PPG Industries, Inc. (PPG) Earnings

Management highlights

### Overall Company Performance - PPG delivered its sixth consecutive quarter of organic sales growth, with 4% total organic growth equally split between volume and pricing, outpacing the industry by 300 basis points. Organic growth was achieved across all three segments and 8 of 9 businesses. - Total Q2 2026 net sales hit $4.5 billion, up 7% year-over-year. Adjusted EPS was $2.23, slightly higher year-over-year. Total company adjusted EBITDA margin exceeded 17%. - The company covered ~90% of Q2 cost of goods sold inflation with pricing, one quarter ahead of the prior commitment, and hit a 3% net selling price exit run rate in June. $75 million in shares were repurchased in Q2, bringing year-to-date repurchases to $175 million. ### Strategic & Operational Initiatives - Aerospace is positioned as a core long-term growth engine: it holds a ~$2 billion diversified portfolio of qualified products across OEM/aftermarket and commercial/general aviation/military end markets, with no over-reliance on any single subsegment. The company is investing over $500 million in additional capacity to support sustained above-industry growth. - Proactive pricing adjustments were implemented globally across all businesses to offset inflation driven by the Iran conflict, which raised costs for raw materials, energy, logistics, and packaging across the coatings value chain. The company maintained full supply continuity for customers throughout the conflict. - Working capital improvements drove year-to-date operating cash flow of ~$600 million, $220 million higher than the prior year. Net debt decreased by more than $400 million year-over-year to 1.9x adjusted EBITDA, and the company maintains a strong balance sheet with $1.6 billion in cash and short-term investments. - Share gains are being realized across multiple high-priority businesses: after multi-quarter preparation, newly won business is now hitting the income statement, with ~$25 million in new wins from the industrial segment expected to hit the P&L per quarter going forward. Capital Deployment - Cash deployment remains focused on maximizing long-term shareholder value, with priorities including dividend payments, targeted bolt-on acquisitions, capacity investments for high-growth businesses, and share repurchases for remaining surplus cash.

Guidance

- Full year 2026 adjusted EPS guidance is reaffirmed at a range of $7.70 to $8.10. - Third quarter 2026 overall company organic sales growth is expected to be between low single-digit and mid-single-digit percentage. Adjusted EBITDA margin (including corporate expenses) is expected to be flat to down 100 basis points year-over-year. - The company expects to reach 100% inflation coverage via pricing by the fourth quarter of 2026, one quarter ahead of the prior schedule. Cost of goods sold inflation between Q2 and Q4 2026 is expected to be in the mid-single-digit to high-single-digit percentage range. - For Global Architectural Coatings: Q3 2026 aggregate organic growth is expected to be flat to positive low-single-digit percentage year-over-year, with full year-over-year EBITDA margin expected to be relatively flat. Retail and project spending are expected to strengthen in Mexico, while European consumer sentiment will remain mixed. - For Performance Coatings: Q3 2026 organic sales growth is expected to be in the mid to high single-digit percentage range. EBITDA margin expansion is expected to return to the segment in the second half of 2026, driven by pricing actions and Automotive Refinish volume stabilization. - For Industrial Coatings: Q3 2026 aggregate organic growth is expected to be flat to positive low-single-digit percentage year-over-year. Modest organic growth and continued EBITDA margin compression are expected for the segment in the second half of 2026 due to the timing of index-based pricing. The segment is expected to continue outperforming its end markets.

Segment performance

1. Global Architectural Coatings: Second quarter net sales were $1.1 billion, up 8% year-over-year, representing 24% of total company net sales. Organic growth was 2%, with higher selling prices offsetting slightly lower volumes. Segment EBITDA increased 14% year-over-year, and EBITDA margin expanded 100 basis points to 19.4%. Organic growth turned positive (low single-digit) in EMEA, and achieved mid-single-digit growth in Latin America and Asia Pacific. 2. Performance Coatings: Second quarter net sales were $1.6 billion, up 7% year-over-year, representing 36% of total company net sales. Organic sales grew 3% year-over-year. Double-digit organic growth was achieved in Aerospace and Protective and Marine Coatings, mid-single-digit growth in Traffic Solutions, and a double-digit organic decline in Automotive Refinish due to tough 2025 comparisons. Segment EBITDA margin was 22.7%, down 300 basis points year-over-year, entirely driven by the Automotive Refinish comparison. Aerospace maintained a backlog of ~$300 million, and Protective and Marine achieved its 13th consecutive quarter of volume growth. 3. Industrial Coatings: Second quarter net sales were $1.8 billion, up 7% year-over-year, representing 40% of total company net sales. Organic sales grew 5% entirely from volume gains across all three sub-segments. Automotive OEM coatings grew low single-digit organically (outpacing global automotive production by 500 basis points via share gains), industrial coatings improved to mid-single-digit organic growth, and packaging coatings grew double-digit organically (up over 20% on a two-year stacked basis). Segment EBITDA increased 2% year-over-year, and EBITDA margin declined 70 basis points to 15.9% due to cost of goods sold inflation, partially offset by higher volumes.

Risks & headwinds

- Ongoing geopolitical conflict in the Middle East (Iran war) has driven unanticipated spikes in raw material, energy, logistics, and packaging costs across the coatings supply chain, creating pressure on gross margins that requires proactive pricing action to offset. - Mixed demand conditions across regional architectural coatings markets, particularly in EMEA, create uncertainty for volume and margin trajectories. - Automotive Refinish demand has been pressured by years of rising auto insurance premiums that reduced collision repair demand, and while premiums saw their first year-over-year decline in five years in Q2, the pace of industry demand normalization has been slower than management initially expected. - Short-term crude oil price volatility can impact raw material costs relatively quickly, particularly for solvent-based raw materials, which account for roughly 10-15% of total raw material spend. - Future actual results may differ from forward-looking statements due to inherent uncertainties in macroeconomic, raw material, and demand conditions.

Analyst Q&A

• Q: Why did Performance Coatings margins decline sequentially, and what gives management confidence the segment can accelerate in the second half amid rising raw material costs? /

  A: The entire sequential margin decline is driven by tough year-over-year comparisons for Automotive Refinish; all other sub-segments in Performance Coatings grew strongly (double-digit for Aerospace and Protective & Marine, mid-single-digit for Traffic). The destocking cycle in U.S. Automotive Refinish is now complete, so the segment will return to growth starting in Q3. Faster-than-expected pricing execution to offset inflation gives management confidence in the second half outlook, with price net inflation expected to return to positive territory in Q3 after being neutral in Q2.

• Q: What is driving the strong volume growth trajectory in the Industrial Coatings segment, and why is Q3 guidance tracking lower than Q2 results? /

  A: The strong growth is the result of share gains won over the past two years that are now launching at customer facilities and hitting the P&L, with ~$25 million in new business expected to add to the segment's top line each quarter going forward. All three sub-segments (Automotive OEM, industrial, packaging) have positive growth momentum, with the industrial sub-segment returning to growth after multiple quarters of declines. The lower Q3 guidance is purely a mathematical effect of tough year-over-year comparisons for packaging coatings, which has posted three straight quarters of double-digit growth; the segment will still grow nicely for the full year.

• Q: How will Automotive Refinish margins rebuild over time after the large year-over-year segment margin decline? /

  A: Automotive Refinish is one of PPG's highest margin businesses, and the large current margin impact is purely driven by the big year-over-year volume comp delta from 2025's strong results. With U.S. destocking now complete, the comp effect will disappear starting in Q3. Management will continue to implement targeted pricing actions to offset inflation from the Iran conflict, which will restore gross margins to their appropriate levels, and the segment will return to margin expansion starting in the second half.

• Q: What drove faster-than-expected price cost recovery, which came in one quarter ahead of schedule? Was it moderating raw material costs or better execution? /

  A: Raw material costs actually rose more than management initially expected due to the Iran conflict. The faster progress stems from lessons learned in prior inflationary cycles that allowed the company to speed up pricing execution. The abruptness of the conflict-driven cost increase eliminated the typical lag for assessing and implementing price increases, and incentivized teams to beat prior execution speed, leading to faster broad-based price increases across all businesses.

• Q: Which businesses are sustaining the strongest above-market share growth over the next 6-12 months? /

  A: The highest confidence in sustained above-market growth is Aerospace, packaging coatings (driven by leading technology, particularly large share gains in Europe this year), Protective and Marine coatings (especially marine in Europe and Asia), powder coatings within the industrial segment, and Automotive OEM coatings (which outperformed global production by 500 basis points in Q2 with more share gains launching in the second half). In architectural coatings, PPG is gaining net share in most large European markets it operates in. Management is not concerned about losing share in any core business.