Ppg Industries Inc Q3 FY2025 Earnings Call

Good morning. My name is Carly, and I will be your conference operator today. I would like to welcome everyone to the Third Quarter PPG Earnings Conference Call. I will now turn the call over to our host, Alex Lopez, Director of Investor Relations. Please go ahead, sir.

Thank you, Carly, and good morning, everyone. This is Alex Lopez. We appreciate your continued interest in 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. Following management's perspective on the company's results, we will move to the Q&A session. Both the prepared commentary and discussion during this call may contain forward-looking statements reflecting the company's current view of future events and their potential effect on 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 refer to 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 coatings. Several of our businesses in the Performance Coatings segment delivered outstanding results, including double-digit organic sales growth in both aerospace and protective and marine coatings. Although this was offset by lower sales volumes in automotive refinish as our volumes were heavily weighted to the first half of 2025 due to distributor order patterns. From a regional perspective, the macro environment was choppy. Despite this, PPG organic sales grew a low single-digit percentage in the U.S. and Canada, representing the third consecutive quarter of year-over-year increases in this region. Organic sales also increased in Latin America and Asia Pacific and were flat in Europe. Solid sales improvement, combined with our aggressive cost management and consistent cash deployment drove an adjusted earnings per share increase of 5% year-over-year, establishing a third quarter record of $2.13. Looking at each of our segments. In the Global Architectural 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 quarter sales and earnings. Customer order backlogs increased to $310 million, even as growth-related investments improved manufacturing output during the quarter. In automotive refinish, organic sales decreased by a double-digit percentage versus the prior year, driven by lower sales volumes in the U.S. As we communicated on our second quarter earnings call, our distributor order patterns were heavily weighted to the first half of the year. On a year-to-date basis, PPG's automotive refinish coatings organic sales are outperforming industry demand, which has declined due to lower U.S. industry collision claims. In the third quarter, the company grew the number of refinish LINQ subscriptions as well as MoonWalk hardware installations, which now total more than 3,000, further supporting customer productivity and related share gains. We continue to add tools to our portfolio in order to expand our industry-leading productivity offering and to further strengthen our differentiation and market position. One such product is our newest clear coat, which is DELTRON Premium Glamour Speed Clearcoat. 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, resulting in a refinish product and application that combines high-quality appearance with increasing speed of application. This also redefines our innovation process, and applying AI to the design phase allows us to bring market-leading solutions to our customers faster. Protective and marine coatings delivered the 10th consecutive quarter of year-over-year volume growth with double-digit percentage organic growth in the quarter. Given this strong and consistent performance and further opportunities in various end markets, including marine aftermarket and certain energy markets, we are channeling additional growth-related investments into this business. Traffic solutions delivered mid-single-digit percentage organic growth in the quarter, driven by share gains given the strength of our industry-leading value 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 CAGR 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. And 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 to further debottleneck our facilities. We also announced an investment in a 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 realized the run rate benefit of share gains with strength in automotive OEM coatings and packaging coatings. From a business unit perspective, our automotive OEM business delivered an 8% increase in net sales with growth above market in all regions. The global light vehicle industry production growth was 4%, which we clearly outpaced. We expect to outgrow the market again in the fourth quarter and throughout 2026. Industrial 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-advantaged products in aerospace and protective and marine coatings, which will be offset by lower automotive refinish sales based on customer order patterns. We expect a year-over-year decline in organic sales similar to that in the third quarter as distributors have been managing their inventories heading into year-end. In our Architectural 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.

Our first question comes from John McNulty from BMO.

Tim, you posted some pretty solid growth across the bulk of the platforms. I mean 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 seemed 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, John. Let me discuss refinish. I'm confident that our top-notch productivity solutions will keep driving market share growth, which is important to understand the current situation. We are experiencing market share gains as we continue to introduce new productivity tools for our customers. Despite a temporary decline in collision claims, refinish remains a key business for PPG. The challenging environment in refinish over the next few quarters will favor stronger players who offer the best productivity solutions. This slump is not limited to coatings manufacturers; body shops also need productivity to navigate these tough times. Although we are in a slump now, our full-year performance is still better than the industry's, thanks to those productivity solutions. To address your question directly, we had mentioned in July that we anticipated some destocking. The whole industry expected claims to normalize as the year progressed, but that normalization did not occur as soon as we thought. This has led to more destocking than anticipated. Currently, miles driven are still increasing, and accident rates are reasonable, but turning those accident rates into collision claims has been lower for several quarters. This is mainly due to insurance dynamics, where affordability and availability have prevented some individuals from filing claims due to concerns about losing coverage or facing substantial rate hikes. Insurance rates saw about a 16% annual increase from 2022 to 2024, but we expect that to moderate to around 3% growth by 2025, which aligns with inflation expectations. We are hopeful that the improvement in the insurance landscape will lead to a normalization of collision claims going forward. We believe it will take a few more quarters for this normalization to ripple through the entire supply chain and collision network, with expectations for a more normalized industry by mid-2026. Additionally, we expect some destocking due to how distributors purchased last year. To clarify, when we talk about normalization, we mean collision claims dropping to low single digits, a trend that has been consistent for over a decade. Even with those declines, our refinish business typically achieves record sales and earnings growth. This aligns with our productivity value proposition as we work towards normalization. Currently, we are engaged in conversations with several large potential customers who find our productivity solutions even more appealing in these challenging conditions, as they align with their needs for success. Tough market conditions actually highlight our strengths. We anticipate industry normalization around mid-2026, and we are well-positioned to benefit from that. Once normalization occurs, we expect to see a 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, it's good to hear from you. Thank you. Regarding 2026, we typically provide our guidance in January, and we will share the numbers then. However, I can offer some high-level insights on our current thinking to address your question, and if I miss anything, Vince can add to it. For 2026, there will be many factors to consider. I'll compare our current view with what we thought 3 to 6 months ago. We don't expect much improvement in the macro environment, except for one point I'll mention soon. The macro remains unstable, and there hasn't been the recovery or momentum that we or others anticipated by now. Ongoing uncertainty in global trade is affecting how businesses allocate their spending, which is closely tied to our customers' investment in growth. Specifically for PPG, we see indications that several markets will stabilize by the middle of next year, later than we initially expected. As I mentioned, we anticipate challenges with refinish volumes contributing to this in the first half, as industry normalization is expected to happen around mid-2026. Additionally, we had a very strong first half for refinish sales in early 2025 due to favorable distributor order patterns as they stocked up on inventory. So we face a combined effect of industry normalization occurring mid-year and the comparison issues related to 2025. Overall, our outlook for 2026 is for a muted industrial environment, particularly in the first half, which we expect to be challenging. We are partially offsetting these headwinds with growing momentum in several of our businesses regarding organic growth, ongoing cost reductions, and aggressive discretionary cost management. We expect the raw material supply chain to remain long, which will support coatings companies as we progress through 2026 due to the benign macro conditions I just outlined. In summary, many of our end markets are facing tough conditions that seem to be more prolonged and severe than we believed a few months ago. On a positive note, we're effectively managing what we can control. We're making progress, growing organically, gaining market share, and reducing costs. Overall, however, 2026 appears to be softer in the first half than we had 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 and resulted in implied Q4 guidance coming in below consensus expectations?

Sure. Dave, it's all about refinish. As I mentioned earlier, we anticipated industry normalization happening sooner. However, we faced the challenge of destocking because our distributors were also expecting that normalization to occur earlier. When it didn't, they shifted their focus to reducing their inventories by year-end. This combination of factors in the refinish segment is what led us to decrease our Q4 guidance.

Yes, Dave, this is Vincent. And if you look 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 at 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 most important for you and how that business gets back to growth?

Yes, Mike, thanks for your question. I thought you might ask about the Brown Steelers this year, but we can address that later. To answer your question, our largest markets are France, the Netherlands, the U.K., and Poland. In addition to these four, we hold the top position in approximately 12 to 15 other countries. However, the primary markets are what really impact our business. Currently, we're experiencing soft demand, which I've just observed firsthand in Europe. This is largely driven by consumer confidence issues stemming from inflation, interest rates, geopolitical conflicts, and the ongoing energy situation in Europe. These factors are affecting consumer confidence in construction and remodeling. Despite this, we have strong brands and excellent products, and we are able to increase our prices. We've had nine consecutive years and 36 consecutive quarters of price increases. We are focused on controlling what we can and are not waiting for a recovery. Instead, we are implementing significant cost-cutting measures, expecting that flat demand, which we are nearing year-over-year, will be beneficial for our business due to our cost reductions and pricing increases. This will give us substantial leverage as conditions stabilize, and we are beginning to notice signs of that stabilization. Flat demand will be a positive scenario for us, and we are not standing still. We are observing some recovery in the East now. In that part of the continent, we lead in Poland, Hungary, Romania, all the Baltics, and across Scandinavia. We are well-positioned to take advantage as those areas recover. As soon as we notice stabilization in France, the U.K., and the Netherlands, we should start to see the leverage we are anticipating.

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?

BYD had a quarter that fell short of expectations. However, the overall auto market in China has remained strong throughout the year, and we anticipate that trend to persist. Despite facing challenges in China, we are seeing growth in the auto sector. While I don't have access to BYD's financials, I believe the competitive environment there could be contributing to some of their recent difficulties. Nevertheless, they remain the largest player in the market. We are collaborating with and selling to many other domestic Chinese manufacturers. As Alisha, who oversees that area for us, often mentions, our strategy is to focus on successful companies and ensure we have a broad presence across a variety of market leaders. We do not expect to see the same high double-digit growth rates in the Chinese auto industry as in the past, but we do foresee consistent low to mid-single-digit growth for both the industry and ourselves.

Yes, John, this is Vince. I'll just add that Tim mentioned in his opening comments that we outgrew the industry in China, but we also outgrew the industry in every other region. Regarding anti-involution, we don't see that as a problem. In the short to mid-term, we believe the chemical industry there will remain strong, and we expect they will continue to provide significant output to our industry even as other sectors 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 hope you're well. It's definitely part of it is mix. Refinish is an above segment let's say, a 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 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, we don't provide specific business margin details, but I can give you some context. The Performance Coatings segment is our highest margin segment, which we disclose quarterly. Within this segment, the refinish business is performing well above the average, as is aerospace. This indicates that there are two other businesses likely operating below the segment average, with one being PMC. Regarding the timeline for growth, aerospace has significant profitable growth potential that we expect to capture over the next couple of years, while PMC should require a shorter investment period as its improvements are more incremental.

Yes, Duffy, Vince. I want to just accentuate one of the things Tim said, that this growth for our shareholders is important. 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 benefits certainly in '26 and '27. Some of the investments in aerospace, as Tim articulated earlier, are capital. Some of them are OpEx. The OpEx and investment will be continued to spend into '26. 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.

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

Our next question comes from Ghansham Panjabi from Baird.

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, it's great to hear from you. Mexico is a very important market for us, and we're pleased to observe a recovery there. Reflecting on our history, it's been a consistent growth driver for us for about 10 to 11 years. We did experience a downturn, particularly in the first quarter, which was unusual for us in Mexico. This was due to the announcement of the Mexico-Canada tariffs in February, which led to a significant drop in consumer and project spending. Consequently, we saw negative organic growth in the first quarter. However, we returned to positive growth in the second quarter, albeit low single digits, and then mid-single digits in the third quarter. We are optimistic about the fourth quarter as we anticipate continued improvement. Retail has rebounded strongly, and we are also starting to see an uptick in project spending, as many projects were already underway and need to be completed. If a deal is reached with Mexico, it would significantly boost project spending. Overall, we are confident in the recovery, and based on our insights in Mexico, we believe we'll return to the growth levels we 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 are 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 the change in your EBITDA?

Yes, Jeff, it's great to hear from you. Aerospace capital expenditures are expected to peak this year, in 2026 and 2027. Our goal for overall capital expenditures is to return to 3% of sales. I believe this year will see the highest level of our capital spending, which will decrease slightly in 2026 and again in 2027 as we move back to that 3%. This increase is temporary. One of the reasons I highlighted this is that previously, you only saw the total capital expenditure figure and there were questions about why our spending was rising. We're investing more because one of our most profitable businesses has an exceptional growth trajectory that could last for many years, and it's in our best interest to capture that growth. I've mentioned this so you understand it, but it doesn't alter our long-term goal of about 3% of sales. We do expect this to be the peak and that we will trend down toward that goal. Regarding working capital, I know that's Vince's area of expertise, so I'll let him address it. However, one aspect is that due to initial tariff uncertainties, we pre-purchased a significant amount of raw materials to secure favorable pricing. This has given us time to implement other strategies to mitigate tariffs and manage inflation as we progress through the year. We fully expect the inventory situation to normalize by year-end, and Vince can provide more details on 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 that 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 future years.

Our next question comes from Aziza Gazieva from Fermium Research.

You recently highlighted that epoxy resins had 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, Aziza, I wanted to ask Frank about his thoughts on the factors contributing to the Jets' success. Could you please pass that question along? The epoxies were actually affected before Trump took office, as last year there were antidumping measures and tariffs imposed under the Biden administration. We had already accounted for that in our projections for low single-digit inflation. This distinction sets us apart from companies that focus more on architectural coatings as they do not utilize epoxy, whereas sectors like automotive, packaging, PMC, and industrial do. Therefore, epoxy is a significant factor for us, although it doesn’t have a major impact. This has already been factored into our low single-digit forecast for the year. Looking ahead to next year, the supply-demand dynamics remain favorable for us, and our purchasing team has found that many of our upstream suppliers, including those for epoxy, are more interested in volume deals rather than increasing prices.

Yes, Aziza, I'll just add on here, working with our procurement team. One of the angles that 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 assured 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, your competitor reported yesterday said they gained share and grew mid-single digit. Are you seeing a more competitive volume environment? Or are you expecting more pressure across your businesses going forward in 2026?

Yes, James, I don't see any fundamental changes in the competitive landscape within our businesses, with one exception being China, which has more competitors. This isn't a new development, but it does lead to a more competitive environment. Regarding refinish, I've mentioned before that there are two leading companies in productivity solutions, and we compete against each other daily, winning and losing in turn. The larger issue is that companies lacking robust productivity solutions tend to suffer over time, and this becomes even more pronounced during tough industry conditions, as body shops rely heavily on those with such solutions. So, I'm not surprised that one competitor reported gaining market share; we are also gaining share and are confident in our position. We've introduced new digital and chemistry productivity solutions to enhance our offerings and gain even more market share, with a couple of new solutions announced this quarter. As we strengthen our value proposition, I believe we will continue to capture market share. Additionally, as I indicated earlier, we are now attracting interest from some larger potential customers that we hadn't before, due to the current industry challenges and the value of our productivity solutions. So while there isn't a significant change in the competitive dynamics, we are experiencing an increased interest in 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 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.

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 cost base.

Yes. Regarding the $100 million, we mentioned it a year ago, and it is now beginning to come into effect as most of those projects were launched or are being launched in the second half of the year. That amount has not diminished. Additionally, we have been securing new business throughout the year. In the Industrial segment, especially in packaging and automotive, there will be more wins beyond the initial $100 million that will start to materialize. However, in the first half of 2026, this growth will not be sufficient to counteract the macro challenges I previously mentioned, specifically the refinish comp issue related to distributor buying behaviors. These challenges are temporary, and as they begin to ease, we will be in a stronger position moving 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 of 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 the 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've 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. And we'll continue to execute on building that organic growth and 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.

Our next question comes from Ryan Weis from Key Group.

This is Ryan on for Aleksey. I know there's been a lot of questions on refinish this morning, so I figured I'd tack 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. We are gaining market share, with most of our successes occurring in both the U.S. and Europe. In the U.S., the top two competitors are truly winning. Occasionally, a lower-ranked competitor may mention gaining share due to one customer switch, but we are achieving substantial wins in the hundreds per quarter. This is a standout achievement for us and likely for other top competitors as well. The industry has progressed beyond simply offering paint chemistry; we are proud to deliver solutions that enhance productivity both inside and outside the paint container. Overall, this is contributing to our share growth in the United States and Europe, while smaller regions are also experiencing some share shifts, all of which are positively impacting our performance.

Yes, there has been considerable conversation regarding the refinish market. As Tim noted earlier, this market typically sees a slight decrease each year. However, what sets PPG apart is our ability to expand this revenue opportunity by introducing PPG-specific revenue streams, which include the subscription-based offerings Tim referred to. These options are largely volume agnostic and enhance productivity, leading customers to be willing to pay more for them. Therefore, for PPG specifically, we can grow our revenue base in this area.

Yes. So again, refinish is getting a lot of airtime 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 non-digital, 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 clear coat 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, Mike, I hope you're doing well. We're really excited about this. While I'm not an AI expert, I have many skilled professionals on our team who are doing the hard work. Essentially, we have over a century of proprietary formulation expertise within our laboratories worldwide. We have developed tools in collaboration with partners that help us analyze this historical formulation data to optimize product performance much faster than humans can, achieving the best product at the most competitive price and with the quickest market launch. This is just the first product we've introduced using this approach, and we are expanding it to our other businesses. By the end of this year, we expect to have around 50 products commercialized using what we refer to as formulation AI. Some of these products are new, while others involve optimizing existing formulas through this technique based on our extensive proprietary data. I would love to discuss the various other ways we're utilizing AI to enhance both our internal productivity and customer-facing speed, but that will be a conversation for another day. We highlighted this achievement because it marks a significant milestone for us with the launch of this initial product.

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 wanted to ask about the overall portfolio. It seems like several industrial-oriented businesses are still facing various challenges. Are there additional steps you can take to redirect some of that capital into aerospace and other growing areas while possibly deprioritizing some of the more cyclical businesses? I know you've already made some moves with the silicas and architectural divestitures. Additionally, are there any businesses where you find yourselves as a number three or four competitor, or has that been addressed as well?

Arun, I'll let Tim provide more details. However, you mentioned our two divestitures this year, which are architectural Russia and silicas. These divestitures led to a decrease of about $0.05 year-over-year in segment earnings. Therefore, on a like-for-like basis, our current business portfolio shows an improvement compared to the headline number.

Yes, Arun, I've been here 38 years, and in recent years, we've been more actively managing our portfolio. We've made a significant shift from glass coatings and chemicals to coatings over the last 15 to 20 years. We're focused on portfolio management, which includes the U.S. architectural segment, silicas, the exit from Russia, and leaving African countries that were hindering our progress, among other adjustments. If you look at the EBITDA before these changes, we consistently operated around a 15% EBITDA in 2018, 2019, and 2022, excluding the two main COVID years. Now, we're consistently around a 20% EBITDA. We're very pleased with the improvements we've made in terms of cleanup and optimization. While we will continue to prune, currently, there is nothing substantial we are working on to exit; it's mainly edge pruning. I hope our recent efforts have established our credibility in actively reviewing our portfolio, which is a key responsibility for me as the CEO, and I will keep that focus moving forward.

Our next question comes from Josh Spector from UBS.

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 quick question here is, why aren't you buying back more stock now? What's holding you back?

Yes, Josh, we appreciate your questions and I hope you see that I’ve been consistent since I took over. I’ve stated that I won’t let cash accumulate on the balance sheet, and for 11 straight quarters, I’ve maintained that. In three of those quarters, we needed to pay down some high-cost debt following the Tikkurila acquisition, while in the other eight quarters, we’ve been actively buying back shares. As we approach the 12th quarter, I will continue to say the same — I won’t let cash sit idle and will use it to maximize shareholder value. Unlike others, we do pay a significant dividend. We are making some additional investments for a transitional period to position ourselves for future growth, and we will continue to explore mergers and acquisitions when opportunities arise that enhance shareholder value. You can expect our approach to remain consistent with what we’ve done in the past eight quarters. Keep in mind that some of our actions in the fourth quarter of last year and the first quarter of this year involved proceeds from selling certain businesses, which we also used to buy back more shares. Regarding your point on stock price, it’s currently undervalued, and using our cash in this way is a sound strategy. You should expect me to continue to operate in this manner.

Yes. And just a point of clarification. We do have a little bit of a grossed-up cash balance now, but we have a grossed-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 very quickly on aerospace. If I remember correctly, your content per plane should increase by about 1% or 2% faster than inflation over time. Is that about right? Also, as you consider adjacencies or innovation platforms, what can you do to speed that up?

Matt, thank you for that question, Laurence. 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 sealant 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 end 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 camp productivity tools that grow our content. Our second biggest piece of that business is our transparency business, where 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, right? 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 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 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.