PPG Industries Q3 2025: Contradictions Emerge on Refinish Business, Aerospace Growth, and Capital Expenditures

Date of Call: October 29, 2025

Financials Results

• EPS: $2.13 adjusted EPS, up 5% YOY (record Q3)

Guidance:

• Full-year adjusted EPS narrowed to $7.60–$7.70.
• Q4: expect organic sales decline similar to Q3 as distributors destock; refinish weakness to persist into mid-2026 normalization.
• Expect low single-digit raw-material inflation for the year.
• Aerospace: target mid- to high-single-digit CAGR over next 3 years; >$0.5B investments through 2027 with near-term OpEx in 2025–26.
• Operational-excellence and cost actions to drive margin expansion in Architectural and Industrial; Performance Coatings pressured by mix.

Business Commentary:

* Organic Growth and Sales Performance: - PPG Industries reported a 2% increase in organic sales for Q3, including both volume and price growth, despite a challenging macro environment. - The growth was driven by increased sales volumes in key segments like automotive refinish and protective and marine coatings, and strong structural strength in the Performance Coatings segment.

• Regional Performance Variation:
• Organic sales grew by a low single-digit percentage in the U.S. and Canada, representing the third consecutive quarter of year-over-year increases, while sales in Latin America and Asia Pacific were flat and stable, respectively.

• The varying performance across regions was influenced by economic conditions, such as the macro environment in the U.S. and consumer recovery in Mexico.

• Impact of Disruptions and Inventory Management:

• The automotive refinish segment experienced a mid- to high-teens decline in sales, primarily due to distributor inventory management and normalization of collision claims, which did not occur as early as expected.

• This decline was exacerbated by industry trends in the U.S., where insurance dynamics and affordability issues affected claims frequency.

• Investment in Growth and Segment Strategy:

• PPG is increasing investments in the aerospace sector, with expected capital expenditures exceeding $500 million over the next few years, to capitalize on significant multiyear growth opportunities.

• The company is focusing on enhancing its technological capabilities and debottlenecking facilities to support demand growth in the aerospace sector.

• Aerospace and Protective Coatings Growth:

• The Performance Coatings segment, particularly aerospace and protective coatings, delivered double-digit percentage organic sales growth, with record quarterly sales and earnings.
• Growth was attributed to strong customer order backlogs and demand for specialized products, supported by strategic investments in manufacturing output and geographic expansion.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted a record Q3 adjusted EPS of $2.13 (up 5% YOY), organic sales growth of 2% with the third consecutive quarter of volume growth, an updated full-year EPS guide of $7.60–$7.70, and plans for >$0.5B of aerospace investments—statements framed around momentum, share gains and continued investment.

Q&A:

• Question from John McNulty (BMO Capital Markets Equity Research): Refinish decline—why so large, recovery prospects and timing?
  Response: Refinish weakness driven by delayed normalization of collision claims and distributor destocking; management expects industry normalization and inventory flows to normalize by mid-2026 and is confident PPG will regain growth due to productivity solutions and share gains.

• Question from Christopher Parkinson (Wolfe Research, LLC): Key things to focus on through 2026 (volume growth, subsegments, margins)?
  Response: Macro remains choppy with muted industrial demand; focus on share gains, continued cost reductions and self-help actions; signs of stabilization expected mid-2026 but first half 2026 likely softer.

• Question from David Begleiter (Deutsche Bank AG, Research Division): What drove the change in full-year guidance and implied Q4 below consensus?
  Response: The guide was lowered primarily due to refinish: unexpected distributor destocking plus delayed claims normalization drove the Q4 downgrade.

• Question from Michael Sison (Wells Fargo Securities, LLC, Research Division): What needs to happen for Architectural EMEA to recover?
  Response: Stabilization in core Western European markets (France, U.K., Netherlands) is needed; management is taking structural cost actions and expects flat demand to generate strong operating leverage as pricing and cost actions take effect.

• Question from John Roberts (Mizuho Financial Group, Inc.): View on Chinese OEM outlook and anti-involution impact?
  Response: China OEM growth expected to moderate to low-to-mid single digits; management does not see anti-involution materially impacting the coatings supply, and PPG expects to outgrow the market in China.

• Question from Kevin McCarthy (Vertical Research Partners, LLC): Performance Coatings sales up but operating income down—why?
  Response: Decline reflects mix (weaker, higher-margin refinish) plus elevated OpEx/CapEx investments in aerospace and protective & marine that depress near-term segment EBITDA but support long-term growth.

• Question from Patrick Fischer (Goldman Sachs Group, Inc., Research Division): Margins of aerospace and protective & marine today and incremental margins over next 2–3 years?
  Response: Management says aerospace and aerospace-related businesses are above segment average and will require a couple more years of investment (especially aerospace) before cruising; investments expected to deliver strong IRRs and accretive margins long term.

• Question from Ghansham Panjabi (Robert W. Baird & Co., Research Division): Color on Mexico—retail vs project activity and outlook into 2026?
  Response: Retail has recovered strongly, project spending is improving sequentially and should strengthen further (especially if tariff issues resolve); management expects continued recovery into Q4 and into 2026.

• Question from Jeffrey Zekauskas (JPMorgan Chase & Co, Research Division): Aerospace CapEx magnitude and operating cash flow outlook?
  Response: Aerospace CapEx will peak in 2025–27 but overall goal remains ~3% of sales over time; recent working-capital build is transitory and operating cash flow should grow faster than EBITDA in future years as inventory normalizes.

• Question from Aziza Gazieva (Fermium Research, LLC): Outlook for epoxy inflation and drivers of low-single-digit raw inflation expectation?
  Response: Epoxy tariffs/AD duties were already built into guidance; procurement sees suppliers favoring volume deals over price increases and contracting supplier base back, supporting the low-single-digit raw-material inflation view.

• Question from James Hooper (Sanford C. Bernstein & Co., Research Division): Are you seeing a more competitive volume environment and share pressures?
  Response: Competition is steady (with China more crowded); PPG and one other leader drive productivity solutions—PPG is gaining share through digital and productivity offerings and expects to continue doing so.

• Question from Patrick Cunningham (Citigroup Inc., Research Division): Is the $100M industrial share-gain trajectory still on track and margin profile of new wins?
  Response: The $100M pipeline is beginning to flow in H2 and wins continue beyond that amount; volume plus operating leverage is driving the Industrial segment's EBITDA improvement.

• Question from Vincent Andrews (Morgan Stanley, Research Division): M&A appetite—large vs small deals into 2026?
  Response: Organic growth and margin improvement remain the priority; PPG will consider M&A opportunistically when the asset, price and timing align with shareholder value, but M&A is secondary to the organic 'tip of the spear.'

• Question from Ryan Weis (KeyBanc Capital Markets Inc., Research Division): U.S. vs Europe refinish differences and where PPG is gaining share?
  Response: U.S. refinish hit harder by insurance-premium dynamics reducing claims; outside U.S. claims track accident rates more closely; PPG is gaining share across the U.S. and Europe driven by productivity solutions and subscription/adjacent revenue streams.

• Question from Michael Harrison (Seaport Research Partners): Role of AI in innovation—details on new AI-developed clearcoat?
  Response: PPG is using formulation AI to accelerate optimization of proprietary formulations; first AI-designed clearcoat launched and ~50 AI-assisted products expected to be commercialized by year-end.

• Question from Arun Viswanathan (RBC Capital Markets, Research Division): Further portfolio pruning and redeploying capital to aerospace; any #3–#4 businesses to exit?
  Response: Management has actively pruned non-core assets and will continue edge pruning; no large exits currently expected—capital is being redeployed into higher-return growth areas like aerospace.

• Question from Joshua Spector (UBS Investment Bank, Research Division): Why buybacks are lower in H2 despite lower share price?
  Response: Management remains committed to returning cash but balances buybacks with dividend, transitory elevated investments and near-term debt repayments; will continue opportunistic repurchases consistent with prior behavior.

• Question from Laurence Alexander (Jefferies LLC, Research Division): Content-per-plane growth and how to accelerate via adjacencies?
  Response: Content growth is exceeding simple inflation-driven rates via higher-value sealants, transparency products and application/productivity innovations (including specialty packaging and 3D printing), driving both pricing and physical content increases.

Contradiction Point 1

Refinish Business Performance and Recovery Expectations

It involves differing perspectives on the performance and recovery expectations of the Refinish business, which could impact investor expectations and strategic planning.

What drove the change in your full-year and implied Q4 guidance? - David Begleiter (Deutsche Bank)

2025Q3: We expected industry normalization earlier, and the double whammy of distributor destocking when the normalization didn't happen on time. - Timothy Knavish(CEO)

Performance Coatings' Refinish segment has declined but shown notable improvement. What is the outlook for Refinish and PMC growth? - Michael Sison (Wells Fargo)

2025Q2: Refinish is expected to be soft in Q3 due to order patterns but normal in Q4. - Timothy M. Knavish(CEO), Vincent J. Morales(CFO)

Contradiction Point 2

Aerospace Growth Outlook

It involves varying expectations for the Aerospace growth, which is a critical area for future revenue and market positioning.

What key areas should we prioritize regarding volume growth, subsegment performance, new products, and margin expansion? - Christopher Parkinson (Wolfe Research)

2025Q3: We see stabilization in some markets in the middle of 2026, but the first half may be more challenging. - Timothy Knavish(CEO)

What are the share buyback plans for the second half? - Patrick Fischer (Goldman Sachs)

2025Q2: Aerospace is expected to maintain high single-digit to low double-digit growth for the foreseeable future, driven by strong industry forecasts and investment in manufacturing. - Timothy M. Knavish(CEO)

Contradiction Point 3

Refinish Business Challenges and Recovery

It involves differing perspectives on the challenges and recovery timeline for the refinish business, which impacts financial expectations and market outlook.

Why is the refinish business a trouble spot, and what is the potential for recovery? - John McNulty(BMO)

2025Q3: The slump in refinish is due to the normalization of claims that occurred later than expected, and distributor destocking. Once normalization happens, we expect record sales and earnings growth. - Timothy Knavish(CEO)

Can you explain the aerospace content growth trajectory? - Laurneve Alexander(Jefferies)

2024Q4: Our best-in-class productivity solutions drive share gain. Industry normalization is expected in the middle of 2026. Insurance premium moderation is starting to stabilize. - Timothy Knavish(CEO)

Contradiction Point 4

Capital Expenditure Plans

It involves changes in financial forecasts, specifically regarding capital expenditure plans, which are critical for understanding the company's investment strategy and financial management.

Has there been a change in capital expenditures plans, and how will operating cash flow evolve? - Jeffrey Zekauskas(JPMorgan)

2025Q3: Aerospace CapEx will peak this year, then trend down. We aim to return to 3% of sales. We expect stronger operating cash flow growth than EBITDA in future years. - Timothy Knavish(CEO)

Can you discuss how the company and teams are evaluating the growth rates of the end markets shown on Slide 5, particularly in terms of share gain and market outperformance? - Chris Parkinson(Wolfe Research)

2024Q4: We'll continue to invest in these businesses, we should average about 4% of sales for '25 and '26 with some variability year to year. - Vincent Morales(CFO)