Q3 2025 PPG Industries Inc Earnings Call

Speaker #1: At this time , I would like to welcome everyone to the third quarter . Earnings conference call . All lines have been placed on mute without any background noise .

Speaker #1: After the speakers remarks , there will be a question and answer session . If you'd like to ask a question during this time , simply press star , followed by one on your telephone keypad .

Operator: After the speaker's remarks, there will be a question and answer session.

Tim Knavish: If you'd like to ask a question.

Operator: During this time, simply press STAR followed by one on your telephone keypad to remove yourself. At line of questioning, it will be STAR followed by two. To allow everyone an opportunity to ask a question, the company requests that each analyst only ask one question. Thank you. I'd like to turn the call over to our host, Alex Lopez, Director of Investor Relations.

Speaker #1: And to remove yourself a line of questioning will be followed by two . So everyone , an opportunity to ask a question . The company requests each analyst only ask one question .

Speaker #1: Thank you . I'd now like to turn the call over to our host , Alex Lopez , Director of Investor Relations . Please go ahead , sir .

Tim Knavish: Please go ahead, sir.

Speaker #2: Thank you . And good morning , everyone . This is Alex Lopez . We appreciate your continued interest in TPG . And welcome you to our third quarter 2020 earnings conference call .

Alex Lopez: Thank you, Carly, and good morning everyone. This is Alex Lopez. We appreciate your continued interest in PPG Industries and welcome you to our third quarter 2025 earnings conference call. Joining me today from PPG Industries 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, ppg.com. 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 Industries' operating and financial performance. These statements involve uncertainties and risks which may cause actual results to differ.

Speaker #2: Joining me today from PPD are Team chairman and Chief Executive officer . And Vince Morales , senior vice president and chief financial officer .

Speaker #2: Our comments relate to the financial information released after US equity markets closed on Tuesday , October 28th , 2025 , we have posted detailed commentary and the accompanying presentation slides on the investor center of our website , aippg.com .

Speaker #2: Following management's perspective on the company's results , we will move to Q&A 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 operating and financial performance .

Speaker #2: These statements involve uncertainties and risks which may cause actual results to differ . The company is under no obligation to provide a subsequent to updates to these forward looking statements .

Alex Lopez: 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 to the most directly comparable GAAP financial measures. For additional information, please refer to PPG Industries' filing with the SEC. Now let me introduce PPG Industries Chairman and CEO Tim Knavish.

Speaker #2: 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 .

Speaker #2: Reconciliation of these non-GAAP to the most directly comparable GAAP financial measures . For additional information , please refer to filings with the SEC .

Speaker #2: Now , let me introduce PPG chairman and CEO Tim Kennedy .

Speaker #3: Thank you , Alex , and good morning , everybody . I'll start by providing a few highlights on Q3 2025 . And then move to our outlook .

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 macroeconomic 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.

Speaker #3: 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 .

Speaker #3: 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 .

Speaker #3: 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 .

Speaker #3: 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 .

Speaker #3: 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 .

Tim Knavish: Several of our businesses in the performance coatings segment delivered outstanding results, including double-digit organic sales growth in both aerospace coatings 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.

Speaker #3: Although this was offset by lower sales volumes in automotive refinish, our volumes were heavily weighted to the first half of 2025 due to distributor order patterns.

Speaker #3: From a regional perspective , the macro environment was choppy . Despite this , PPG organic sales grew a low single digit percentage in the US and Canada , representing the third consecutive quarter of year over year increases in this region .

Speaker #3: 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.

Speaker #3: 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 .

Tim Knavish: 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 nine 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.

Speaker #3: 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 nine years , demonstrating the value the customers place on our leading brands and products that we provide in architectural coatings , Latin America and Asia Pacific .

Speaker #3: 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 .

Speaker #3: 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 .

Tim Knavish: 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 % organic sales growth with record quarterly 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 % 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.

Speaker #3: 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.

Speaker #3: 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 .

Speaker #3: In automotive refinish organic sales decreased by a double digit percentage versus the prior year , driven by lower sales volumes . In the US , as we communicated on our second quarter earnings call , our distributor order patterns were heavily weighted to the first half of the year .

Speaker #3: On a year to date basis . Ppg's automotive Refinish Coatings Organic sales are outperforming industry demand , which has declined due to lower US industry collision claims .

Tim Knavish: 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 Clear Coat. 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 results in a refinish product and application that combines high quality appearance with increasing speed of application.

Speaker #3: In the third quarter , the company grew the number of refinished link subscriptions as well as moonwalk hardware installations , which now total more than 3000 .

Speaker #3: 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 .

Speaker #3: Once such product is our newest Clearcoat , 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 results in a finished product and application that combines high quality appearance with increasing speed of application .

Speaker #3: 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 .

Tim Knavish: 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 % 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 % 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 coating sales volumes and the higher growth-related investment spending in aerospace coatings and protective and marine coatings, partially offset by higher selling prices.

Speaker #3: 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 .

Speaker #3: 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 .

Speaker #3: 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 kegger over the past ten years , and now represents a third of the segment and a significant part of the overall PPG portfolio .

Tim Knavish: 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 a third 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 % over the next three 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 builds forecast for the next several years.

Speaker #3: Based on the momentum in the industry and the demand for our highly specialized and qualified products , we expect sales growth keger of a mid to high single digit percentage over the next three years for Pbg , this is a business that is equally weighted to aftermarket , with margins that are creative to the overall reporting segment .

Speaker #3: We've experienced significant OEM growth and customers have recently increased their builds 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 .

Tim Knavish: Based on the nature of this industry, this OEM growth will then translate into additional aftermarket growth in the succeeding years. Given the significant growth dynamics we're experiencing today and expect into the future, we are increasing our investments in this business. This includes near-term OpEx investments in 2025 and into 2026 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 half a billion dollars 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.

Speaker #3: Given the significant growth dynamics that we're experiencing today and expecting in the future , we are increasing our investments in this business . This includes includes near-term OpEx investments in 25 and into 26 .

Speaker #3: To further debottlenecking our facilities , we also announced an investment in new manufacturing facility , which will be commissioned in 2027 . And we will likely have additional investments in the future .

Speaker #3: These investments represent more than a half $1 billion and are being completed in order to capitalize on the significant multiyear growth opportunity we have in this business .

Speaker #3: 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 Pbg and our shareholders for the foreseeable future .

Tim Knavish: 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.

Speaker #3: 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 8% increase in net sales with growth above market in all regions .

Speaker #3: The global Light Vehicle industry production an 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 US and Europe .

Speaker #3: 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 in share gain in all regions .

Tim Knavish: 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 in 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.

Speaker #3: Segment EBITDA growth was 12% year over year , reflecting the leverage from organic sales growth . Along with our manufacturing productivity and strong cost control actions .

Speaker #3: 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 total $1.2 billion delivered to shareholders year to date.

Speaker #3: 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 macro environment .

Speaker #3: 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 .

Tim Knavish: 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 advantage 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.

Speaker #3: 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 and aerospace and protective and marine coatings , which will be offset by lower automotive refinish sales based on customer order patterns .

Speaker #3: We expect a year over year decline in organic sales similar to that in the third quarter , as distributors have have been managing their inventories heading into year end , and 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 .

Speaker #3: 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 .

Tim Knavish: 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, and 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 macroeconomic environment where industry demand remains subdued.

Speaker #3: 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 .

Speaker #3: 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.

Speaker #3: In closing , I'm excited about the increasing momentum we have demonstrated in organic growth in a macro environment where industry demand remains subdued .

Speaker #3: 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, at industry levels.

Tim Knavish: We are benefiting from our sharpened portfolio with technology-differentiated products and customer productivity solutions, which is delivering positive sales price and volumes in 20, 25, 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. Now, would you please open the line for questions?

Speaker #3: 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 mid-term .

Speaker #3: Thank you to our team around the world who make it happen and deliver on our purpose every day. We appreciate your continued confidence in PPG. This concludes our prepared remarks.

Speaker #3: And now, would you please open the line for questions?

Speaker #1: Thank you very much . We now have to open the lines for Q&A session of today's call . As a reminder , if you'd like to raise a question , please signal now by pressing star followed by one on your telephone keypad .

Operator: Thank you very much. We'd like to open the lines for the Q&A section of today's call. As a reminder, if you'd like to raise a question, please signal now by pressing STAR followed by one on your telephone keypad. To remove yourself from the queue, press STAR followed by two. We would also like to remind people that if they can limit themselves to one question, that will be preferred by the company. Our first question comes from John McNulty from BMO Capital Markets. John, your line is now open.

Speaker #1: And to remove yourself from line of questioning . Will be staffed by two . We would also like to remind people that if they can limit themselves to one question , that would be preferred by the company , our first question comes from John McNulty from BMO .

Speaker #1: John , your line is now open .

Speaker #4: Yeah . Good morning . Thanks for taking my question . Tim . You posted some some pretty solid growth across the bulk of the platforms .

Tim Knavish: Yeah, good morning.

Vince Morales: Thanks for taking my question, Tim.

Tim Knavish: You posted some pretty solid growth across the bulk of the platforms. I think six of the nine businesses were mid single digits or better. I guess one does stand out, which is the refinish business, which really seemed to be a trouble spot. Seemed like it was kind of mid to high teens decline. 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. Thanks. Yeah, sure, John. Look, let me talk about refinish, right? First of all, I'm confident in our best-in-class productivity solution that will continue to drive share gain, and that becomes important as I explain kind of what's happening here. We do have market share momentum in this business as we continue to introduce new productivity tools for our customers.

Speaker #4: I think . I think six of the nine businesses were 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 .

Speaker #4: 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 ?

Speaker #4: Thanks .

Speaker #3: Yeah , sure . John , look , let me talk about refinish , right ? First of all , I'm confident in our best in class productivity solution that will continue to drive share gain .

Speaker #3: And that becomes important . As I explained kind of what's happening here . And we do have market share momentum in this business as we continue to introduce new productivity tools for our customers .

Speaker #3: Look , this is and will be a marquee business for PPG . Despite a transitory slump in claims . So and the other the other thing I'll add is , you know , this this kind of challenging environment in refinish for the next whatever number of quarters , which I'll talk about in a few minutes , plays to the strength of the stronger players , plays to the strength of those that bring the best productivity solutions .

Tim Knavish: This is and will be a marquee business for PPG Industries despite a transitory slump in collision claims. The other thing I'll add is this kind of challenging environment in refinish for the next whatever number of quarters, which I'll talk about in a few minutes, plays to the strength of the stronger players, plays to the strength of those that bring the best productivity solutions. It's not just the coatings manufacturers that are seeing a slump in demand, it's the body shops, and the body shops need productivity to survive the journey. We have a bit of a slump right now. I'll also remind you on a full year basis our performance is outperforming the industry because of those productivity solutions that I just mentioned. To direct your question here, here's what happened. We highlighted in July that we expected some destocking in the industry, not just PPG Industries.

Speaker #3: Because it's not just the coatings manufacturers that are seeing a slump in demand , it's the body shops and the body shops need productivity to survive the journey .

Speaker #3: So we have we have a bit of a slump right now . I'll also remind you on a full year collision basis , our performance is outperforming the industry because of those productivity solutions that I just mentioned .

Speaker #3: So direct your question . Here's what happened . We highlighted in July that we expected some destocking . The industry , not just PPG , the industry expected normalization of claims as we moved through the year .

Tim Knavish: The industry expected normalization of claims as we moved through the year, and the normalization of claims did not happen as early as expected. That's driven destocking further than what we expected as we move through the rest of the year. You know what's happening out there. Miles driven are still climbing. Accident rates are okay. It's translating those accident rates into collision claims that has been depressed for some number of quarters now. That's largely driven by the insurance dynamic, affordability, availability of insurance that has kept some people from submitting claims for fear of losing their insurance or dramatic rate increases. If you look at the insurance rates from 2022 to 2024, they were growing at about a 16% CAGR per year, right, 16% per year average.

Speaker #3: And the normalization of claims did not happen as early as expected . And so that's driven destocking further than what we expected . As we move through the rest of the year .

Speaker #3: So what's happening out there ? You know , miles driven are still climbing accident actually accident rates are okay . It's translating those accident rates into collision claims .

Speaker #3: That has been depressed for for some number of quarters . Now . And that's largely driven by the insurance dynamic affordability , availability of insurance that has kept some people from submitting claims for fear of losing their insurance or dramatic rate increases .

Speaker #3: If you look at the insurance rates from like 2022 to 2024 , they were growing at about a 16% kegger per year , right ?

Speaker #3: 16% per year . Average . Now we have started to see that moderate in 2025 to about a 3% growth , which is normal , normal to be expected with inflation .

Tim Knavish: Now we have started to see that moderate in 2025 to about a 3% growth CAGR, which is normal, normal to be expected with inflation. We are expecting that normalization of the insurance situation could drive normalization of collision claims going forward. We are expecting a couple more quarters of this normalization through the whole supply chain and collision network to flow through. From an industry standpoint, we are expecting that more normalization to be seen in the middle of 2026. For us, we also have some destocking that will occur because of how our distributors bought last year. Our expectation is normalization of the industry in the middle of 2026. Normalization, I will remind everybody, is collision claims down low single digits. That has been the case for more than a decade.

Speaker #3: So we're we're expecting that normalization of the insurance situation to drive normalization of collision claims going forward . Now we'll have a couple we're expecting a couple more quarters of this normalization through the whole supply chain .

Speaker #3: And collision network to flow through from an industry standpoint . We're expecting that more normalization to be seen . You know , in the middle of 2026 .

Speaker #3: Now for us , we also have some destocking that will occur because of how our inventory or I'm sorry , how our distributors bought last year , but that's our expectation is normalization of the industry in middle of 2026 .

Speaker #3: Now, normalization—remind everybody normalization is collision claims down low single digits. And that's been the case for more than a decade.

Speaker #3: And in normal state situation , even with collision claims down low single digits , you know our refinish industry or our refinish business delivers record year after record , year after record year of sales growth and earnings growth .

Tim Knavish: In a normal state situation, even with collision claims down low single digits, our refinish industry or our refinish business delivers record year after record year after record year of sales growth and earnings growth. That plays to our productivity value proposition as we normalize. Right now we are having a lot of discussions with several large potential customers that find our productivity value proposition even more attractive in these difficult times because it resonates. It resonates with what they need to be successful in these challenging times, but also as the market normalizes. Tough market conditions play to our strength. Industry normalization happens in the middle of 2026. We are well positioned for that. Once industry normalization happens, we will return to sales and earnings growth.

Speaker #3: So again , that plays to our productivity value proposition as we normalize , you know , and right now we're having we're having a lot of discussions with several large potential customers that find our productivity value proposition even more attractive in these difficult times because it resonates .

Speaker #3: It resonates with what they need to be successful in these in these challenging times , but also as the market normalizes , so tough markets conditions play to our strength .

Speaker #3: Industry normalization happens in the middle of 2026 . We are well positioned for that . And once industry normalization happens , we'll return to sales and earnings growth .

Speaker #1: Thank you very much . Our next question comes from Chris Parkinson from Wolfe Research . Chris , your line is now open .

Operator: Thank you very much. Our next question comes from Chris Parkinson from Wolfe Research. Chris, your line is now open.

Speaker #5: Hey , Tim . Hope all is well . When I take a step back and look at your business , I mean , the strategy is ultimately paying off .

Vince Morales: Hey Tim, hope all's well.

Tim Knavish: When I take a step back and look at your business, I mean the strategy is ultimately paying off.

Speaker #5: But at the same time, I mean, suffice it to say, we're still in a very challenging macro environment, you know, as the sell side and the buy side kind of look out till 2026.

Vince Morales: At the same time, I mean.

Tim Knavish: Suffice to say we're still in a very challenging macro. You know, as the sell on the buy side kind of look out till 2026 and I look at your three new segments. What are the one or two things you think we should be all focusing on in terms of volume growth, sub segment 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. Thank you. Yeah. Hey Chris, good to hear from you. Thanks. I'll make 2026. As you know, we normally give our guide in January and we'll give numbers in January, but I'll make some high level just comments on how we're thinking about it right now to try and answer your question.

Speaker #5: And I look at your three new segments , you know , what are the 1 or 2 things you think we should be focusing on in terms of , volume growth , subsegment market outperformance , in terms of your end markets , new products , margin opportunities , just , you know , how do you see the PPG story evolving ?

Speaker #5: You know , if and when the macro I'd say eventually gets better over the next . You know , hopefully 12 to 24 months .

Speaker #5: Thank you .

Speaker #3: Yeah . Hey Chris good to hear from you . Thanks . So I'll make 26 , as you know , we normally give our guide in January and we'll give numbers in January .

Speaker #3: January . But I'll make some high level comments on how we're thinking about it right now to try and answer your question . And if I miss anything , I'm sure , I'm sure Vince will fill it in .

Tim Knavish: If I miss anything, I'm sure Vince will fill it in. You know, 2026. As always, there will be a lot of puts and takes but I'll compare how we're viewing it today versus how we viewed it three to six months ago. Some key factors, the macro. We're frankly not expecting much improvement in the macro with an exception. I'll talk about that in a minute. The macro remains choppy and it certainly has not recovered or gotten momentum that we or anyone else had expected to see at this point. It includes continued uncertainty with global trade tempering somewhat how businesses spend their money. Of course, as you know, we're tied closely to how our customers invest and spend on growth. Now specific to PPG, we see signs of several markets stabilizing in the middle of next year, later than what we previously thought.

Speaker #3: You know , 2026 , as always , there will be there will be a lot of puts and takes , but I'll compare how we're viewing it today versus how we viewed it .

Speaker #3: 3 to 6 months ago . Some key factors . The macro we're frankly not expecting much improvement in the macro with with an exception .

Speaker #3: I'll talk about that in a minute. So the macro remains choppy and certainly has not recovered or gained the momentum that we or anyone else had expected to see at this point.

Speaker #3: It includes continued uncertainty with global trade tempering somewhat how businesses spend their money . And of course , as you know , we're we're tied closely to how our customers invest and spend on on growth .

Speaker #3: Now specific to PPG , we see signs of several markets stabilizing in the middle of next year , later than what we previously thought .

Speaker #3: You already heard me talk about refinish. So we do expect some carryover refinish volume challenges through the first half, as that normalization doesn't.

Tim Knavish: You already heard me talk about refinish. We do expect some carryover refinish volume challenges through the first half as that normalization in the industry doesn't really happen until the middle of 2026. In addition, remind everybody that we had a very strong first half of refinish sales in 1H25 as our distributor order patterns were very favorable as they were stocking up on inventory. We do have that double effect of industry normalization happening in the middle of the year plus the comp issue related to 2025 patterns. You know, look, a pretty muted industrial environment is our outlook for 2026 right now, Chris, with first half in particular being difficult. Now we're partly offsetting these headwinds with, you mentioned, our increasing momentum in several of our businesses regarding organic growth, continuing our self-help cost reductions, aggressive discretionary cost management.

Speaker #3: In the industry, it doesn't really happen to the middle of Q2 2026. In addition, I want to remind everybody that we had a very strong first half of refinish sales in the first half of 2025, as our distributor order patterns were very favorable since they were stocking up on inventory.

Speaker #3: So, we do have that double effect of industry normalization happening in the middle of the year, plus the comp issue related to 2025 patterns.

Speaker #3: So , you know , look a pretty muted industrial environment is our outlook for 2026 right now . Chris , with first half in particular being difficult .

Speaker #3: Now we're partly offsetting these headwinds with you mentioned , you know , our increasing momentum in several of our businesses regarding organic growth , continuing our self-help cost reductions , aggressive discretionary cost management .

Speaker #3: You know, we do expect the raw material supply chain to continue to be very long, supportive of coatings companies as we move through 2026 because of the benign macro that I just described.

Tim Knavish: We do expect the raw material supply chain to continue to be very long supportive of coatings companies as we move through 2026 because of the benign macro that I just described. Of course, we'll continue to have cash deployment. I guess if I were to summarize, we got several of our end markets that are in challenging market conditions. They're transitory, but they look worse and more extended than we thought as recently as a few months ago. On the bright side, we continue to control everything we can control. To your point earlier, we're winning, we have momentum, we're organically growing, we're taking share, we're getting cost out. All in, 2026 looks softer in the first half than what we envisioned earlier this year. Great color. Thank you.

Speaker #3: And of course , we'll continue to have cash , cash deployment . So , you know , I guess fiber to summarize , we got several of our end markets that are in challenging market conditions .

Speaker #3: There transitory . But they look look worse and more extended than we thought . As recently as a few months ago . And on the bright side , we continue to control everything we can control .

Speaker #3: And to your point , earlier , we're winning . We have momentum . We're organically growing . We're taking share . We're getting cost out .

Speaker #3: But all in 2006 appears softer in the first half than what we envisioned earlier this year.

Speaker #5: That's a great color. Thank you.

Speaker #1: Thank you very much. Next question comes from Dave Billeter from Deutsche Bank. Dave, your line is now open.

Operator: Thank you very much. Our next question comes from Dave Begleiter from Deutsche Bank. Dave, your line is now open.

Speaker #6: Thank you . Good morning Tim . Just on 25 . Can you talk to what's you know what drove the change in your full year guidance and resulted in , you know , implied Q4 guidance coming in below consensus expectations ?

Tim Knavish: Thank you. Good morning, 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? Thank you. Sure.

Speaker #6: Thank you .

Speaker #3: Sure . Hi , Dave . Frankly , it's it's all refinished , Dave . You know , the we did as I just described , I think it was in John's question .

Alex Lopez: Hi, Dave.

Tim Knavish: Frankly, it's all refinish. Dave, as I just described, I think it was in John's question, we were expecting industry normalization earlier, and then we had the double whammy of destocking as our distributors were also expecting industry normalization earlier. When that didn't happen, now they're focused on running their inventories down for year end. A little bit of a double whammy from refinish is really what caused us to lower our Q4 guide.

Speaker #3: You know , we were expecting industry normalization earlier and then we had the double whammy of destocking as our distributors . We're also expecting industry normalization earlier when that didn't happen .

Speaker #3: Now they're focused on running their inventories down for for year end . So a little bit of a double whammy from refinish is really what caused us to lower our Q4 guide .

Speaker #7: Yeah Dave , this is Vince . And if we look at 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 .

Vince Morales: Yeah. Dave, this is Vince. If you look at 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. We do see that starting to improve, but still negative.

Speaker #7: Our latest claims data was down mid-single digits. So, we do see that starting to improve, but still negative.

Speaker #6: Thank you .

Tim Knavish: Thank you.

Speaker #1: Thank you very much. Our next question comes from Michael Sisson from Wells Fargo. Michael, your line is now open.

Operator: Thank you very much. Our next question comes from Michael Sison from Wells Fargo. Michael, your line is now open.

Speaker #8: Hey good morning guys . Nice quarter . Just curious . You know , maybe I'll pick it one or the other . Red arrows architectural .

Tim Knavish: Hey, good morning, guys.

Vince Morales: Nice quarter.

Tim Knavish: Just curious, maybe I'll pick at one of the other red arrows, architectural. 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 are most important for you and how that business gets back to growth. Yeah. Hey, Mike, thanks. I thought you were going to ask me about the Browns or Steelers this year, but we'll defer that for another day. First of all, I'll answer the last part of your question first. Our biggest markets are France, the Netherlands, UK, and Poland. Now, beyond those kind of big four, we're number one in a total of like 12 to 15 countries over there, but those are the ones that would move the needle the most. We continue to see soft demand.

Speaker #8: Amy , what do you think needs to happen for that business to sort of turn around ? You know , maybe sometime next year .

Speaker #8: You know, maybe remind us of the regions that are the most important for you and how that business gets back to growth.

Speaker #3: Yeah . Hey , Mike , thanks for the question . I thought you were going to ask me about the Brown Steelers this year , but we'll defer that for another day .

Speaker #3: But look , a first of all , I'll answer the last part of your question first . Our biggest markets are France , the Netherlands , UK and Poland .

Speaker #3: Okay . Now beyond kind of big four , we're number one in a total of like 12 to 15 countries over there . Okay .

Speaker #3: But those are the ones that would move the needle the most , most . So what's happening . We continue to see soft demand .

Speaker #3: I just got back from Europe and it's it's it's consumer confidence driven . It's it's inflation . It's interest rates . It's the wars .

Tim Knavish: I just got back from Europe and it's consumer confidence driven, it's inflation, it's interest rates, it's the wars. There are just a lot of things. It's the energy situation in Europe. There are a lot of things holding back consumer confidence from a construction and remodel standpoint. We've got great brands, we've got great products, we're getting price. You heard my quote earlier, nine straight years, 36 straight quarters of increased pricing. We're doing everything we can to control the controllables. We're not waiting for things to recover over there. We are taking aggressive structural cost actions with the anticipation that flat, which we're getting close, we're very close to being flat year over year now. Flat demand will be a really good situation for our business because of all the cost out and all the price in.

Speaker #3: There's just a lot of things . It's the energy situation in Europe . So there's a lot of things holding back consumer confidence from construction and those remodel standpoint .

Speaker #3: Yeah we got great brands . We got great products . We're getting price . You heard my quote earlier . Nine straight years , 36 straight quarters of increased pricing .

Speaker #3: So we're doing everything we can to control the Controllables . We're not waiting for things to recover over there . We are taking aggressive structural cost actions with the anticipation that flat , which we're getting close , we're very close to being flat year over year .

Speaker #3: Now . Flat demand will be a really good situation for our business because of all the cost out and all the price in .

Speaker #3: So we'll get really , really good leverage as that thing . I'm not going to say recovers as that thing stabilizes . And we are beginning to see those signs of stabilization flat will be great .

Tim Knavish: We'll get really, really good leverage as that thing, I'm not going to say recovers, as that thing stabilizes. We are beginning to see those signs of stabilization. Flat will be great and we're not waiting now. We are seeing more recovery in the east right now and again on that side of the continent. We're number one in Poland, we're number one in Hungary, we're number one in Romania, we're number one in all of the Baltics, we're number one across Scandinavia. We're well positioned there as those start to recover. As soon as we see some stabilization in France, UK, Netherlands, then you'll start to see that great leverage that we're expecting.

Speaker #3: And we're not waiting . Now . We are seeing more recovery in the East right now . And again , on that side of the continent .

Speaker #3: You know , we're number one in Poland . We're number one in Hungary . We're number one in Romania . We're number one in all of the Baltics .

Speaker #3: We're number one across Scandinavia . So we're well positioned there as those start to recover . As soon as we see some stabilization in France , UK , Netherlands , then you'll start to see that that that great leverage that we're , that we're expecting .

Speaker #1: Thank you very much . As a reminder , if you would like to raise a question , please call now by pressing star , followed by one on your telephone keypad .

Operator: Thank you very much. As a reminder, if you would like to raise a question, please signal now by pressing star followed by one on your telephone keypad. As a further reminder, to allow everyone to ask a question today, the company requests each analyst ask only one question. Our next question comes from John Roberts from Mizuho. John, your line is now open.

Speaker #1: As a further reminder to allow everyone to ask a question . Today , the company requests that each analyst ask only one question .

Speaker #1: Our next question comes from John Roberts from Mizuho . John , your line is now open .

Speaker #9: Thank you, Tim. I think BYD recently had its first down sales month in two years. How are you viewing the overall Chinese OEM vehicle outlook?

Vince Morales: Thank you, Tim.

Tim Knavish: I think BYD recently had its first down sales month in two 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?

Speaker #9: And do you think anti involution actions there are going to have any impact on the coatings industry ?

Speaker #3: Hey John . Yeah . BYD did put up a quarter that for them was a bit disappointing , but you know the overall growth in China has been pretty strong all year .

Operator: Hey John.

Tim Knavish: Yeah. BYD did put up a quarter that for them was a bit disappointing. The overall auto growth in China has been pretty strong all year and we expect that to continue and we're growing in China. China auto, despite the challenges there, I do think I don't have insight into BYD's books obviously, but I do think it is extremely competitive over there and perhaps that's driven a lot of their recent challenge. They continue to be the biggest winner we are working with and frankly selling to a lot of the other Chinese domestics. It's win with the winners. As Alicia who runs that business for us always says, picking the winners and making sure we're spread out nicely across a number of winners in the marketplace.

Speaker #3: And you know , we expect that to continue . And we're we're growing in China China Auto despite despite the challenges there . You know I do think I don't have insight into BYD's books obviously .

Speaker #3: But I do think it is extremely competitive over there . And so perhaps that's driven driven a lot of their their recent challenge .

Speaker #3: But they continue to be the biggest winner . We are working with . And frankly , selling to a lot of the other Chinese domestics .

Speaker #3: And , you know , it's win with the winners . As Alicia , who runs that business for us , always says picking the winners and making sure we're spread out , you know , nicely across a number of winners in the marketplace .

Speaker #3: So we don't expect , you know , the double digit kind of growth rates of China Auto that we saw in the past .

Tim Knavish: We don't expect the double digit kind of growth rates of China auto that we saw in the past, but we do expect low to mid single digit growth there pretty consistently for the industry and for us.

Speaker #3: But we do expect low to mid single digit growth there pretty consistently for for the industry and for us .

Speaker #7: Yeah John I'll just add on just to mention this in the opening comments . But we outgrew the industry in China , but we outgrew the industry in every other region as well .

Vince Morales: Yeah, John, this is Vince. I'll just add on to mention this in the opening comments, but we outgrew the industry in China, and we outgrew the industry in every other region as well. Regarding anti involution, we don't see that as an issue certainly in the short term or midterm. We think the chemical industry there remains long, and we think they'll continue to provide significant output to our industry even as other industries slow down.

Speaker #7: Regarding antique involution , we don't see that as an issue . Certainly in the short term or mid-term , we we think the chemical industry there remains long and we think they'll continue to provide significant output to our industry , even as other industries slow down .

Speaker #1: Thank you very much . Our next question comes from Kevin McCarthy from DRP . Kevin , your line is now open .

Operator: Thank you very much. Our next question comes from Kevin McCarthy from KeyCorp. Kevin, your line is now open.

Speaker #10: Yes . Thank you and good morning , Tim . If I look at your performance coatings results , your your sales actually grew year over year notwithstanding the refinish pressure that you articulated .

Tim Knavish: Yes, thank you, and good morning.

Vince Morales: Tim, if I look at your performance.

Tim Knavish: Coatings results, your sales actually grew year over year notwithstanding the refinish pressure that you articulated, yet the operating income declined on a year over year basis notwithstanding looks like a 4% contribution from price. Can you talk through that? Is that all to do with mix?

Speaker #10: 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 ?

Speaker #10: Is that all to do with mix issues related to refinish , or are there other items that you might call out that that would explain that dynamic ?

Vince Morales: Issues related to refinish are there.

Tim Knavish: Other items that you might call out that would explain that dynamic? Hey 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. 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. We are spending well above normal from both OpEx and CapEx in two businesses in that segment, Aerospace and Protective and Marine, because those two businesses have been consistently growing at double digit and we see a long runway for consistent growth capture. 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.

Speaker #3: Hey Kevin , thanks . Hope you're well . It's it's definitely part of it is is mix refinish is a above segment , let's say a nicely above segment .

Speaker #3: Average business . So when we we take a pause in refinish earnings growth and go to earnings reduction , that drives drives , you know some deleveraging from from a from an EBITDA standpoint for the segment .

Speaker #3: But we are spending we are spending well above normal from both OpEx and CapEx in two businesses in that segment , aerospace and protective .

Speaker #3: And marine . Because those two businesses have been consistently growing at double digit . And we see a long runway for consistent growth capture .

Speaker #3: 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.

Speaker #1: Thank you very much . Our next question comes from Duffy Fischer from Goldman Sachs . Duffy , your line is now open .

Operator: Thank you very much. Our next question comes from Duffy Fischer from Goldman Sachs. Duffy, your line is now open.

Speaker #11: Hey good morning guys . Can I just follow up on that . So when you look at aerospace and protective and marine , you're trying to grow that business .

Tim Knavish: Yeah, good morning guys. Can I just follow up on that? When you look at aerospace coatings and protective and marine coatings, 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.

Speaker #11: 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 ?

Operator: Relative to let's say the company.

Tim Knavish: Average, aerospace and protective and marine. Where do their margins sit? What do their incremental margins look like, let's say, over the next two to three 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? Hey Duffy. Let me try to. As you know, we don't give specific business margins, but let me frame it for you. First of all, performance coatings segment, clearly our highest margin segment, that's public. We share that with you every quarter. Within that segment, I've already said refinish is nicely above segment average, and I've already said aerospace is nicely above segment average. That leaves two other businesses which must be below segment average, with one of them being PMC. Okay, that answers part of your question. I'll answer some more. I'm sure Vince captured a few things.

Speaker #11: 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 ?

Speaker #3: Hey , Duffy . So let me let me try to we as you know , we don't we don't give specific business margins .

Speaker #3: But let me let me frame it for you . So first of all , performance coatings segment clearly our highest margin segment . That's public .

Speaker #3: We share that with you every quarter within that segment. I've already said refinish is nicely above segment average, and I've already said aerospace is nicely above segment average.

Speaker #3: And so that leaves two other business businesses , which must be below segment average , with one of them being PMC . Okay .

Speaker #3: So that answers part of your question . I'll answer some more , and I'm sure Vince captured a few things and how much longer do we need to spend more ?

Tim Knavish: How much longer do we need to spend more there? I think honestly aerospace, it's a couple years more because there's just such tremendous profitable growth to be captured there, where I'd say PMC probably a little shorter. The investments are more incremental in PMC. The larger investments are in aerospace.

Speaker #3: There ? You know , I think honestly , aerospace it's a couple years more because there's just such tremendous profitable growth to be captured there .

Speaker #3: Where I say PMC probably a little shorter , where we're , you know , the investments are more incremental in PMC , the larger investments are in aerospace .

Speaker #7: Yeah . I would just accentuate one of the things Tim said that this growth for our shareholders is important . But both of these businesses are mid to long cycle businesses .

Vince Morales: Yeah, Duffy. Vince, I would just accentuate one of the things Tim said that this growth for our shareholders is important, but both of these businesses are mid to long cycle businesses. We do feel these investments, which are on the front end of this growth curve, will provide us benefits certainly in 2026 and 2027. Some of the investments in aerospace, as Tim articulated earlier, are capital. Some of them are OpEx. The OpEx we're going to continue to spend in 2026. The capital will be longer, as Tim just mentioned. We are 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.

Speaker #7: 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 .

Speaker #7: Some of of the investments in aerospace , as Tim articulated earlier , our capital , some of them are opex . The OpEx .

Speaker #7: We're going to continue to spend in the 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.

Speaker #7: Given the nature of these industries . .

Speaker #3: And every one of these investments , I can assure you , has IRR significantly above our risk adjusted whack . So good investments for for our long term future and shareholders .

Tim Knavish: Every one of these investments, I can assure you, has IRRs significantly above our risk-adjusted WACC. These are good investments for our long-term future and shareholders.

Speaker #1: Thank you very much . As a further reminder , if you would like to raise a question , please seek them now by pressing star followed by one on your telephone keypad .

Operator: Thank you very much. As a further reminder, if you would like to raise a question, please signal now by pressing star followed by one on your telephone keypad. A further reminder to limit yourself to just one question today. Our next question comes from Ghansham Panjabi from Baird. Ghansham, your line is now open.

Speaker #1: And a further reminder to limit yourself to just one question today. Our next question comes from Ghansham Panjabi from Baird. Your line is now open.

Speaker #12: Yeah . Thank you . Operator . Good morning everybody . You know , Tim , can you just give us a bit more color on the operating environment in Mexico ?

Tim Knavish: Yeah, thank you, operator. Good morning, everybody.

Alex Lopez: Tim, can you just give us a

Tim Knavish: 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.

Speaker #12: You know , I know for you , it's been sort of bifurcated between the retail component versus , you know , project activity .

Speaker #12: And I'm just curious as to how you think about how that will evolve as we cycle into 2026.

Speaker #3: Yeah . Hey , Ghansham , good to hear from you . So yeah , Mexico really important country . As you know , we're very pleased that we are seeing recovery there .

Vince Morales: Yeah.

Tim Knavish: Hey Ghansham, good to hear from you. Yeah, Mexico, really important country as you know. We're very pleased that we are seeing recovery there. Going by memory here a bit, but you know that's been a consistent growth engine for us for 10 years, 11 years, and we took, I think, a dip. We were negative in Q2 or Q1, I mean, because even though Liberation Day wasn't until the beginning of Q2, the Mexico-Canada tariffs were actually announced in February, and literally overnight we saw a dramatic reduction in spending by consumers and project. We were negative in Q1 in organic growth, which almost never happens for us in Mexico. We returned to positivity in Q2, low single digits, Q3, medium and mid single digits, and we feel good about Q4 as we see continued sequential recovery.

Speaker #3: Going by memory here a bit, but you know that's been a consistent growth engine for us since we, for ten years, 11 years.

Speaker #3: And we took I think , a dip . We were negative in Q2 or Q1 . I mean because even though Liberation Day wasn't until the beginning of Q2 , the Mexico , Canada tariffs were actually announced in February and literally overnight we saw a dramatic reduction in spending by consumers and projects .

Speaker #3: So we were negative in Q1 and organic growth , which almost never happens for us in Mexico . We returned to positivity in Q2 .

Speaker #3: Low single digits Q3 medium and mid-single digits , and we feel good about we feel good about about Q4 as we see continued sequential recovery .

Speaker #3: So retail in particular has already come back and come back strong . And now on top of that , we're beginning to see some sequential improvement in the project spending .

Tim Knavish: Retail in particular has already come back and come back strong, and now on top of that we're beginning to see some sequential improvement in the project spending because remember a lot of these projects were already in flight and so they've got to be completed. If you believe that a deal will be reached with Mexico, then that's a huge accelerator to that project spending. We do feel good that we're seeing recovery, and based on all of our networking in Mexico, we feel good that that will return to what we all expect, have come to expect from PPG Comex.

Speaker #3: Because remember , a lot of these projects were already in flight . And so they've got to be completed . And , you know , if if you believe that that a deal will be reached with Mexico , then that's a that's a huge accelerator to that project spending .

Speaker #3: So so we do we do feel good that we're seeing recovery . And based on all of our networking in Mexico , we feel good that that will return to what we all expect have come to expect from PPG .

Speaker #3: Cemex .

Speaker #1: Thank you very much . Our next question comes from Jeff Secaucus from J.P. Morgan . Jeff , your line is now open .

Operator: Thank you very much. Our next question comes from Jeff Sikaukas from J.P. Morgan. Jeff, your line is now open.

Speaker #13: Thanks very much. When I look at your aerospace capital expenditures going up more than $500 million, is the conclusion that should be drawn?

Tim Knavish: Thanks very much. When I look at your aerospace capital expenditures going up more than $500 million.

Vince Morales: Is the conclusion.

Tim Knavish: 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.

Speaker #13: Is that your annual capital expenditures are going to stay around 700 million or 650 million , over the next couple of years . And and I know you don't forecast yet , but just order of magnitude .

Speaker #13: And for Vince , you know , it's a little hard to read some of the working capital changes that you've had . But , you know , it looks like cash flows from operations are around 1.6 billion this year .

Vince Morales: Changes that you've had.

Tim Knavish: It looks like cash flows from operations are around $1.6 billion this year. Should they step up to closer to.

Speaker #13: 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 ?

Vince Morales: $2 billion in the out years because there isn't the same working capital drag, or should it just move with the.

Tim Knavish: Change in your EBITDA? Yeah. Hey Jeff, good to hear from you. Aerospace CapEx, it will let's say peak this year, 2026 and 2027, but overall CapEx, our mission is to get back to 3% of sales. I think this year will be the peak of our CapEx spending, 2025. We'll go down a bit in 2026, a bit further in 2027 on a glide path to get back to that 3%. This is really a temporary spike. Honestly Jeff, it's one of the reasons I, is because previous to that you were just seeing our total CapEx number and everybody's like, why are you spending more? We're spending more because one of our most profitable business has a tremendous multi-year, possibly decade growth trajectory that I believe it's in our company's best interest to invest and capture that growth. I called that out so you see it.

Speaker #3: Yeah . Hey , Jeff , good to hear from you . So aerospace CapEx , it will let's say peak this year 26 and 27 .

Speaker #3: But overall CapEx , our mission is to get back to 3% of sales . I think this year will be the peak of our CapEx spending , 2025 will go down a bit in 2026 , a bit further in 2027 , on a glide path to get back to that 3% .

Speaker #3: So this is really a temporary spike . And one of the honestly , Jeff , it's one of the reasons I called it out is because previous to that , you were just seeing our total CapEx number and everybody's like , why are you spending more ?

Speaker #3: We're spending more because one of our most profitable businesses has a tremendous multi-year, possibly decade, growth trajectory that I believe it's in our company's best interest to invest and capture that growth.

Speaker #3: So I called that out . So you see it , but it doesn't change our long term objective of about 3% of sales .

Tim Knavish: It doesn't change our long-term objective of about 3% of sales, and we do believe this is the peak and will start to trend down towards that. On working capital, I know that's Vince's favorite subject, so I'll let him cover it. One piece of it is we did, with all the tariff uncertainty at first, we did pre-buy a bunch of raw materials to capture it at a good price. That bought us time to work through other tariff mitigation actions so that we can control our inflation to that LSD number as we move through the year. We fully expect that that inventory piece of it will normalize by year end. Vince, you can consider that.

Speaker #3: And we do believe this is the peak . And we'll start to trend down towards that . On working capital . I know that's Vince's favorite subject , so I'll let him cover it , but one piece of it is we did with all the tariff uncertainty .

Speaker #3: At first . We did pre-buy a bunch of raw materials to capture it at a good price . That bought us time to work through other tariff mitigation actions so that we can control our inflation to that LSD number .

Speaker #3: As we move through the year , we fully expect that that that inventory piece of it will normalize by year end . And Vince , you can consider that .

Speaker #7: Yeah . Jeff , good to hear from you . Again . Just to echo what Tim said , we've had a step up year over year .

Vince Morales: Yeah. 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 it as a % of sales or the IO 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. I would expect our operating cash flow to grow at a faster clip than EBITDA in future years.

Speaker #7: This year in working capital . As we look at it , as a percent of sales or Dio or whatever metric you want to use , that's a transitory step up .

Speaker #7: 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 .

Speaker #7: 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 .

Speaker #1: Great . Thank you very much . Excuse me . Next question comes from Aziza Azizia from Phormium Research . Your line is now open .

Operator: Great, thank you very much.

Tim Knavish: Excuse me.

Operator: Next question comes from Aziza Gazidia from Fermium Research. Aziza, your line is not open.

Speaker #14: Hi , guys . Good morning . You know , you recently highlighted that epoxy resins . Had been inflating slightly . I was wondering if you could provide any outlook on that .

Alex Lopez: Hi guys. Good morning. You know you've 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. Thank you.

Speaker #14: And maybe some of the puts and takes for the expectations for low single digit inflation on Roz . Thank you .

Speaker #3: Yeah . Hi , Aziza . I was I was going to ask Frank about how he's feeling about the fields for Rodgers swap .

Tim Knavish: Hi Aziza. I was going to ask Frank about how he's feeling about the fields for Rogers Swap that led to the jet success. Maybe you can pass that question on for me. Epoxies were actually impacted prior to Trump. Last year there were some anti-dumping and some tariffs put on under the Biden administration. We already had that built into our contributors to the low single digits inflation. In fact, that's a differentiator between us and maybe companies that are more weighted towards architectural coatings because architectural coatings don't use epoxy, but things like automotive, packaging, PMC, industrial do use epoxy. It's actually one of the key contributors. It's not a huge impact for us. It's all built into our low single digit guide for the year. Even as we look to next year, the supply-demand calculus is still very much in favor of us.

Speaker #3: That led to the Jets success . But maybe you can pass that question on for me . So epoxies were actually impacted prior to Trump , right ?

Speaker #3: Last year . There were some anti-dumping and some tariffs put on under the Biden administration . And so we already had that built into our our air contribute contributors to the low single digits .

Speaker #3: Inflation . In fact , that's a differentiator between us . And maybe companies that are more more weighted towards architectural coatings because architectural coatings don't use epoxy .

Speaker #3: But things like automotive packaging , PMC industrial do use epoxy . So it's actually one of the key contributors . It's not a huge impact for us .

Speaker #3: And it's again , it's all built into our our low single digit guide for the year . And even as we look to next year , the supply demand calculus is still very much in favor of us and our purchasing team is finding that the our upstream suppliers in many spaces , including epoxy , are looking to do volume deals more than you know , than price increases .

Tim Knavish: Our purchasing team is finding that our upstream suppliers in many spaces, including epoxy, are looking to do volume deals more than price increases.

Speaker #7: Yeah , 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 , you know , most companies , including PGP , we expanded our supplier base to to make sure we had a assure supply of many raw materials .

Vince Morales: Yeah, 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 sure 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.

Speaker #7: Now that the supply chain crisis has passed , we are now in the process of contracting our supply base back to our prior prior weightings .

Speaker #7: So we're able to share more volume with fewer suppliers , which we also think will contribute next year to to the raw material environment we're seeing today .

Speaker #1: Thank you very much . Our next question comes from James Hooper from Bernstein at Society General James . Your line is now open .

Operator: Thank you very much. Our next question comes from James Hooper from Bernstein Société Générale. James, your line's not open.

Speaker #15: Morning . And thank you very much for taking my question . My question is about kind of a bigger picture question . It seems that a lot of the a lot of the coatings players in your peers are , are all seeming , you know , calling out share gains .

Tim Knavish: Morning and thank you very much for taking my question. My question's 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. For example, if we take refinish, your competitor that reported yesterday said they gained share and grew mid single digit. Are you seeing a more competitive in a volume environment or are you expecting more pressure across your businesses going forward in 2026? Yeah. Hi James. I don't see any what I would call fundamental changes in the competitive structure within our businesses with one caveat and that's China. China has more competitors. That's not a change. It's a more competitive environment.

Speaker #15: And there seems to be an increasingly competitive volume environment. So, for example, if we take refinish, your competitor reported yesterday that they gained share and grew mid-single digits.

Speaker #15: Are you seeing a more competitive in a volume environment or are you expecting more pressure across your across your businesses , you know , going forward in 2026 ?

Speaker #3: Yeah . Hi James , I don't I don't see any what I would call fundamental changes in the competitive structure within our businesses , with one caveat .

Speaker #3: And that's China . China has more competitors . That's not a change . And so it's more it's a more competitive environment . But specific to your point about refinish , I've said many times , you know , there are there there are two companies that kind of lead the pack with productivity solutions .

Tim Knavish: Specific to your point about refinish, I've said many times there are two companies that kind of lead the pack with productivity solutions. We fight each other every day and we win and sometimes lose to each other every day. The bigger picture is that the companies that don't have as much of those productivity solutions are the net losers over time. That becomes even more accentuated when the industry times are tough because again, the body shops really need those industry players that have the productivity solutions. Am I surprised that that one particular competitor gained share, announced gained share yesterday? Absolutely not. We are absolutely gaining share as well and quite confident. We just introduced a couple of new, you know, we've been supplying digital as well as chemistry productivity solutions to our, to our portfolio over refinish to win even more share.

Speaker #3: And we fight each other every day . And we win . And sometimes lose to each other every day . But the bigger picture is that the companies that don't have as much of those productivity solutions , you know , are the net net losers .

Speaker #3: Over time . And that becomes even more accentuated when the industry times are tough , because again , the body shops really need those .

Speaker #3: Those industry players that have the productivity solutions . So I surprised that that one particular competitor gained share announced gain share yesterday . Absolutely not .

Speaker #3: We are absolutely gaining share as well . And quite confident . And we just introduced a couple of new you know , we've been supplying digital as well as chemistry , productivity solutions to our to our portfolio of refinish to win even more share .

Speaker #3: We just announced a couple of new ones this quarter . So as we continue to boost that value proposition and I'm confident that we'll continue to gain share , and as I mentioned in my remarks , I think it maybe it was to John's question , the first one we're actively getting interest from some potential customers .

Tim Knavish: We just announced a couple of new ones this quarter. As we continue to boost that value proposition, I'm confident that we'll continue to gain shareholders. As I mentioned in my remarks, I think it maybe it was to John's question the first one. We're actively getting interest from some potential customers now that are fairly sizable and that we weren't previously because of the challenges in the industry and the value of our productivity solutions. Fundamentally, are we seeing some fundamental change in the competitive dynamic out there? Not really, but we are seeing increased pull for our value proposition.

Speaker #3: Now that are fairly sizable and that we weren't previously because of the challenges in the industry and the value of our productivity solutions .

Speaker #3: So fundamentally , are we seeing , you know , some fundamental change in the competitive dynamic out there , not really . But we are seeing increased pull for our value proposition .

Speaker #7: James and Vince , let me just add a here . I think we always measure the litmus test of the value proposition is if you're gaining share , i.e. higher volume , plus you have positive price that shows you have a true value proposition .

Vince Morales: James, this is Vince. Let me just add a comment here. I think we always measure the litmus test of a value proposition. If you're gaining share, that is higher volume plus you have positive price, that shows you have a true value proposition. I think when you look at our results, you'll see that across many of our businesses.

Speaker #7: And I think when you look at our results , you'll see that across many of our businesses .

Speaker #3: Plus we get paid for those digital solutions in addition to the coatings that we sell .

Tim Knavish: Plus, we get paid for those digital solutions in addition to the coatings that we sell.

Speaker #1: Thank you very much . Our next question comes from Patrick Cunningham from Citigroup . Patrick , your line is now open .

Operator: Thank you very much. Our next question comes from Patrick Cunningham from Citigroup. Patrick, the line's now open.

Speaker #16: Hi . Good morning . Thanks for taking my question . Maybe a related question on share gains you've previously quantified some of the industrial share gains at 100 million .

Tim Knavish: All right, good morning.

Alex Lopez: Thanks for taking my question.

Tim Knavish: Maybe a related question on share gains. You've previously quantified some of the industrial share gains at $100 million. Is that still tracking to plan? 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?

Speaker #16: 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 ?

Speaker #7: Yeah . Patrick , let me 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 .

Vince Morales: Yeah, Patrick, let me start here. I think what we've been talking about, and I know we've talked over the last couple years, is volume plus volume leverage. You can see that clearly in our industrial segment results where we've had some volume growth but significant leverage on the bottom line. Our biggest earnings lever off that volume is that leverage we're getting on our fixed cost base.

Speaker #7: 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 .

Speaker #7: And so our biggest , our biggest earnings lever off that volume is that leverage we're getting on our fixed cost base .

Speaker #3: Yeah . And to your question on the 100 million , I think we quoted that 100 million a year ago . And all of that 100 million is starting to flow through now because most of those were launched or are being launched here in the second half of the year .

Tim Knavish: Yeah. To your question on the $100 million, I think we quoted that $100 million a year ago and all of that $100 million is starting to flow through now because most of those were launched or are being launched here in the second half of the year. None of that went away. In addition to that, Patrick, we've been winning business throughout the year. On these longer launch businesses that start, typically the case in industrial segment, in packaging, in automotive and industrial, you'll see more and more of those wins above and beyond the $100 million start to flow through again. It won't, unfortunately, particularly in the first half of 2026, be enough to offset some of those macro things I talked about earlier. It won't be enough to offset that refinish comp issue on distributor buying patterns. Those are transitory items.

Speaker #3: None of that went away . But in addition to that , Patrick , we've been winning business throughout the year and on these longer launch businesses , that's typically the case in in segment and packaging and automotive and industrial .

Speaker #3: You'll see you'll see more and more of those wins above and beyond the 100 million start to start to flow through , you know , again , it won't unfortunately , in particularly in the first half of 2026 , it won't be enough to offset some of those macro things I talked about earlier .

Speaker #3: It won't be enough to offset that . That refinish comp issue on a distributor buying patterns , but those are transitory items . So as the transitory pressure starts to starts to come off , then we'll be better positioned as we go forward for the mid-term .

Tim Knavish: As the transitory pressure starts to come off, then we'll be better positioned as we go forward for the midterm.

Speaker #1: Thank you very much. Our next question comes from Vincent Andrews from Morgan Stanley. Vincent, your line is now open.

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

Speaker #7: Thank you, and good morning.

Vince Morales: Thank you and good morning everyone. Tim, wondering if you could speak a bit.

Speaker #13: Everyone .

Speaker #7: I'm wondering .

Speaker #17: If you could speak a little bit about the M&A environment . Both large and small . You know , one of your competitors has made a big exit to private equity .

Tim Knavish: Little bit about the M&A.

Vince Morales: Environment, both large and small. One of your competitors has made a big exit to private equity. Another on their conference call was talking up sort of potential for further consolidation in the industry overall, but not clear what it was going to be. 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. What are you thinking going to 2026, both large and small.

Speaker #17: Another on their conference call was talking up sort of potential for for further consolidation in the industry overall . But you know , not clear what it was going to be .

Speaker #17: But just curious , you know , how you're thinking about things you referenced your balance sheet and the earlier in the call you've been , you know , inquisitive and good at it in the past .

Speaker #17: So what are you thinking going into 26 ? Both large and small ? Thanks .

Tim Knavish: Thanks. Yeah, thanks, Vince. I've said many times since I took over and been pretty consistent that the tip of the spear for PPG Industries is to build an organic growth and margin machine. 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 one, I've also said, you know, we're not going to exclude M&A. It's part of the algorithm for growth for us long term. 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 automotive refinish and pretreatment opportunity.

Speaker #3: Yeah , thanks , Vincent . As 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 .

Speaker #3: 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 one .

Speaker #3: I've also said , you know , we're not going to exclude M&A . It's part of the algorithm for growth for us , long term .

Speaker #3: You know , 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 .

Speaker #3: I've talked earlier about a couple that we did take a close look at with the Brazil architectural with with the recent auto refinish and pretreatment opportunity .

Speaker #3: You know , I think it's it's in our best interest , our shareholders , best interest to look at every opportunity that comes comes along .

Tim Knavish: 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. That hasn't changed and doesn't change now. We will 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 eight quarters and executing on our organic growth and margin machine.

Speaker #3: There are some bolt ons out there that 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 .

Speaker #3: Relative to that organic growth in margin machine . And that hasn't changed and doesn't , you know , doesn't change . Now . It will continue to execute on building that organic growth and margin machine .

Speaker #3: 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 eight quarters .

Speaker #3: And executing on our organic growth . And margin machine .

Speaker #1: Thank you very much . Next question comes from Alexey Yefremov from key Group . Alexey Corp . So sorry , Alexey . Your line is now open .

Operator: Thank you very much. Next question comes from Alexei Yefimov from KeyCorp. Alexei, sorry, your line is not open.

Speaker #16: Hey guys . Good morning . This is Ryan on for Alexey . There's been a lot of questions on refinish this morning , so I figured I'd packed a couple more on .

Tim Knavish: Hey guys, good morning, this is Ryan on for Alex Lopez. 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? 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?

Speaker #16: Can you maybe just help us understand the differences in what's going on in the US market versus maybe what's going on in Europe right now ?

Speaker #16: 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 ?

Speaker #16: Thanks .

Alex Lopez: Thanks.

Speaker #7: Hey , Ryan , this is Vince . Let me start . And Tim will add some color here specific to your first question on us versus non US markets .

Vince Morales: Hey Ryan, this is Vince. Let me start and Tim will add some color here specific to your first question on U.S. versus non-U.S. markets. I think it dovetails exactly with 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. 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. I think that provides additional color around the insurance premiums being a causation factor in the U.S., yeah.

Speaker #7: I think it dovetails exactly with what we're talking about , which is insurance premiums in the US are up significantly . We're not seeing that dynamic outside the US .

Speaker #7: And we're seeing claims rates outside the US 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 US , same in other parts of the world .

Speaker #7: So again , that I think provides additional color around the insurance premiums . Being a causation factor in the US .

Speaker #3: Yeah . And on the share gains , you know , we're gaining share most of most of the wins that we've been seeing have been across both the US and Europe and in the US .

Tim Knavish: On the share gains, we're gaining share. Most of the wins that we've been seeing have been across both the U.S. and Europe. In the U.S., the competitor that, the number one and number two are net net winning. Sometimes a three or a four or a five will talk about a share gain that's driven by maybe one shift of a customer, but not the broad multi hundreds per quarter net shop wins that U.S. and I suspect that other number one or number two delivers. It really comes down to we're beyond just as an industry providing solutions of chemistry inside the can of paint, and we are proud of the solutions that we now provide outside of the can of paint that drive productivity. Net, net that is driving share gain across the United States and Europe for the most part.

Speaker #3: You know , the competitor that you know , the number one and number two are net net winning sometimes a three or a four or a five .

Speaker #3: We'll talk about , you know , share gain that's driven by , you know , maybe one , one shift of a customer but not the broad multi hundreds per quarter net shop wins that that us .

Speaker #3: And I suspect that that other number one or number two delivers . So it's really it really comes down to we're beyond just as an industry providing solutions of chemistry inside the can of paint .

Speaker #3: And we are proud of the solutions that we now provide outside of the can of paint that drive productivity . And net net that is driving share gain across the United States and Europe .

Speaker #3: For the most part . Of course , any other smaller regions , there's also share shift , but that's what's moving the needle .

Tim Knavish: Of course, in the other smaller regions there's also share shift, but that's what's moving the needle. Yeah.

Speaker #7: Yeah . And again , I know there's a lot of discussion about the refinish pie , if you will . And as Tim mentioned earlier , that typically would shrink a low percentage every year .

Vince Morales: I know there's a lot of discussion about the refinish pie, if you will. As Tim mentioned earlier, that typically would shrink a low % every year. What we've done, which is unique to PPG, is we're re-expanding that revenue pie for us because we do have PPG-specific revenue streams with the pulls Tim mentioned earlier. These are typically subscription-based, somewhat volume agnostic, and they're providing productivity so that the customers are willing to pay incrementally for them. For PPG in particular, we're able to re-expand that pie from a revenue perspective.

Speaker #7: What we've done , which is unique to PPG , is we're re-expanding that revenue pie for us because we do have PPG specific revenue streams with the tools .

Speaker #7: Tim mentioned earlier . These are subscription typically subscription based , somewhat volume agnostic , and they're providing productivity . So the customers are willing to pay .

Speaker #7: Incrementally for them . So again , for PPG in particular , we're able to re-expand that pie from a revenue perspective .

Speaker #3: Yeah . So again refinish is getting a lot a lot of air time today . And that's by the way , no surprise .

Operator: Yeah.

Tim Knavish: Refinish is getting a lot of airtime today and that's by the way no surprise. If you think about what I've talked about and Vince talked about and now beam 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'll 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. 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.

Speaker #3: So if you think about with what I've talked about and Vince talked about and now beam 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 .

Speaker #3: You'll have a PPG that has more body shops using our digital products , and you'll have PPG that has more shops using our allied products , which are non-digital , non paint , complementary products that are used in consumed by the by the body shops .

Speaker #3: So we're really working hard and and making making great strides in positioning PPG for for for real strength in the refinish market as it normalizes in the middle of next year .

Speaker #1: Thank you very much . Our next question comes from Mike Harrison from Seaport Research Partners . Mike , your line is now open .

Operator: Thank you very much. Our next question comes from Mike Harrison from Seaport Research Partners. Mike, your line's not open.

Speaker #17: Hi . Good morning . You mentioned Tim , the new clear product that was . developed by AI or with the help of AI was hoping that you could give us a little bit more detail on the role that AI is playing on the innovation front , thank you .

Tim Knavish: Hi, good morning. 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. Thank you. Yeah. Hey Mike, hope you're doing well. Yeah, we're really excited about this. You know, we've been just trying, and again, I'm not an AI expert, right, but fortunately I have many of them working for us that do the hard work essentially. Think of it this way. We've got 100+ years of PPG proprietary formulation expertise around our laboratories around the world.

Speaker #3: Yeah . Hey , Mike , hope you're doing well . Yeah , we're really excited about this . You know , we've been just and again , I'm not an AI expert .

Speaker #3: Right . But fortunately I have many of them working for us that do that do the hard work essentially . Think of it .

Speaker #3: Think of it this way . We've got 100 plus years of PPG proprietary formulation expertise around our laboratories , around the world . And what we've done is we've developed tools , working with some partners that really go out and scrape that history of formulation to optimize much quicker than humans can optimize .

Tim Knavish: What we've done is we've developed tools, working with some partners, that really go out and scrape that history of formulation to optimize much quicker than humans can, optimize the best performing product at the most competitive price point, and with the best speed of launch to market. This is just the first product to do that. It's not only refinish, we're expanding that across our other businesses. By the end of this year, we expect about 50 products to be commercialized that have used what we call formulation AI. Some of those products are new, but some of them are just optimization of existing formulas using this technique across our 100+ years of PPG confidential proprietary data. I'd love to talk to you about all the other ways that we're using AI to drive both internal productivity but also customer-facing speed and optimization.

Speaker #3: The best performing product at the most competitive price point . And with the best speed of launch to market . And , you know , this is just the first product to do that .

Speaker #3: And it's not only refinish . We're expanding that across our other businesses . And by the end of this year , we expect about 50 products to be commercialized that have used what we call formulation AI .

Speaker #3: Some of those products are new , but some of them are just optimization of existing formulas . Using this technique across our 100 plus years of PPG confidential proprietary data .

Speaker #3: And boy , I'd love to talk to you about all the other ways that we're using AI to drive both internal productivity , but also customer facing speed and optimization .

Speaker #3: But that'll be a discussion for another day . But we call this out because it's really a milestone moment for us with with the launch of this first of many products .

Tim Knavish: That will be a discussion for another day. We call this out because it's really a milestone moment for us with the launch of this first of many products.

Speaker #3: .

Speaker #7: And Mike , just to clarification , when Tim says that the best price point , what that means for us is the best composition of raw materials at the lowest price for us .

Vince Morales: 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 specific vendors. 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, etc.

Speaker #7: You know , agnostic of vendor specific vendors . So we're able to to put together the best raw material stack pricing and get the best outcome for our customers in terms of color , performance , etc.

Speaker #7: .

Speaker #1: Thank you very much . Our next question comes from Arun Viswanathan from RBC . Aaron , your line is now open .

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

Speaker #18: Great . Thanks for taking my question . Hope you guys are well . I guess I just wanted about the portfolio overall . You know , it seems like we still get impacted by you're still being impacted by several headwinds across many of your industrial oriented businesses .

Tim Knavish: Great, thanks for taking my question. Hope you guys are well. I guess I just wanted to ask about the portfolio overall. It seems like we still get impacted by, you're still being impacted by several headwinds across many of your industrial oriented businesses. Are there further actions you can take there maybe to redeploy some of that capital into aerospace and other areas that are growing and maybe deprioritize some of the more cyclical businesses? I know you've already taken some actions there with the silicas and architectural divestitures. Along those lines, are there any businesses where you're potentially a number three or number four competitor also been addressed? Thanks.

Speaker #18: Are there further actions you can take there ? Maybe to redeploy some of that capital into aerospace and other areas that are growing and maybe deprioritize some of the the more cyclical businesses .

Speaker #18: I know you've already taken some actions there with the Silicas and architectural , you know , divestitures . And along those lines , are there any businesses where you're potentially a number three or number four competitor , or is that also been addressed ?

Speaker #18: Thanks .

Speaker #7: Hey , Arun , just I'll let Tim out on the caller here , but I do . You did mention our two divestitures this year , which is architectural Russia and Silicas and you know , we did have about a five cent decrement year over year due to that .

Vince Morales: Hey Arun, I'll let Tim out on a caller here, but you did mention our two divestitures this year, which is Architectural Russia and silicas. We did have about a $0.05 decrement year over year due to those divestitures in terms of segment earnings. On a like-for-like basis, our numbers are actually up with our current business portfolio more than the straight headline number.

Speaker #7: Those divestitures in terms of segment earnings . So on a like for like basis , our numbers are actually up with our current business portfolio more than than the headline number .

Speaker #3: Yeah . Look Arun , we have been I'd say look , I've been here 38 years . I think , you know , that .

Tim Knavish: Yeah, look, Arun, we have been. I'd say, look, I've been here 38 years. I think you know that. I'd say we've been more active in portfolio management in the last couple of years than we were since, you know, the big pivot from glass coatings, chemicals to coatings. So a decade and a half or two decades. We're very active on the portfolio management. Architectural, U.S. Silicas, Russia, traffic solutions, exiting Africa, countries that were holding us back, and a number of other pruning around the corner. One thing, if you look at the EBITDA, the segment EBITDA of our company before we did this portfolio pruning, we were typically, if you look at 2018, 2019, 2022, I ignore the two main COVID years, but 2018, 2019, 2022, we're consistently like a 15% EBITDA company. We're consistently like a 20% EBITDA company now.

Speaker #3: I'd say we've been more active in portfolio management in the last couple of years than we were since , you know , the big pivot from glass coatings , chemicals to , to coatings .

Speaker #3: So a decade and a half or two decades , we're very active on the portfolio management , architectural US Silicas Russia traffic solutions , Exiting Africa , countries that were holding us back and a number of other pruning around the corner , around the corner .

Speaker #3: Is one thing . If you look at the EBITDA , the segment EBITDA of our company before we did this portfolio pruning , we were typically , if you look at 18 , 19 , 22 , I ignore the two .

Speaker #3: The main Covid years , but 18 , 19 , 22 , we were consistently like a 15% EBITDA company . We're consistently like a 20% EBITDA company now .

Speaker #3: So, we're very pleased with the work that we've done to date from a kind of cleanup and optimization standpoint. We will continue to prune.

Tim Knavish: We're very pleased with the work that we've done to date from a kind of cleanup and optimization standpoint. We will continue to prune. I will tell you, there's nothing, nothing that we're working on right now to exit that would move the needle. It's more pruning around the edges. I hope that with what we've done over the last couple years, I hope that that's given us some credibility, that we are constantly looking at our portfolio. It's one of my main jobs as CEO, and I will continue to do that going forward.

Speaker #3: I will tell you , there's nothing nothing that we're working on right now to exit that would move the needle that it's more more pruning around the edges .

Speaker #3: But I hope that with what we've done over the last couple years . I hope that that's given us some credibility that we are constantly looking at our portfolio .

Speaker #3: It's one of my main jobs as the CEO , and I will continue to do that going forward .

Speaker #1: Thank you very much . As a reminder , if you would like to raise a question , please signal now by pressing star , by one on your telephone keypad .

Operator: Thank you very much. As a reminder, if you would like to raise a question, please signal now by pressing star followed by one on your telephone keypad. As a further reminder, if analysts can.

Speaker #1: As a further reminder , if analysts can limit themselves to one question , our next question comes from Josh Spector followed from UBS .

Tim Knavish: Limit themselves to one question, our next.

Operator: Question comes from Josh Spector from UBS. Josh, your line is now open.

Speaker #1: Josh, your line is now open. Yeah.

Speaker #19: Hi . Thanks for squeezing me in . 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 .

Tim Knavish: Yeah, hi. Thanks for squeezing me in. Just a quick one relating to capital allocation again is just, you know, if I look at buybacks, you're buying back less in the second half this year than you were last year. Your stock's 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. The quick question here is, why aren't you buying back more stock now? What's holding you back? Thanks. Yeah. Hey, Josh, we didn't squeeze you in. We'd love to have you in. Please, please keep the good questions coming. Good to hear from you. I hope, if nothing else, that you guys will recognize that I've been consistent since I took over. I said I will not let cash grow on the balance sheet.

Speaker #19: Your stock's 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 .

Speaker #19: So the quick question here is why aren't you buying back more stock now ? What's holding you back . Thanks .

Speaker #3: Yeah . Hey , Josh , we didn't squeeze you in . We love to have you in . So please , please keep a good questions coming .

Speaker #3: Good to hear from you . I hope . I hope , if nothing else , that you guys will recognize it . I've been consistent since I took over and I said I will not let cash grow on the balance sheet and 11 straight quarters .

Tim Knavish: For 11 straight quarters, I've been saying that. Three of those quarters we had to pay down some high cost debt after Tikkurila and the other eight, we have been buying back shares eight quarters in a row. For the 12th quarter, I'll continue to say I will not let cash grow on the balance sheet. I will deploy it in a way that maximizes shareholder value. Unlike some others, we do pay a nice dividend. We have this extra investment for a transitory period to capture future growth. We will continue to look at M&A on an opportunistic basis and if we see a great deal that maximizes shareholder value, we'll jump on it. For all of those, you should expect the behavior that we've done in the last eight quarters.

Speaker #3: I've been saying that three of those quarters we had to pay down some high cost debt after Tikkurila and the other eight we have been buying back shares eight , eight quarters , eight quarters in a row .

Speaker #3: So, you know, for the 12th quarter, I will continue to say I will not let cash grow on the balance sheet.

Speaker #3: I will deploy it in a way that maximizes shareholder value . Unlike some others . We do we do pay a nice dividend .

Speaker #3: We will . We have this extra investment for a transitory period to capture future growth . We will continue to look at , you know , M&A on an opportunistic basis .

Speaker #3: And if we see a great deal that maximizes shareholder value , will jump on it . And , you know , but for all of those , you should expect the behavior that we've done in the last eight quarters .

Speaker #3: Now remember some of what we did , you know , fourth quarter last year , first quarter of this year , we got proceeds from the sales of some businesses .

Tim Knavish: Remember some of what we did fourth quarter last year, first quarter of this year, we got proceeds from the sales of some businesses. We deployed those and bought more shares back. Your point on stock price, yeah, it's absolutely undervalued right now. That's a pretty good use of the cash that we have. You should expect me to continue to behave and operate in that way. Yeah.

Speaker #3: So we deployed those and bought more shares back . And look to your point on stock price . Yeah , it's absolutely undervalued right now .

Speaker #3: And so that's a that's a pretty good use of of the cash that we have . And so you should expect me to continue to behave and operate in that way .

Speaker #7: Yeah . 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 .

Vince Morales: 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.

Speaker #7: We have some debt coming due in the fourth quarter that we're going to pay off here in a couple of weeks . So , so that that cash balance at the end of the quarter , reflects that debt payment coming due here .

Tim Knavish: The fourth quarter that we're going to.

Vince Morales: That cash balance at the end of the quarter reflects that debt payment coming due here. Pay off here in a couple weeks.

Speaker #1: Thank you very much . Our next question comes from Laurence Alexander from Jefferies . Laurence , your line is now open .

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

Speaker #20: Good morning . Just very quickly on aerospace , if memory serves your content per plane over time should grow about 1 or 2% faster than inflation does .

Alex Lopez: Good morning. Just very quickly on aerospace, if memory.

Tim Knavish: Serves your content per plane over time.

Vince Morales: Should grow about 1% or 2% faster than inflation.

Speaker #20: Is that roughly right? And as you think about adjacencies or innovation platforms, is there anything you can do to accelerate that?

Alex Lopez: Is that roughly right? As you think about adjacencies or.

Tim Knavish: Innovation platforms is there.

Alex Lopez: What can you do to accelerate that?

Speaker #3: Oh man . Thank you for that question , Lawrence . That's my favorite one , by the way . We we are growing much more than 1 or 2% per year in content .

Tim Knavish: Thank you for that question, Lawrence. 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. How do we do that? The biggest piece of this business is our sealant business. That has a very strong technology differentiation, and we're constantly growing content per build across the sealant space. 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. We continue to innovate new ways of applying that value add sealant, including 3D printing. We 3D print some sealants for military aircraft.

Speaker #3: We capture price because of the great value that we add . And we also grow our physical content significantly in this , in this business .

Speaker #3: And how do we do that ? Well , the biggest piece of this business is , is our sealant business , right ? And that that we have a very strong technology differentiation .

Speaker #3: And we're constantly , you know , growing content per build across the sealant space . And it's tremendous value add content because we don't just supply the bulk sealant .

Speaker #3: We supply it in specialty packaging or actually in frozen end cap format to to really help our customers , not only with the performance of the sealant itself , but with productivity and applying it .

Speaker #3: And we continue to innovate new ways of applying that value . Add sealant , including 3D printing . We 3D print some sealants for for military aircraft .

Speaker #3: So it's the it's the chemistry . Plus those outside of the camp productivity tools that grow our content . You know , our second biggest piece of that business is our transparency business , where we are we're providing canopies and windshields for just about every aircraft type in the world .

Tim Knavish: 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 are 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. We also have the traditional coatings, and that I think is a space that we're all pretty familiar with. We also do a bunch of other value add services as the fourth key component to our aerospace portfolio. That's why, honestly, you'll hear me, and you may have heard it in my opening remarks. I don't call it aerospace coatings.

Speaker #3: 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 some military attributes that I can't talk about that that grow content as new and improved aircraft come out .

Speaker #3: Then we also have the traditional coatings , right . And that that I think is a space that we're all pretty familiar with .

Speaker #3: 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 it in my opening remarks , I don't call it aerospace coatings .

Speaker #3: I call it aerospace because we do so much , so much more than than just the coatings . And I think , you know , going forward , we'll try to provide more and more visibility into that , that outstanding business as it has become a large part of our company portfolio .

Tim Knavish: I call it aerospace because we do so much, so much more than just the coatings. 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. We become more and more of an aerospace solutions provider.

Speaker #3: And will continue to grow , you know , at a higher rate than the rest of our portfolio . So we become more and more of an aerospace solutions provider .

Speaker #1: Thank you very much . We currently have no further questions , so I'd just like to hand back to Alex Lopez for any further remarks .

Operator: Thank you very much. We currently have no further questions, so I'd just like to hand back to Alex Lopez for any further remarks.

Speaker #2: Thank you . Carly , we appreciate your interest and confidence in PPD . This concludes our third quarter earnings call .

Alex Lopez: Thank you, Carly. We appreciate your interest and confidence in PPG. This concludes our third quarter earnings call.

Operator: As we conclude today's call, we'd like to thank everyone for joining. You may now disconnect your lines.