Earnings Call Transcript - PPG Q4 2024

Operator, Operator

Good morning. My name is Breca, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fourth Quarter PPG Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. To allow everyone an opportunity to ask a question, the company requests that each analyst ask only one question. Thank you. I would now like to turn the call over to Alex Lopez, Director of Investor Relations. Please go ahead, sir.

Alex Lopez, Director of Investor Relations

Thank you, Breca, and good morning, everyone. This is Alex Lopez, Director, Investor Relations. We appreciate your continued interest in PPG and welcome you to our fourth quarter and full year 2024 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 Thursday, January 30, 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 a Q&A session. Both the prepared commentary and discussion during this call may contain forward-looking statements, reflecting the company's current view of future events and their potential effect on PPG's operating and financial performance. These statements involve uncertainties and risks, which may cause actual results to differ. The company is under no obligation to provide subsequent updates to these forward-looking statements. The presentation also contains certain non-GAAP financial measures. The company has provided in the appendix of the presentation materials, which are available on our website, reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures. For additional information, please refer to PPG's filings with the SEC. Now, let me introduce PPG Chairman and CEO, Tim Knavish.

Tim Knavish, Chairman and CEO

Thanks, Alex, and good morning, everyone. Welcome to our fourth quarter and full-year 2024 earnings call. Before I start, I'd like to offer prayers and condolences to those who lost their lives in yesterday's terrible air collision in Washington, D.C. Our prayers are with their family, friends, and loved ones affected by this terrible tragedy. Now I'll begin by providing a few highlights of our full-year 2024 and fourth quarter financial performance, and then I'll move to our outlook. On behalf of PPG, I'd also like to apologize for the volume of changes, recasting of financials, the new segmentation, and the guide structure, but this is a positive and critical inflection point for our company. We wanted to structure the reporting on a go-forward basis to reflect this. As a result of the Architectural Coatings U.S. and Canada divestiture, all financial information provided in the earnings material has been recast to reflect this business as a discontinued operation consistent with U.S. GAAP requirements. In 2024, the team demonstrated resilience in a challenging macro environment by driving growth in adjusted EPS from continuing operations and aggregate segment EBITDA, led by sales of our technology-advantaged products, structural cost actions, and moderated input costs. We delivered record results in several of our businesses, including aerospace coatings, automotive refinish coatings, and architectural coatings in Latin America. Despite strong share gains in certain businesses, organic sales declined in low-single-digit percentage year-over-year, driven by overall weak macros. However, we delivered growth in Mexico and China, as well as growth in aerospace, protective and marine, packaging, traffic solutions businesses, offset by industry declines in auto OEM, industrial and our architectural coatings EMEA business. For the full-year, adjusted EPS was $7.87, which grew 6% year-over-year and excludes $0.27 of EPS that has been reclassified to discontinued operations, reflecting the results of the divestiture of the U.S. and Canada Architectural business with the exception of certain allocated costs. Strategically, during the fourth quarter, we further optimized our portfolio as we completed the divestitures of our silica products and Architectural Coatings U.S. and Canada businesses. This is a significant step forward for our company as these divestitures improve our financial profile, including higher operating margins, and result in a more focused organization which positions the company to deliver sustainable organic growth. As we've said, our portfolio moves this past year have strengthened the company's financial profile. When you combine the impact of these transactions with the organic improvement in margins we delivered on our remaining businesses, you will note that we have now achieved top-tier EBITDA margins. This performance reflects the value that our customers assign to our technology-advantaged products and services, our solutions, our well-trusted brands, our strong global positions across the coatings verticals, and the cross synergies of our business portfolio. We believe that both this margin profile and our enterprise growth actions are great catalysts for the future value creation of PPG. Given the revised portfolio, we have expanded our segment reporting structure and will now report all of our Architectural Coatings businesses as a separate segment, Global Architectural Coatings. The reporting of the remainder of the businesses within Performance Coatings and the Industrial Coatings segment will remain the same. This expanded segmentation provides investors with enhanced visibility as we drive the company's growth and performance. Our Global Architectural Coatings and Performance Coatings segments both now have full-year EBITDA margins at or above 20%, reflecting the differential technologies and strong brand positions of our various businesses. Our Industrial Coatings segment delivered a 16% EBITDA margin, despite operating in a weak global industrial macro-environment. Each of our segments has unique characteristics that allow us to deliver exceptional value to our customers. By leveraging the distinct strengths of our businesses, we are positioned to drive innovation, increase demand for our technology-advantaged products, and deliver sustainable and profitable growth while increasing returns to our shareholders. In our Global Architectural Coatings segment, we have excellent and well-recognized brands with world-class distribution and a strong number one or number two position in more than 15 countries. Our Performance Coatings segment is focused on various aftermarkets that traditionally are more stable and have a more fragmented customer base. Within this segment, we offer differentiated and highly specified product and digital solutions that enable our customers' productivity. Our Industrial Coatings segment delivers highly technical products and services for our global B2B customers. We operate field service teams in our customers' facilities, which allows us to develop strong relationships and a deep understanding of their productivity needs. Also, we typically grow with our customers as they expand around the world. In the fourth quarter, despite the choppy environment, our adjusted EPS grew by 6% year-over-year, excluding the impact of unfavorable foreign currency translation. We delivered strong organic sales growth in aerospace coatings, protective and marine coatings, and traffic solutions. This was our ninth consecutive quarter of aggregate segment margin improvement, and we have delivered cumulative margin improvement of approximately 400 basis points since 2022. In the Global Architectural Coatings segment, fourth quarter net sales were significantly impacted by unfavorable foreign currency translation, primarily the Mexican peso. Sales volumes declined due to weak consumer confidence in the European architectural coatings market. However, we benefited from our strong concessionary network in Mexico, where demand is robust for our products and services. For the full-year, segment EBITDA margin improved by 70 basis points as lower volumes were offset by our cost control actions and net price impact during the year. In the Performance Coatings segment, fourth quarter organic sales grew 4% with both price and sales volume improvements. Within the segment, Aerospace Coatings demonstrated continued strong performance with record fourth quarter sales and double-digit percentage organic sales growth. Despite improved production capacity and other productivity gains, the order backlog increased to approximately $300 million, demonstrating the strong demand for our technology-advantaged products, as well as excellent industry dynamics. In Auto Refinish, sales volumes declined in the U.S. with benefits from share gains more than offset by lower industry collision claims. These share gains are a product of the demand for our technology-advantaged products and services. In 2024, the company grew the number of linked services subscriptions and added more than 600 additional Moonwalk installations that now total more than 2,500 around the world, adding to our subscription revenue. Protective and marine coatings demonstrated strong growth in the fourth quarter, supported by increasing global demand for our technologies and our recent share gains. This was the seventh consecutive quarter with positive year-over-year sales volume growth, and we expect the positive momentum to continue. Segment EBITDA margin improved in both the fourth quarter and full-year due to positive volume and strong net price impact. In the Industrial Coatings segment, demand was constrained by soft global industrial production and weak automotive OEM industry production. As expected and forecasted by industry consultants, auto OEM industry production was lower year-over-year in the U.S. and Europe. Our results followed that lower demand trend, and we were able to partially offset the decline in sales volumes with share gains in Latin America and China. Industrial production was also sluggish in Europe and the U.S., which resulted in lower year-over-year sales volume in the industrial coatings business. Sales volume declines in those regions were partially offset by strong growth in Latin America. Prices in the Industrial Coatings segments declined due to lower index-based selling prices as raw material costs declined in the latter part of 2024. This impact is expected to moderate in 2025 as most have reached their anniversaries and will be reset based on recent stability in raw material pricing. Segment EBITDA margin reduced 160 basis points for the quarter and was slightly lower on a full-year basis as the lower volumes were partially offset by strong cost control actions. We ended the fourth quarter with cash of about $1.4 billion. During the quarter, we completed $250 million in share repurchases and paid approximately $160 million in dividends. On a year-to-date basis, we repurchased approximately $750 million of stock, which represented approximately 3% of our outstanding shares. We honored our pledge to return cash to shareholders, and combined with our dividend, we returned $1.4 billion to our shareholders in 2024. Our balance sheet remains strong, which continues to provide us with financial flexibility, and we remain committed to driving shareholder value creation. Thus, we're deploying about $400 million towards share repurchases during the first quarter of 2025. Looking ahead, we anticipate a slow start to 2025 as demand in Europe and in global industrial end-use markets remains challenged. However, we expect stabilization on a full-year basis of some key economic indicators like Light Vehicle Builds and global industrial production, as well as additional aircraft deliveries. In the first quarter of 2025, we'll begin to see the impacts of already enacted tariffs which is expected to result in low-single-digit percentage inflation in raw material costs, while raw material inflation was flat in the fourth quarter of 2024. Despite a challenging macroeconomic landscape and a slow macro start for 2025, I'm genuinely optimistic about this year. We expect to deliver organic sales growth of low-single-digit percentage for the year, with the first quarter organic growth flat to slightly down. Stronger results are expected in the second half of the year supported by the realization of more than $100 million in annual share gains in our Industrial Coatings segment. As we enter the next chapter for PPG with a new sharper portfolio and focus, we're progressing further on the execution of our Enterprise Growth Strategy with several elements that include: building upon our organic growth capabilities on commercial excellence with the right processes, people, tools, and incentives; taking decisive self-help actions to further reduce costs, including global structural costs and European manufacturing consolidations. This program will deliver approximately $175 million once fully implemented, including savings of $60 million in 2025. Execution of our operational excellence programs will also deliver manufacturing productivity that will more than offset general inflation. We'll deploy cash in a disciplined manner, investing for growth, selective M&A if appropriate, and returning cash to shareholders. As a result of these actions, we expect to deliver adjusted earnings per share for the full year in 2025 in the range of $7.75 to $8.05, which at midpoint represents an EPS growth of 7%, excluding the impact of foreign currency and higher tax. Consistent with our sales growth, EPS growth will be weighted towards the second half of 2025 as global industrial demand weakened and the U.S. dollar strengthened in the second half of 2024. I'm excited about 2025 and beyond. We have a sharper, more focused, future-facing portfolio and a higher growth and margin profile company. For our customers, we're both delivering solutions that ensure their success today and innovating tomorrow to improve both their productivity and their success. We remain committed to our heritage of strong cost management and improved productivity that reinforces the ability to maintain our momentum in driving higher margins and earnings growth. The result will be profitable organic growth for PPG and shareholder returns for our owners. The successful divestitures and solid performance in 2024 would not have been possible without the dedication of our employees. We are now a much more focused organization dedicated to driving ongoing growth with strong margins. Thank you to our PPG teams around the world who make it happen and deliver on our purpose every day. Thank you for your continued confidence in PPG. And this concludes our prepared remarks. Would you now please open the line for questions?

Operator, Operator

Thank you. The first question we have from the phone lines comes from John Roberts with Mizuho. Please go ahead.

John Roberts, Analyst

Thank you. Could you talk about the $100 million new win for industrial? Is that related to a major competitor pulling back, or is something else driving that?

Tim Knavish, Chairman and CEO

Hey, good morning, John. Thanks for the question. Certainly, the South American exit of one of our competitors is a part of that. I'd say slightly less than half of that. We've got a number of other significant wins in auto OEM, as well as our industrial coatings and our packaging coatings businesses. As you know, in the Industrial segment, the time lag between win and conversion is longer than in our other segments because these are B2B factories that need changeover time, etc. But the wins are spread across those three major businesses, but a big piece of it is the exit in the South American market.

John Roberts, Analyst

Thank you.

Operator, Operator

We now have Ghansham Panjabi with Baird. Please go ahead when you're ready.

Ghansham Panjabi, Analyst

Thank you, operator. Hey, Tim. Just given your comments on the slight increase in raw material prices for 2025, due to tariffs and whatever else, can you just give us more specifics on how are you adjusting pricing across the portfolio to reduce the risk of any sort of price-cost mismatch as 2025 unfolds in context of all this uncertainty on tariffs?

Tim Knavish, Chairman and CEO

Sure, Ghansham. So what's in our guide for raw materials, which is basically up low-single-digit inflation throughout the year is almost entirely based on the tariffs that have already been enacted in our basket, which is pretty much TiO2 and epoxies. We've also got our mitigation efforts of those already baked into our guide. What you'll see from a pricing standpoint is, I think Q1 will be flattish to slightly positive as some of our businesses are on traditional calendars as to when they raise prices and that's scattered throughout the first few months of the year. In raw material pricing, I'm sorry, raw material pricing index pricing on the industrial segment, we'll still have a little bit of carryover for the first quarter. But then for the full year, we're expecting positive pricing, low-single-digit positive pricing for the company across the board. We'll remain flexible and agile and do what we need to do if there are other tariffs or things we need to do from a competition standpoint to remain competitive in the market, but that's what's baked into our guide.

Vince Morales, Senior Vice President and CFO

And Ghansham, this is Vince. If you pull back to 50,000 feet and look at the supply chain, it's still a loose supply chain, still a buyer's market for coatings commodities beyond the tariffs.

Ghansham Panjabi, Analyst

Got it. Thank you.

Operator, Operator

Thank you. We now have David Begleiter with Deutsche Bank.

David Huang, Analyst

Hi, it's David Huang here for Dave. I guess you're expecting full-year segment margins to be up 50 bps and down 150 bps in Q1. How do you expect margins to trend, I guess from Q2 to Q4?

Vince Morales, Senior Vice President and CFO

Yes, Dave. This is Vince, I'll start and I'll let Tim add some color. As we noted in our materials in Q1 and Tim just now also noted we have some raw material inflation around those enacted tariffs in Q1, pricing is coming in throughout the quarter. We also expect a flat to low-single-digit decline in volumes. As you progress through the year, our volume performance gets better. So that's a differential between Q1 and full-year in terms of the margin progression.

Tim Knavish, Chairman and CEO

Yes, I would just add a little bit of color, particularly on the Industrial Coating segment. That's our most volume-sensitive segment at this point from a margin standpoint, because of the leverage that you get with a little uptick in margins. So as we have a very soft Q1, you'll see that look pretty much like Q4 with the volume kicking in the industrial segment more in the second half of the year.

Operator, Operator

Thank you. We have Chris Parkinson with Wolfe Research on the line now.

Chris Parkinson, Analyst

Great. Thank you so much. Tim, I'm guessing getting on slide five, no one was more excited to get that one out than you because it just represents obviously everything you've been working for? When we take a step back and look at the three new segments. Can you just give kind of the one or two points on, I understand the first-half macro is what it is. Like, can you just talk about how you and your teams are now thinking about the respective growth rates of those end markets in terms of share gain, market outperformance, just anything that would potentially filter into the bias like perceptions of PPG's ability to grow in the new framework would be particularly helpful. Thank you.

Tim Knavish, Chairman and CEO

Yes. Sure Chris. So Global architectural coatings, now that we have our business refined to where we've got positions where we've got a really good strong right to win in those countries. You could use housing, construction, and GDP as kind of proxies for the base growth rate of the end markets, but then because of the strength of our position, you can add incremental share gain on top of that. If you look at performance coatings, that's now largely an aftermarket business. The demand there is a lot more steady on average. And as you know, from things like our refinish business and the new differentiated technology that we've launched for the marine aftermarket, we feel that we've got a pretty strong advantage in the performance coding standpoint to pick up additional share. And with industrial coatings, that's much more tied to industrial production. So automotive, that's the easiest, well, just follow the fields. Beyond that, we'll follow industrial production as the baseline market, and then share gains from our technologies on top of that. So that's how we think about those three different segments.

Vince Morales, Senior Vice President and CFO

Yes, yes, Chris. If I could just add a couple of bits of color here. As Tim mentioned on the industrial side, given the differentiated or specified technologies, we picked up share in packaging over the past two years. Certainly in certain industrial end markets, we've grown our position globally, including growing our market share in powder, some of that inorganically. And if you look at the performance coating segment, we've talked a lot about some of our tools in the refinish area, especially the digital tools, and on those digital tools, you know, we're recognizing subscription revenue in addition to the customer intimacy that brings. So those are some of the differential items that will give us, I think, an advantage versus the market rates.

Tim Knavish, Chairman and CEO

Yes, if I could just add one more piece of color, Chris, if you refinish in performance coatings, good example, you know, collision claims in the U.S. were down high-single-digits in 2024, and we far outperformed that and won about 2,500 new shops. So that's how we should think about it. Think about the market drivers plus our differentiated advantage in each of those segments.

Operator, Operator

Thank you. We now have a question from Duffy Fischer with Goldman Sachs. Your line is open.

Duffy Fischer, Analyst

Yes, good morning, guys. I was hoping you could help me. You know, if you look, the published number for last year was 787. The midpoint of your guide for this year is 790, right? So basically on top of each other for the year. But when you look at the shape of how that 787 came about last year. How does that look this year? So can you help us kind of with the shape the year-over-year either EPS or EBIT, whichever way you want to look at it? You know it sounds like you're going to be beating more in the second half, probably behind in the first half, but can you just help us with kind of the year-over-year shape of those two numbers?

Tim Knavish, Chairman and CEO

Well Duffy, considering how little time we gave you to digest all these new numbers, you're pretty darn close. We'll be behind last year in the first half, particularly in the first quarter, and then we'll be nicely above it in the second half, that's your last comment. If you look at it operationally, it's 7% operational EPS growth. And then there are a couple of big things on top of that, that bring it down about to the same level with the biggest one being about $0.33 of EPS of FX. And then my CFO will give you all the details below it. But high level, weaker in the first half, especially first quarter, strong second half, year-over-year, net-net, 7% operational EPS gain for the full year.

Vince Morales, Senior Vice President and CFO

Yes, and Duffy, we provided, as Tim mentioned, a flurry of information last night. One of the pieces we want to add to that is our quarterly EPS for the last two years on a recast basis. So, Alex, could you give us numbers?

Alex Lopez, Director of Investor Relations

Yes, for your reference, Duffy, last year Q1, as you saw in the exhibit, it's $1.87 adjusted EPS; Q2, $2.35; Q3, $2.03; Q4, $1.61 for the full year of $7.87. In 2023, Q1 adjusted EPS $1.75; Q2 $2.12; Q3 $1.98; Q4 $1.56, with a full year of $7.42.

Vince Morales, Senior Vice President and CFO

Then if you look at the shape of the year, we talked about this on an earlier question, Duffy. If you look at the shape of the year, again, because of the slightly negative volumes in Q1 and the additional tariffs that were enacted in Q4 that will affect Q1. Q1's light willinterject pricing as we go through that first quarter. We'll see the volumes flatten and grow in the back half of the year. We'll also get some more restructuring benefit as we progress through the year. We talked about our self-help actions, and those will drive some cost benefit later in the year.

Duffy Fischer, Analyst

Great. Thank you, guys.

Operator, Operator

Thank you. We now have Frank Mitsch with Fermium Research. Please go ahead.

Tim Knavish, Chairman and CEO

Hey, good morning. Russell or Justin? Will you put your money on Frank and I'll go the opposite. Good call, good call. So the $400 million buyback in Q1, Vince, on the last call, you had indicated that the sale of North American architectural with all your moves to cash, etc. would wind up being neutral or creative on the EPS. I’m curious if that's still the case in terms of the $400 million buyback in Q1 that almost indicates that there's not much you're seeing right now on the M&A side of things, because one would have thought that you might keep your powder dry. Some of the coatings companies have indicated that they are looking at portfolio moves and divestitures and so forth. So any comments in terms of use of cash and when all is said and done with respect to the divestiture of North American architectural, you know, a creative neutral dilutive?

Vince Morales, Senior Vice President and CFO

Yes, Frank, this is Vince. I'll take the $400 million and the proceeds from the divestiture. We did receive those proceeds late in the fourth quarter in 2024. They're not appearing in our cash flow statement we put out last night because we didn't put out a discontinued operations cash item, but there will be in the 10-K when we file that. Certainly, we're putting those proceeds to work immediately as we committed to do in Q1, which again reflects that $400 million. And Tim, you want to take the M&A?

Tim Knavish, Chairman and CEO

Sure. So let me just be very clear that, first of all, I think part of your question on the $400 million was it accretive. And the answer is absolutely yes. But on the M&A, let me be very clear, our strategy on M&A has not changed from what I told you all in May of 2023 when I first came into the job that it's not the tip of the spear for us. We're very focused on building an organic growth machine, but that we would still evaluate any targets because we believe there still is consolidation to happen in this industry. And there are some good assets out there that would add shareholder value. So that has not changed. If you look, you know, in 2023, I told everybody we paid down bad debt. We did that early, and then we started buying back shares for the first time in a long time in Q4 of '23. In 2024, I said if there was no targeted selective M&A, we buy back shares, and we bought back $750 million. As we come into this year, we're starting off Q1 buying shares. We fully expect to have another good cash generation year. So we've got good optionality, especially with where our leverage is right now. There are also a couple of assets coming to market or already on the market. One of them, I've already said does not fit our enterprise growth strategy. So not interested. One of them, the Brazilian asset is an attractive asset. It's a good fit for our strategy of either being a strong number one or strong number two, but we have to decide. We were not the only ones that would draw that conclusion. So we have to decide right price, right time. We want to make sure that whatever we do, if we do anything on acquisitions, that it doesn't distract from building the organic growth machine. But if we do it, if we do want to take a look at that asset or any of the other assets that may come, is it the best use of our shareholders' cash? Because right now, we believe our stock's undervalued, and we’re generating cash. We can deliver returns by buying back shares. So it all comes down to the right asset, right time, so as not to distract the organization. And finally, of course, right price, is it the best use of the cash.

Frank Mitsch, Analyst

Terrific. Thanks so much.

Operator, Operator

Thank you. Your next question comes from Steven Byrne with Bank of America. Please go ahead.

Steven Byrne, Analyst

Yes, thank you. So, Tim, if your end markets normalized and now you have three segments with more transparency and you've divested the slower growth businesses and you focus on share gains, etc. What do you target as a sustainable earnings growth rate down the road here? And what do you think it needs to get to, to move you out of a 15 multiple?

Tim Knavish, Chairman and CEO

Yes. Hey, Steve, I'll be consistent with what I've been saying in my first two-plus years now is that, as we start to deliver on each of our commitments, this is an 8% to 12% EPS growth company. And where it falls in that range is dependent on macros. If you look at 2025, operationally, we're going to be a 7%, which compared to the macros that are in front of everybody right now is a good, I think a pretty robust number. Now going forward, as all the things you said in the beginning of your question are exactly right. More focused portfolio. We don't have the drag on the company from a business that was underperforming. We're not distracted by a high CapEx business that didn't fit our ambitions, and we've been investing in the organic growth muscle. And so, we're still confident that this is an 8% to 12% EPS growth company.

Vince Morales, Senior Vice President and CFO

Yes, Steve. I can add a few more details. This is Vince. If you look at our segments, we have two that are at or above 20% EBITDA margins. As these segments grow, they will enhance our mix benefits. The industrial segment has been facing a two-year global recession. We believe that this segment is either nearing or has reached its lowest point in terms of volumes. As Tim mentioned earlier, this is our segment most sensitive to volume changes. Therefore, any volume increase should lead to better incremental gains and allow us to achieve a different EBITDA margin moving forward.

Operator, Operator

Thank you. Your next question comes from Kevin McCarthy with VRP.

Kevin McCarthy, Analyst

Yes, thank you, and good morning, everyone. Tim, I think you mentioned that in the first quarter, you would expect volume to be flat-to-down. My question would be, how do you expect volume to trend through the balance of the year? And how much of the implied improvement in the progression relates to potential macro uplift, you know, getting out of this two-year industrial recession that we've been in, and how much relates to company-specific controllable, such as the $100 million share pickup that John asked about in industrial? Maybe you can kind of parse that out and give us a sense of your level of confidence in restoring volume growth here and what that balance looks like. Thank you.

Tim Knavish, Chairman and CEO

Yes, Kevin. The first quarter will be challenging as we've mentioned previously. We expect negative volume, consistent with what we experienced in Q4. After that, you should see it leveling off to positive, with low-single-digit growth, which we anticipate for the rest of the year, likely low-to-mid single digits as we move into the second half. Overall, we expect positive volume on a full-year basis at around low-single digits. Regarding the components, we are not relying on any significant recovery. We are expecting stabilization, for instance, in European architectural demand and refinish, but not a recovery in Europe. Auto builds are projected to be essentially flat for the year, so we don't have high hopes for significant increases. It's about stabilization in the end markets, alongside approximately $100 million in share gains in the industrial segments and continued gains in some of our key performance and global architectural coatings. However, these gains are modest compared to larger increases typically seen on the industrial side. All in all, we anticipate a year with positive volume in the low-single-digits, negative in Q1, and then improving from there.

Vince Morales, Senior Vice President and CFO

Yes. Yes, Kevin, it's Vince. I'll add a couple of points of color about Q1. We did have a strong, very strong Q1 in 2024, especially in China, high-single-digit growth in China. So we're comping against that. We also had double-digit growth in a couple of businesses, including packaging. So some of the Q1 year-over-year comp is related to just to hard comparables. And again, as Tim mentioned, the trend line in our industrial business really just continuing the second half of 2024, we saw activity globally decline in the second half. So as we anniversary that in the first-half of 2025, again, we're not expecting significant hockey stick in the back half.

Kevin McCarthy, Analyst

Thank you, both.

Operator, Operator

Thank you. We now have the next question from Michael Sison with Wells Fargo. Please go ahead when you're ready.

Michael Sison, Analyst

Thank you. Regarding Performance Coatings and Industrial Coatings, do you plan to run all the business units within those segments similarly to how you handled U.S. architecture, which you have exited? Are there any other businesses you are considering exiting? Could you share your thoughts on what remains in Performance and Industrial Coatings that aligns with your long-term growth goal of 8% to 12% for PPG?

Tim Knavish, Chairman and CEO

Yes, Tim here. We currently do not have plans for any additional divestitures. Each business must demonstrate its value to remain part of our portfolio over the long term. At this point, we do not have any divestiture announcements in the pipeline. We are pleased with our portfolio and confident in our competitive position across all our businesses. Performance Coatings has performed exceptionally well. Our Aerospace division has seen consistent growth, and our traffic business is well-positioned in North America and is performing strongly, largely within the aftermarket segment, which we are very satisfied with. In the industrial sector, our businesses are high-technology and align closely with our strengths. While today's margins may not match those of the other segments, as Vince noted, we are achieving over 16% EBITDA even at low points, with significant potential for volume leverage as conditions improve and our internal improvements take effect. Additionally, as we start to anniversary index pricing, we expect to see more opportunities. Overall, as shown in Slide 4, the actions we have taken have resulted in a 220 basis point increase in top-tier EBITDA margin. We are excited about our business mix and the potential for growth, especially considering the current macro environment.

Michael Sison, Analyst

Great. Thank you.

Operator, Operator

Thank you. Your next question comes from Patrick Cunningham with Citigroup.

Patrick Cunningham, Analyst

Hi, good morning. So, on the Architectural Coatings EMEA business, your demand seems to be weak on consumer confidence. You experienced demand declines in all regions but said you had some growth in Eastern and Central Europe. Is that mostly a price impact? Are you making some share gains here? And what do you see as some of the catalysts to get consumer confidence off the bottom here? I know you're not calling for a hockey stick recovery, but just wondering what gives you some confidence that we can be stable here.

Tim Knavish, Chairman and CEO

Yes. So performance of our business, you're right, in Q4, most east to west, north to south was a pretty weak quarter. But if you look at the full-year basis, we performed really well in Poland. We performed really well, frankly, in the UK and Ireland. So we had pockets of strength. France was very weak for us, and the Nordics were very weak for us. So that's kind of a breakdown of the performance by country by sub-region. From your statement about how is the outperformance being driven share of price, it's both. This team has done an outstanding job for the last decade of pricing appropriately to offset input costs, pricing appropriately on our differentiated products, and then pricing at the street fighting level when we need to win shelf space. So the team does a great job of price-volume management. And we have gained some share in those countries where we are performing. As far as Europe more broadly, again, we are not expecting what I would call a recovery, but more of stabilization as inflation stabilizes as whenever central banks begin the journey in the other direction, some increases in consumer confidence. We are not baking in the end of the Ukraine war or anything like that, but that would certainly help. We just believe that there's enough factors out there and we've come down so far over the last five years from COVID and then the war and then high-interest rates and high inflation. We believe that there's enough easing there to stabilize, but not hockey stick.

Vince Morales, Senior Vice President and CFO

Yes, Patrick, Vince here. Looking at 2023 for our Architectural Europe business, we experienced a decrease of about mid-single digits. In the first half of 2024, we saw a drop in the mid-to-low range, but we expect to be flat in the latter half of 2024, indicating stabilization. We know that during COVID, there was a surge in activity that occurred in 2021 and early 2022. This business operates on a maintenance cycle, and we had advanced some of that maintenance, which is reflected in our volume numbers for 2023 and 2024. As things stabilize and we see maintenance activity return, we will benefit from increased volume and will also be able to adjust pricing as Tim mentioned.

Patrick Cunningham, Analyst

Thank you.

Operator, Operator

Thank you. We now have Mike Harrison with Seaport Research Partners on the line.

Mike Harrison, Analyst

Hi, good morning. I wanted to go into a little more detail about three different regions or countries that you've mentioned so far. First is Latin America, where it sounds like Architectural and Industrial are pretty solid. Second, you mentioned India, I think in your prepared remarks, as a growth opportunity, maybe give us an update on how you've positioned your key businesses there. And then finally, China. I was just hoping you could give us some thoughts on how you're thinking about demand trends going forward, maybe with or without some trade policy shifts.

Tim Knavish, Chairman and CEO

Yes, sure. So LatAm has been and continues to be a rockstar performer for us, some of the stronger GDPs in the world, and we're outperforming the GDPs. I just came back from our concessionaire meeting, which includes the owners of our 5,200 stores across Mexico, and their sell-out is just fantastic. They're bullish going forward. The nearshoring helps them, but also just the strong consumer confidence and GDP. Our businesses in South America, our automotive business outperformed last year, our industrial business. So not as big as Mexico, of course, but good fundamentals down there. We will pick up some additional share, as we mentioned earlier on this call. India. India, we have a very unique situation there where we have a joint venture with the number one Deco player, the number one overall paint company in India, and that's Asian Paints. Obviously, they run the Deco side, but we've got a joint venture that covers essentially all of the industrial and performance businesses where we bring more to the game, from a technology standpoint, global products, specifications, application expertise, all those things. So we leverage the strength of Asian Paints and their footprint and their brand and their kind of reputation in the country and complement that with our technologies and our people, and we've been outgrowing what's been a very nice growth market for us. The key issue is China. Our operations there differ from many industrial companies because we are focused on local production. We manufacture and paint products locally rather than shipping them from elsewhere. We are positioned in the right segments such as automotive, aerospace, PMC, and industrial, avoiding areas related to real estate or construction. Operating locally allows us to target the right sectors. Throughout 2024, despite some significant macroeconomic challenges mentioned previously, we experienced growth every quarter, ranging between low-single digits and mid-single digits. This growth does not match the high growth rates seen a decade ago, but we are satisfied with China's progress as we adapted our expectations to an extended recovery instead of a rapid one. This gradual recovery has another advantage by positively influencing the supply-demand balance of raw materials, keeping supply favorable for buyers. We are not overly optimistic about a rapid recovery in China, but we are happy with our 2024 performance and anticipate a positive 2025.

Mike Harrison, Analyst

Very helpful. Thanks.

Operator, Operator

Thank you. Your next question comes from Aleksey Yefremov with KeyCorp. Please go ahead.

Ryan Weis, Analyst

Thanks and good morning, guys. This is Ryan on for Aleksey. Just wanted to pull the curtain back a little bit on China autos. Obviously, you mentioned improvement in 4Q and discussed the increase in exports just overall during '24. So wondering what you're hearing from customers at this stage and kind of what your expectation is here in 2025? Thanks.

Tim Knavish, Chairman and CEO

Yes. Hey, Ryan, thank you for joining us this morning. Here's one of the more exciting data points for us in our China auto business is that China produces approximately one out of every three cars manufactured in the world. And yes, there's an export portion of that, but most of that is for domestic consumption. Great data point is that China Q4 retail sales were up 19% on autos. This is an industry and China certainly has its economic problems, as we all know. But this is an industry that is very critical to the overall Chinese economy and Chinese employment. It is one that gets help from the government and stimulus activity. I’m confident that going forward, I believe there will be additional help in China from the government as we move forward through '25 and into '26. So on the ground, our teams are telling us the China domestic market is doing well. We are gaining share with the domestic players. Historically, we've had a nice mix of the JVs of Western companies and China domestics. Over this last couple of years, we've really had a nice share gain with the Chinese domestics, including the one that everybody talks about. So you've got this combined effect of local consumption being pretty good and share gain of us with the winners on the ground in China auto. Yes. And just one last piece to that, Ryan, is the shine has certainly come off of the EV story globally, but EVs in China are now, as of the end of 2024, 37% of every car built in China. So yes, we won't see as many EV sales here in the U.S. and Europe and other parts of the world as what everybody thought two years ago. But within China, it's still a big growth market, and that's more content for companies like PPG.

Operator, Operator

Thank you. We now have John McNulty with BMO Capital Markets.

John McNulty, Analyst

Yes, good morning. Just a quick question on COMEX. Just given how you've broadened it out in terms of the platform, can you help us to think about how much of the product that they're selling is tied to Mexico for Mexico versus export and just to give us a little bit of color on potential tariff risk around that potential platform?

Tim Knavish, Chairman and CEO

Yes, nearly all of our distribution through COMEX is for domestic use in Mexico. While there might be a tiny amount of metal that gets painted and crosses the border, it's negligible. The parts of our business that we are distributing in Mexico are specifically for construction, nearshoring, data centers, automotive plants, and industrial plants within Mexico. The traffic business we operate through concessionaires is primarily for roads in Mexico. The refinish products we've started to handle are meant for collisions involving Mexican cars. I can't think of anything that the COMEX concessionaires distribute for us that would be shipped back to the U.S., although I might be overlooking a very small detail.

Vince Morales, Senior Vice President and CFO

And John, I just want to pick up on those last three things Tim mentioned. We started an active program, and the concessionaires are pulling through product in the middle of '24, and it will grow. One of our growth engines in '25 is more through that world-class distribution network. I think we talked about it on the third quarter call, and that includes again protective coatings really around the amount of capital infrastructure being built in Mexico due to nearshoring. Our traffic solutions products are world-class, and we're now pushing those through the concessionary network. Same with refinish. We have 5,200 distribution points to that refinished product. These are all growth platforms for us in '25 and frankly beyond.

John McNulty, Analyst

Got it. Appreciate the color.

Operator, Operator

Thank you. We have the next question from Steven Haynes with Morgan Stanley.

Steven Haynes, Analyst

Hey, good morning. Thanks for squeezing me in here. Just a quick one on the CapEx, the $750 at the midpoint. Yes, a bit higher, I guess, than historically what you would be guiding to, and I think there's some catch-up in there. But how would we be thinking about that CapEx number kind of evolving over the next couple of years? Is this kind of the right range, or would you expect it to step down or step up to help kind of on growth initiatives from here? Thank you.

Tim Knavish, Chairman and CEO

Thanks for the question, Steven. We're not looking to maintain CapEx at this level in the future; it will decrease. Typically, our CapEx runs around 3% of sales, which has been our norm for a long time. We reduced spending during the COVID period for obvious reasons. The increased CapEx you're seeing for '24 and '25 is primarily a catch-up from the COVID era. We're also making some temporary investments in key growth areas, such as expanding resin capacity in Mexico due to our significant growth there, increased spending in Aero because we have more orders than we can handle, and additional CapEx in our U.S. refinish factory as that business grows. We've also been enhancing our digital capabilities, leading to over $1.3 billion in digitally enabled sales, which has required some incremental investment. And then last one as far as this didn't impact us in '24, but it will in '25. As part of our self-help program, we're exiting some surplus capacity that we have in some higher-cost regions, particularly Europe. As you go from three factories down to one in a particular sub-region, we've got to spend some capital expenditure at the one to get it ready to receive the volume coming from the other two. So thank you for the question because it's not a number, it's a red number for us, but we believe it's a good use of shareholder money, one, to catch up for what we didn't spend for a couple of years, and two, to drive organic growth and margin as we move forward.

Steven Haynes, Analyst

Great. Thank you.

Operator, Operator

Thank you. We now have the final question from Laurent Favre with BNP Paribas.

Laurent Favre, Analyst

And I'm sorry, my questions have been answered. So thanks, and have a great day.

Operator, Operator

Thank you. We now have Laurence Alexander with Jefferies.

Daniel Rizzo, Analyst

Hi, this is Dan Rizzo on for Laurence. Thanks for fitting me in. If we think about the newly formed architectural segment, how should we think about incremental margins in a recovery and how it compares to industrial and performance?

Tim Knavish, Chairman and CEO

Yes. As we recover, we will experience good leverage, particularly in Europe. Our Global Architectural business is primarily based in Mexico and Europe, with only a small presence in China and a modest number two position in Australia, which is relatively small compared to the other two regions. In Europe, we anticipate significant incremental leverage from volume stabilization rather than an increase in volume, due to the self-help measures and pricing strategies implemented over the past couple of years. Even just stabilizing volume would be seen as a success, and any increase in volume would provide great leverage.

Vince Morales, Senior Vice President and CFO

Yes, Dan, this is Vince. If you put some numbers to it and you look at our portfolio, to Tim's point, the Architectural businesses, they typically have a higher gross margin and they have a higher SG&A to support the feed on the street, the sales teams, etc. We are underutilized, certainly in Europe, we don't need to add any SG&A for any of our businesses, any of our countries. So that will come through at close to gross margin, which is depending on the country, mid-40s to mid-50s. In Mexico, as Tim said, we are sold out. So we do have to add some commensurate cost, but most of the cost is borne by the concessionaire on their dime and they get the growth for that. So again, we're talking high incrementals relative to the company average.

Daniel Rizzo, Analyst

Great. Thank you very much. That was helpful.

Operator, Operator

Thank you. Your next question comes from Josh Spector with UBS.

Unidentified Analyst, Analyst

Good morning. This is Lucas Berman standing in for Josh. I wanted to inquire about pricing. Based on the new segment structure, legacy performance pricing increased by about 7% over the last two years, with 5% in '23 and 2% in '24. Could you provide the breakdown of contributions for '23 and '24 from the new architectural and performance segments? I would assume that performance would be higher than architectural, but please correct me if I'm mistaken. Additionally, what are your expectations for reach in '25? Lastly, while we have historical data on industrial, what are your projections for industrial in '25—are you anticipating an increase, a stable performance, or a decline? Thank you.

Vince Morales, Senior Vice President and CFO

Yes, this is Vince. We're not providing specific details by business. Looking at the segments, as we mentioned previously, in the industrial segment, we anticipate some pricing adjustments if there is raw material inflation, which usually occurs with a delay. We also receive additional pricing for our differential technology. As Tim noted in his opening comments, the performance segment significantly enhances our customers' productivity, and we are compensated accordingly, which benefits both parties. Typically, this segment offers one of our strongest pricing performances on a consistent basis, partly due to consistent pricing strategies. In the Global Architectural segment, pricing varies by market and depends on competitive dynamics. We generally have the ability to offset inflation in real time, and where we offer unique products and effective distribution and service, we can charge a premium. In summary, performance usually yields the best pricing, Architectural remains steady with good pricing, and industrial pricing is influenced by market conditions.

Operator, Operator

Thank you. The final question on the line unless you would like to ask and that is Star 1, is Arun Viswanathan with RBC.

Arun Viswanathan, Analyst

Thank you for taking my questions. I have a couple of inquiries. Over the past few years, we thought low single-digit organic growth was possible, but we've experienced significant volatility due to inflation, interest rates, and various other factors you've mentioned. Looking ahead to 2025, I recognize you're projecting a weaker first half, which is reflected in your outlook. What risks do you foresee? It appears that SG&A won't be a concern, as there are still approximately $100 million in share gains in the industrial sector, along with signs of recovery. What specific risks are you monitoring that could hinder achieving that low single-digit organic growth rate? Additionally, as a follow-up, do you anticipate any obstacles to reaching the 8% to 12% EPS growth target in 2026? Thank you.

Tim Knavish, Chairman and CEO

Let me start, Arun. Yes, you mentioned history and we didn't achieve low single-digit organic growth this year; I believe we reached 3% in 2023. This year, the organic growth is about minus 1% to minus 2%, considering all factors including foreign exchange. The organic figure alone was minus 1%. As we project low single-digit organic growth this year, that $100 million we discussed earlier is not just a hope; these are deals we have secured. There could be some variability in the timing of our customers' launches, but we are confident. We have done significant work over the past two years to enhance our organic growth across all businesses, and it's beginning to show results. I am optimistic about our full-year guidance for everything within our control. However, I cannot predict the impact of the current geopolitical climate post-elections in many countries. We have solid plans and contingencies for various scenarios. Ultimately, these factors could pose risks to achieving our targets for 2025 and 2026, given the potential tensions between the United States and other countries, as well as within Europe. With what we know today, we remain committed to our full-year guidance and are confident in our commercial and launch pipeline.

Arun Viswanathan, Analyst

Thanks.

Operator, Operator

Thank you. That does conclude the question-and-answer session. And I will now turn it back over to Alex Lopez.

Alex Lopez, Director of Investor Relations

Thank you, Breca, and thank you, everyone, for joining us this morning. We appreciate your interest and confidence in PPG. This concludes our fourth quarter earnings call.

Operator, Operator

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