think this project pause in Mexico will largely continue into Q2, may get sequentially better, but we're not counting on that in our guide. We do expect, we've seen some momentum in Europe finally and we do expect that to improve; it's been down for a long, long time; it could be flat, it could be incrementally positive and that's really the change in Q2 versus Q1, much more in Europe focused than anywhere else.

Great, thank you very much.

Our next question comes from Michael Sison of Wells Fargo. Michael, your line is now open.

Hey, good morning. Great start to the year. But I just want to dig into performance coatings real quick. Volumes pretty impressive there. What do you think your volume should be for this year in total? And then what do you think market demand is? I know it's a little bit different for a little business unit, but I suspect the market share gains are really what's driving that growth.

Hey, Mike, thanks for the question. The challenge for our performance coatings business is to deliver higher growth than the number of quarterbacks that Cleveland Browns now have in their quarterback room. That'll be a challenge, but we're confident in it, because you look at the performance in Q1, across the businesses, aerospace, double-digit, as much as we can make, we'll ship. PMC double-digit, great momentum, great pipeline, traffic will sequentially improve, one because of the share we won last year, and two, because of seasonality. So I think we see a good set there of dynamics and demand with each of the businesses in our performance coating segment.

Yes, Mike, this is Vince. I want to add a brief comment. We are seeing consistent growth in these businesses. As we move into the latter half of the year, we will be comparing against more challenging figures from the past. On a two-year basis, most of these businesses are showing positive growth. Aerospace and protective marine are experiencing double-digit growth, while refinished and traffic are growing in the low to mid single digits. We anticipate that this growth trend will continue.

Great, thank you very much. Our next question comes from Ghansham Panjabi of Baird. Ghansham, your line is now open.

Thank you, Alberto. Good morning, everybody. Tim, I just want to go back to your comments on Europe as a region, and just for the color as it relates to what do you think is going on there from a macro perspective? Is it just easier comparisons that are kind of flowing through to you specifically, or do you sense an actual inflection in demand that could be a little bit more sustainable than what we've seen over the last few years?

This is Vince. Let me start and Tim will add some details. In Europe, we have noticed some easier comparisons, but overall, there is stabilization in a few areas. Industrial production has remained stable compared to the recent past. Additionally, in Western Europe, we observed improved order patterns as we exited the quarter, particularly in Western European countries and architecture. There is some sentiment regarding increased government spending there, and it seems like there is a recovery happening in the Nordics after a couple of challenging years.

Yeah, I would just add to that that a lot of it is based on the momentum we saw growing as we moved through Q1, Ghansham, and even automotive, which has been down for quite some time. You've got the easier comps, you've got some of our key customers launching new models as we move through the second half of the year. So, we are not expecting a hockey stick at all, but we've been saying for years in Europe, all we need is stabilization and a little bit of volume, because we've been doing so much structural cost action that we will get really good earnings leverage when that happens.

Thank you very much. Our next question comes from John McNulty of BMO. John, your line is now open.

Good morning, and thank you for taking my question. The first quarter exceeded expectations quite a bit, and it appears that you now have a favorable exchange rate. It also seems like, from a volume standpoint, the second quarter might be looking better compared to the first quarter, yet you've maintained your guidance. Could you explain what might be preventing you from raising it? It seems like tariffs haven't affected you significantly so far, but that might be due to a cautious approach. Can you help clarify this?

Hey John, I’ll provide an overview of PPG’s tariff situation, and then Vince will address your specific questions regarding foreign exchange and volumes. Overall, we’ve been analyzing various scenarios and forecasts on how this will unfold. We have external assistance and are diligently monitoring everything at a detailed level. I categorize the potential impacts on PPG into three areas. First, our finished goods are largely unaffected since we operate mostly within local markets; they don’t cross many borders. Second, the direct cost impact to PPG is minimal as we source over 95% of our raw materials locally or from countries without tariffs. For instance, none of our top 30 suppliers for our U.S. businesses are from China, and only 1% of our spending among our top 100 U.S. suppliers involves China. Thus, we are well positioned locally, and we have already implemented mitigation strategies for raw materials like TiO2 and epoxy, which were subject to tariffs before this year. The overall chemical supply market is quite extensive, meaning not all announced tariffs will affect us directly. When there is a direct impact, we collaborate with our customers on pricing adjustments, surcharges, and other options. The third potential impact is demand, which we have factored into our guidance. We have taken everything known and estimated into account. Although Mexico had an effect in Q1, the business still performed well. Significant impacts may arise from areas such as the automotive sector, China, and Mexico, which we have displayed in our slides. Each of these expected impacts should be less than 1% of total PPG sales. For instance, only 10% of our operations in China involve shipments to the U.S., so most of our work remains local. Around a month into Q2, our order patterns align with our expectations. Regarding mitigations, we are exploring volume agreements with suppliers, working with customers on formulation adjustments, and maximizing our operational flexibility. We can also employ pricing surcharges if required. A critical advantage for PPG is what I call the PPG shock absorber, which provides a buffer during changes. Our diverse portfolio, minimal reliance on any single country or segment, and flexible cost structure enhance this. We have also become more asset-light following our divestitures, which included selling two significant asset-heavy businesses along with 11 factories and 750 retail locations. Typically, when demand decreases, our main input costs also drop, giving us a natural hedge. We have a clear strategy to meet our full-year earnings guidance based on everything we know. We have momentum in market share, self-improvement, and productivity combined with the resilience and mitigation efforts I mentioned earlier. Therefore, we are confident about achieving our guidance. We fully acknowledge the existing uncertainty and rapidly changing situation, and while we are not immune, we are focused on controlling what we can.

Yes. Just to try to provide some granular thoughts on what I would call where we were in January versus what we see today on a full-year basis. A couple of things that are moving against us. Mexico, we were not aware in January, obviously of the project spending pause. Again, we feel that will eventually come back. The automotive industry has stepped down 1% or 2% versus the guide and the forecast in January. Offsetting that, foreign currencies moved in our direction. We had a pretty stiff headwind of foreign currencies coming into the year. We still have a headwind in Q2, and for some currencies, the balance of the year based on current rates. We've upped our self-help expectations for the year, and we're tracking to those higher expectations. We got share gains that are coming in quicker than we had anticipated. And finally, Tim alluded to this on an earlier question, Europe is stabilizing at a faster clip, albeit modest than we anticipated in our original guide. So, some puts and takes like there are in every quarter, but those are the bigger pieces.

Thank you very much. Our next question comes from John Roberts of Mizuho. John your line is now open.

Thanks and congrats on a return to growth here. Tim, there were a lot of not yets in your opening comments. Assuming the tariffs stay as is, how long before you see customers repositioning production? And do you think you'll have to idle any of your auto OEM paint lines?

Hey John, thanks. Second part first. I don't think we'll have to idle any lines. We may decrease staffing, decrease output as necessary, we'll flex, but we don't have to idle any factories. And I can't really say what, when any customer would decide to significantly change their production plans. We are positioned virtually everywhere in the world. So, wherever they decide to go, we can make coatings for them. So, we feel that we have a lot of flexibility. If there's something dramatic and severe, well we'll talk about that. But we have the ability to follow our customers wherever they go.

Yes, John, Vince here. Just two things I'd reiterate what Tim said. We are a batch process. So, small or large changes in customer order patterns, we're able to easily see and adapt our staffing levels to. Just also what we said in our opening remarks, we have not seen any significant change in our customer order patterns through April. And we have order patterns looking into May depending on our short cycle or long cycle businesses and in our short-cycle businesses, looking at the first couple of weeks in May, again, no discernible change right now.

Yes. One last part on the idling of assets that you questioned. We don't need to do that in response to what our customers may do. But I want to remind everyone that we have a significant rightsizing as part of our self-help already underway where we'll be closing a number of facilities over the next three years. And so that's separate from what's happening, but that will give us even more leverage going forward than what we have today.

Thank you very much. Our next question comes from Laurent Favre of BNP Paribas. Laurent, your line is now open.

Good morning, everyone. I have a question regarding capital allocation. Since you didn't acquire the BSS assets, I assume that deal activity will likely slow down. Could you provide some insight on the focus and plans for share buybacks following the 400 million in Q1?

Yes. Let me address M&A first and then I'll get to share buybacks. Since 2023, we have consistently stated that our primary focus for growth has shifted from M&A to organic growth, with M&A being a secondary focus. While M&A remains part of our long-term growth strategy, it is no longer our leading strategy. We will evaluate any assets that become available and align with our enterprise growth strategy. However, it is essential that the asset matches our growth strategy, is priced appropriately, and is acquired at the right time considering our ongoing focus on organic growth. Regarding Brazil, I have mentioned multiple times that it is a good asset we are interested in, but it did not meet our price criteria compared to other cash usage options. Now, concerning share buybacks, I have consistently communicated my stance since taking over. Our initial capital deployment prioritized paying down debt in 2023, and I have stated that we wouldn't allow cash to accumulate on the balance sheet. After a prolonged period without share repurchases, we have now completed six consecutive quarters of buying back shares, which has proven to be the most effective way to return value to our shareholders. You can expect this prioritization to continue. The reason I cannot commit to a specific repurchase figure right now is that the current environment is highly variable. We will make decisions on share buybacks as we progress through the coming months and quarters, but you can expect the same approach that we have taken for the previous six to seven quarters.

Thank you very much. Our next question comes from Vincent Andrews from Morgan Stanley. Vincent, your line is now open.

Thank you, good morning. Just a few cleanup questions for me on the guidance. You didn't put out the full year details the way you did last quarter. So just some of it, Vince, you covered already, but do you still expect segment margins to be up 50 basis points for the full year? And then if I could also ask, my recollection is that usually the EPS guidance does not include the benefit from share repurchases. Is there any change in that for this year or for the reiteration of the guide?

Vincent, you're spot-on, on both. No change to our margin profile and guide, again moving around within the segments, but in totality, we're still holding to that, and we typically do not include cash deployment in our EPS guide.

Thank you very much. Our next question comes from Aleksey Yefremov of KeyCorp. Aleksey, your line is now open.

Thanks, good morning everyone. In Performance Coatings, your price was up 3%, volumes up 6%. So, I would have expected margins to be up a bit more than 20 basis points. Could you just describe what's going on with the margin there?

Yes, Aleksey, this clearly remains our highest margin and best growth segment, if you look at this quarter or the last several quarters. Given the increase in growth prospects, we've increased our growth-related investments, our growth-related spending in several of these businesses to capitalize on the opportunities, capture more share for the longer term. We've had a backlog in Aerospace. As you know, we've been spending some money there to gain incremental output, which delivers incremental sales not only for the current quarter but for future with debottlenecking. And by the way, we're also looking at longer-term, more significant capital investments to support that growth. We're applying incremental growth spending to Protective and Marine, where we've delivered eight straight quarters of growth volume growth, and we expect that to continue. And so we've had to make some investments there to keep that strong growth rate going. And finally, we continue to invest in the next generation of those productivity tools that I mentioned in Refinish. Those allied products, those digital tools have been tremendous drivers of growth for us in Auto Refinish in a flat to down market. So, that's really the reason why you're not seeing, let's say, the typical leverage in this quarter that you would see for Performance Coatings.

Thank you very much. Our next question is from Patrick Cunningham of Citigroup. Patrick, your line is now open.

Hi, good morning. Just on the Industrial Coatings subsegment within Industrial, you had positive volumes in the quarter. How meaningful were share gains here? And was there any evidence of some prebuying impact that may mute sales into 2Q? I guess how should we think about volume sensitivity going forward for the remainder of the year?

Yes, Pat, thanks for asking that great question, because we're excited about this. We have momentum in Industrial Coatings. You should think about it as positive going forward. And it's two things. A lot of it is share gain delivered. As we started to execute on our enterprise growth strategy and build that organic growth muscle throughout 2024 and into early 2025, we've been winning business and we're starting to launch that business. And you do see, of course, the country dependent, you see a little bit of improvement in industrial production in some countries, and because of our portfolio, we're well positioned to capture that. We've seen some positives. China, India, both grew for us in the quarter. We've seen it in general finishes. We saw Industrial Coatings United States grow in the quarter. So, the word I would use here, and we use it every day when I spoke with my leader of this business, is momentum. We've got momentum in this business.

Thank you very much. Our next question comes from Frank Mitsch of Fermium Research, LLC. Frank, your line is now open.

Thank you. I want to follow up on the 2025 guide. You answered the questions obviously on the margin expectations and also gave us some puts and takes. I'm just curious on the organic growth expectations. Obviously, Performance Coating is very strong in the first quarter, exceeding the 1Q guide. Your expectation for the full year was up low single digits to up mid-single digits. I suspect we should probably start thinking about Performance Coatings organically up in 2025, moving that up to high single digits, low double digits. So, curious to comment on that. And while I've got you, I might as well ask about the other two segments, which in 2025, Global Architectural was expected up low single digits to up mid-single digits. So is that still hold? And the same with Industrial Coatings, where we have momentum, is that still expected to get up low single digits?

Yes. You asked a lot of questions, so it will require a team effort to address them. As a whole, we anticipate low single-digit growth for the year based on our current knowledge, which includes both known and estimated impacts from our team. We are focused on maintaining momentum and gaining market share. Last quarter, we mentioned that we gained significant market share in the Industrial Coatings segment, which will roll out in the second half of this year, and it’s still on track, with some initiatives even coming earlier than expected. We are also seeing market share gains in various smaller segments across our other businesses. For Performance Coatings, we expect mid-single-digit growth for the year due to this positive momentum in that sector.

Yes. Just a reminder, what we said earlier, Frank, on Performance Coating is certainly performing well. Comps get harder as we go through the year. If we look at our Industrial segment, and we talked about this on the January call. Comps. We started to see industrial activity in the back half of 2024 weaken. So comps in that segment get easier. And we talked earlier in the call about what's happening in the architectural business, both in Q1 and on a forward look, especially in Mexico.

Great, thank you very much. Our next question comes from Chris Parkinson of Wolfe Research. Chris, your line is now open.

Great, thank you so much. Can you talk a little bit more about the aerospace opportunity and just go through aftermarket OE and military? On one hand, you've got there a few airlines pulling guidance. On the other hand, you have a pretty strong backlog. So just how should we be thinking about that? And is there any potential to further debottleneck and add capacity to facilitate the intermediate to long-term growth algo?

Hi, Chris. The military, commercial, and general aviation aftermarket sectors are performing very well. Despite the noise you might hear today, the backlogs in these areas span years rather than months or quarters. This is partly due to the production slowdown during COVID, which led to depleted inventories. We're working to keep up with production while the entire industry gradually rebuilds aftermarket and original equipment pipelines. We do not anticipate any slowdown in the near future. While there may be news reports about various airlines and countries, Boeing has indicated that their backlog remains robust regardless of developments in China. We are confident that this sector will continue to be a strong business for us in the foreseeable future. We have numerous ongoing projects aimed at eliminating bottlenecks across several aerospace facilities. Additionally, there are larger capital investments currently under analysis that could enhance our growth potential and provide better returns for our shareholders in the long term.

And Chris, this is Vince. Just if you look at our manufacturing, we have the flexibility to move between OEM, aftermarket and military. So, if we do see some pause in any activity, we can work at that backlog, which is primarily aftermarket for us is a net positive. And one thing Tim didn't mention as we look at the business today versus pre-pandemic, military has also picked up, unfortunately. But that's unfortunately for the geopolitical reasons. But that's another leg of growth that we didn't see pre-pandemic.

Thank you very much. Our next question comes from Michael Leithead of Barclays. Michael, your line is now open.

Great, thank you, good morning guys. I just had two quick follow-ups. First, on the Comex performance. How does the Comex business split between residential and commercial? You mentioned that retail is quite strong, so it seems commercial at a much more meaningful drop-off. And then second, apologies if I missed this in the answer to an earlier question. But what is your updated full year currency EPS headwind you're assuming in your guidance?

Yes, I'll address the first question and let Vince cover the currency aspect. The core business in PPG Comex is primarily residential. While we do not disclose specific percentages since they vary based on project activity, it is mainly residential. This has been the historical focus of Comex. Recently, we have been significantly expanding our sales outside of retail stores, particularly in the project business.

So for FX, we have $0.09 impact that I think we laid out in the materials. That will diminish as we go through the year as we started to see the currencies weakened especially in the fourth quarter. So, $0.09 impact in Q1, that will step down in the subsequent quarters.

Thank you very much. Our next question comes from Laurence Alexander from Jefferies. Laurence, your line is now open.

Good morning. I wanted to clarify the comments regarding Industrial. In the prepared remarks, it was mentioned that you expect momentum to accelerate in the coming quarters. It seems this relates to the underlying end markets rather than just market share. Could you specify if this is a sequential increase or year-over-year due to easier comparisons? I am particularly interested in what you're observing in the wood and heavy-duty market.

Sure. Both factors are contributing to the momentum moving forward. We are noticing slight increases in industrial production in our strongest segments and have also achieved several share gains globally. However, with industrial production, improvements depend on customer lines, so the benefits are not immediate. It's truly a mix of both aspects. We are not heavily invested in the wood segment, which we do not closely monitor, and heavy-duty remains down for us. Nonetheless, other segments like general finishes and coil are performing well. Additionally, we have observed good growth across various segments in China and India.

Thank you very much. Our next question comes from Josh Spector of UBS. Josh, your line is now open.

Yeah, good morning. This may be a bit redundant, but I'll try this around the EPS guide for the year. So, if I look at what you guys are guiding to roughly for 2Q, maybe $2.20, $2.30 in EPS roughly, normal seasonality in second half kind of plus what you did in first half probably gets to you around the $7.65 range. If I add back some of the Mexico project coming back, maybe that's $0.05 a quarter or so about $0.10. So you get to kind of the low end of the guide with just those assumptions. So, I guess the easiest way to ask this is second half versus first half, what needs to sequentially improve to get that extra $0.15, $0.20 to your midpoint? Is it markets and we talked about Europe improving? Or is it something else within your control cost savings, new wins? Just wondering if you can bridge that out for us a little bit.

Yes, Josh, this is Vince. First of all, a good reminder to everybody. We did recast our financials in January for the prior years based on the sale of our U.S. Architectural Canada business and the seasonality of our recast business changed dramatically because the U.S. Architectural business had peak seasonality in Q2, Q3, and weaker, obviously, bracket quarters. Just a reminder, our EPS last year adjusted on a recast basis we were $1.87 in Q1. We were $2.35 in Q2, $2.03 in Q3 and $1.61 in Q4. So, total, $7.87. We did see in the back half of last year, as we alluded to earlier, weaker industrial activity. So, if industrial activity would remain constant, the seasonality of last year would have been different. As we look at our seasonality this year, again, we're comping against those weaker numbers plus we have share gains in industrial. So, we're not wearing a lot of pieces you asked, Josh, trying to go through blow-by-blow those pieces. But things helping us going into the back half of the year, second quarter, back half of the year, additional self-help, as I said earlier, some improvement in Europe, some share gain and easier comps in industrial. So, those affect the year-over-year seasonality comparisons that you're doing. So, those would be the things I pull forward.

Thank you very much. Our next question comes from Jeff Zekauskas of JPMorgan. Jeff, your line is now open.

Thanks very much. In your Protective and Marine business, roughly how much is Protective and how much is Marine? And do any of the issues having to do with China shipbuilding affect that business for you? Is it something that accelerates your growth or detracts from your growth? And can you talk about your China exposure in that business?

Sure, Jeff. To address your first question, a large portion of that business is Protective, which holds true globally. We are active in China shipbuilding, and this year it has been quite strong for us. However, in the Marine segment, our main strength lies in aftermarket dry docks. We are confident in maintaining a healthy balance from both a country and segment perspective. Regarding your specific question about China and shipbuilding, it has indeed been a part of our growth narrative over the past few quarters.

Yes. And Jeff, I think you're alluding to the fact that some of the Chinese activity is in question, at least that's what the periodicals say. In terms of shipbuilding, we also participate in Korea, which is where you may see if the shipbuilding that moves to different country, we have beachheads and have participated in the Korea market for quite some time. So again, Tim's earlier comments about our business being a shop absorber local for local, we're in different regions. If our customers move production, we're there to handle the production wherever they're moving to.

Thank you very much. Our next question comes from Arun Viswanathan. Arun, your line is now open.

Thanks for taking my question. I just had a quick question on Auto OEM and Auto Refinish. So in Auto OEM, I understand that there's some choppy demand trends right now. But would you say that your customer mix or maybe your mix towards EVs or ICEs would be in any way a mitigating factor? And then similarly, in Refinish, it sounds like you were able to turn the corner on a little bit better quarter there, but despite lower claims activity. So, is that also maybe your customer mix more towards MSOs? Or maybe just comment on customer mix in those two auto businesses.

Hey, Arun. So, let me take Auto OEM first. Customer mix has been a challenge for us in a couple of regions. I talked about that in previous quarters. And the team is doing a lot of work to rebalance that mix. And we will see a lot of that 100 million in share gain is Auto OEM, both on the body side, but also the parts side. So, we'll see that both the customer mix and the overall performance of that business continue, especially starting in Q3 when we expect to be outperforming the industry. EV-wise, the only thing I'd say there is the EV outside of China is not a huge part of our business today. EV inside of China, we are number one with the largest player, and that player is doing quite well, and they are obviously not shipping to the U.S. It's largely local for local, and that business is doing well for us. On the Refinish side, it's not so much a customer mix issue. The strength in Q1 was really driven by two things: a lot of share wins in the last several quarters in that business. And in the U.S., we did have some favorable customer order patterns.

Thank you very much. Our next question comes from Mike Harrison of Seaport Research Partners. Mike, your line is now open.

Good morning. I have a couple of questions regarding the Performance Coatings business. First, was the 3% pricing increase consistent across all subsegments, or were there specific areas with stronger pricing? Additionally, concerning Traffic Solutions, does the performance in Q1 indicate that we can expect a busier season for that business? What leading indicators do you have for traffic demand as we move into the high season, and what are those indicators revealing at this time?

Mike, this is Vince. I'll take the pricing question and let Tim answer the traffic question. And if you look at our four businesses in there, some are long-cycle businesses, some are project-oriented businesses and some are shorter cycle. Certainly, we're still seeing some benefits in pricing from our long-cycle businesses that typically would take six months, nine months. So, we're seeing some carryover benefits from that. We are also interjecting additional pricing in a couple of these businesses in Q2. So, you should see a solid pricing number moving forward. In our short-cycle businesses, we're reacting to market trends on price.

Yes. Regarding traffic, there are three factors driving the strong performance in Q1, which we expect to continue into Q2 and beyond. First, we have momentum from market share gains achieved in the latter part of 2024. Second, weather plays a significant role as this business is highly sensitive to it. Last year was particularly wet in many areas of the United States, especially where we have our strongest positions. Consequently, there is considerable pent-up demand for road painting that needs to be addressed as the weather improves moving from Q1 to Q2, with our teams working to meet both prior and current demands. Finally, increased infrastructure spending has been a beneficial factor for this business, and we are beginning to see the results of that investment. We anticipate continued strong performance in Q2 and beyond due to these three factors.

Great, thank you very much. We currently have no further questions. So, I'd like to hand back to Alex Lopez for any further remarks.

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

This does conclude today's call. We'd like to thank everyone for joining. You may now disconnect your lines.