PPG Industries, Inc. Q1 FY2026 earnings call

• PPG delivered solid performance in Q1 with organic sales growth of positive 1%, fifth consecutive quarter of higher year-over-year organic sales. First quarter net sales totaled $3.9 billion, up 7% year over year, adjusted earnings per share $1.83, up 6% vs prior year. Segment EBITDA margin over 19%. - Remembered John Bruno, an exceptional contributor. - Global architectural coatings: Net sales up 13%, organic growth 2%. Segment income up over 30%. Expect organic sales and margin momentum to continue into Q2 2026, with four manufacturing plants to close in H2 2026 reducing fixed costs. - Performance coatings: 5% net sales growth. Aerospace had double-digit organic growth. Automotive refinish organic sales down double-digit, but U.S. industry accident claims improving, distributor fulfillment orders improving. Segment EBITDA 24% due to aerospace strength. - Industrial coatings: Net sales grew 4%. Auto OEM flat sales volume outpaced global automotive industry production decline. Packaging coatings organic sales up double-digit. Segment EBITDA margin negatively impacted by regional mix. Looking ahead, expect sequential margin improvement.

Global architectural coatings: First quarter net sales rose 13% to $965 million with positive 2% organic growth. Organic sales for architectural coatings Latin America and Asia Pacific increased by a mid-single digit percentage. Segment income increased more than 30%. Performance coatings segment: Delivered 5% positive net sales growth to $1.3 billion, led by double-digit organic growth in aerospace and high single-digit growth in traffic solutions and protective and marine coatings. Industrial coating segment: First quarter net sales grew 4% to $1.6 billion. Organic sales were flat, including share gains that led to 1% sales volume growth.

• Reaffirmed full year 2026 EPS guidance range of $7.70 to $8.10. - For Q2 2026, expect strong growth in aerospace, architectural coatings Latin America, etc. Overall pricing positive. Organic sales growth for Q2 in range of flat to positive low single digits vs prior year. Adjusted earnings per share growth expected in range of flat to positive low single-digit percentage vs prior year period.

• Impact of Iran war on raw materials, energy, logistics, packaging costs. - Geopolitical driven impacts on supply chain and costs.

Q: Comments on price-cost recovery and volume hold given near 20% price increases?

A: Difference this cycle is organic growth momentum built over last three years. Combination of good pricing muscle refined each cycle and positive organic growth momentum. Confident in balancing pricing and volume.

Q: Outlook for second half volumes, effects from Iran conflict on segments?

A: Feel good about second half volume. Aerospace beat expectations in Q1 and output improving. Refinish expected to have positive volume in second half, recovering earlier than expected. Industrial segment share wins to launch. Mexico recovered nicely. No negativity seen in order books from Iran conflict.

Q: How much higher costs for smaller competitors and pricing competition?

A: Smaller competitors likely seeing higher input costs than PPG due to PPG's volume, global footprint, ability to get best deals.

Q: Second half margin thoughts?

A: Confident in positive volume in second half, net EBITDA margin to improve. Aerospace growth, refinish recovery, Mexico growth contribute. Favorable mix, pricing actions, and cost actions in Europe help.

Q: Thoughts on price increases realizations and sustainability?

A: Announced price increases up to 20% to offset mid single digit COGS increase. Realization will be spread out. Adjust as necessary based on environment.

Q: Free cash flow generation in 2026?

A: Cash from ops up vs prior year, capital spending lower. Expect cash flow to be about 10% of sales. Prioritize dividend, organic investments, and share repurchases.

Q: Currency benefit to EBIT in Q1 and auto OEM raw material inflation and aerospace volume growth?

A: Currency impact for Q1 was less than $0.10 positive. On auto OEM, get pricing, with index contracts and acute problem helping. Aerospace will see increased output from de-bottlenecking investments, new plant, and ongoing engineering work.

Q: M&A forward context?

A: Ozark was an opportunistic asset with high synergies. Disciplined in M&A, looking for right asset, time, and price. Selective M&A with two small bolt-ons this year.

Q: Refinish revenue down in Q2 and margin structure?

A: Q2 revenue down about 10%, but no massive restructuring. Expect margin snapback in second half. Refinish will be low single digits growth business with good margin and cash.

Q: Aerospace split of OEM and aftermarket and growth effect from flight issues?

A: Aerospace is roughly 50% OEM, 50% aftermarket, balanced across commercial, general aviation, and military. See no impact of potential flight slowdown in 2026 due to balanced segments and rebuilt aftermarket inventories.

Q: Protective and marine business growth?

A: Still had high single-digit growth in Q1 due to strength in Asia, Marine New Build and Aftermarket, and infrastructure/data center work. Expected to continue as growth engine.

Q: Industrial coatings margins contraction?

A: Biggest impact from China Auto being down significantly. Also rolling off index contracts from deflationary cycle. China auto builds comp issue and index contracts drivers.

Q: Pricing and surcharges this cycle vs prior?

A: Using surcharges more this cycle for logistics and European energy costs. Most auto contracts designed around raw materials, but discussions ongoing for other costs.

Q: China OEM competition and refinish?

A: China automotive OEM industry transformed, but automotive coatings in China have protection due to difficulty in reverse engineering resin formulation. Refinish is a good revenue and EBITDA growth machine with expanded TAM and share gains.

Q: MSD inflation and contract negotiations?

A: Suppliers seeing energy impact, built into mid-single digits COGS inflation. Large coating companies don't pay spot, contracted and negotiated raw material supply. Difference from post-COVID cycle is supply-demand economics matter.

Q: Architectural EMEA fixed cost savings from closing plants?

A: Closure of four plants will lead to about $25 million reduction in fixed cost base in 2027, with total structural restructuring benefits of about $50 million this year and next, with part tied to these plants. Value of the business is to spit off good earnings and cash for deployment in higher growth businesses.