PPG's Q2 2025: Navigating Sector Challenges with a Focus on High-Margin Growth

As PPG Industries (PPG) prepares to report Q2 2025 earnings on July 29, investors will scrutinize whether the coatings giant can sustain its strategic pivot to higher-margin segments amid macroeconomic headwinds. The company's Q1 results highlighted uneven performance across its three core segments, with Performance Coatings driving growth while Global Architectural and Industrial Coatings grappled with currency headwinds and cyclical slowdowns. With a teleconference scheduled for July 30 (8:00 a.m. ET), management will likely emphasize progress on cost-cutting, margin resilience, and its $550 million divestiture of the architectural coatings business—a move to focus on niche, high-margin markets. Here's why the stock could be worth a closer look ahead of earnings.

Segment Performance: Strength in High-Tech, Struggles in Cyclicals

PPG's Q1 2025 results underscored a stark divide between its segments. Performance Coatings, which includes aerospace, automotive refinish, and packaging coatings, grew 7% to $1.265 billion, fueled by record sales in aerospace (a $300 million order backlog) and strong automotive refinish demand. This segment's EBITDA rose 8%, reflecting both volume growth and pricing discipline. Contrast this with Global Architectural Coatings, which fell 11% to $857 million due to forex pressures and divestitures, and Industrial Coatings, down 8% to $1.562 billion as automotive OEM production weakened.

The divestiture of its architectural coatings business—a $550 million sale to private equity firm American Industrial Partners—will be a key topic on the call. By exiting lower-margin, cyclical markets, PPG aims to redirect resources to higher-margin segments like aerospace and EV materials. Analysts estimate this move could boost adjusted EPS by $0.20–0.30 in 2025, offsetting some of the pressure from soft industrial demand.

Margin Resilience: Cost Cuts vs. Commodity Pressures

PPG's Q1 adjusted EPS of $1.72 fell 8% year-over-year, but the company reaffirmed its full-year guidance of $7.75–8.05. This confidence hinges on its $75 million annualized self-help cost savings program, which includes supply chain optimization and automation. While forex and commodity costs remain risks—rising raw material prices could compress margins—management has shown discipline in pricing and cost management.

Investors should watch for updates on margin trends in Q2. The Performance Coatings segment's 24.3% EBITDA margin in Q1 suggests that PPG's focus on technology-advantaged products is paying off. Meanwhile, Industrial Coatings' margin decline (down 13% to $263 million) highlights the need for continued cost discipline in that division.

Valuation: Undervalued Relative to Peers?

PPG's stock trades at $115, a 10% discount to the average analyst target of $128.19. At a 14.5x forward P/E, it's cheaper than peers like Sherwin-Williams (18.2x) and RPM International (16.8x). While PPG's dividend yield of 2.1% is modest, its balance sheet—net debt of $5.4 billion but $1.9 billion in cash—offers flexibility for buybacks. The company repurchased $400 million of stock in Q1 alone, signaling confidence in its valuation.

Teleconference Key Takeaways

• Q2 EPS Guidance: Analysts project a $2.22 EPS (down 11% YoY), but a beat could lift sentiment.
• Segment Trends: Look for signs of stabilization in Industrial Coatings and further gains in Performance Coatings.
• Margin Updates: Management will likely detail progress toward its $75 million cost target and the impact of the architectural coatings sale.

Investment Thesis

PPG's strategic shift to high-margin, less cyclical markets positions it to outperform peers in a downturn. While Q2 results may disappoint on the top line, the stock's valuation and dividend make it a compelling “wait for the dip” opportunity. Investors should watch for Q2 margin stability and Q3 guidance on the call. A post-earnings pullback could present a better entry point.

Final Call: Hold ahead of earnings, but consider adding if the stock dips below $110 on a Q2 miss, given its long-term margin tailwinds and undervalued multiples.

Data as of July 7, 2025. Always consult with a financial advisor before making investment decisions.