PPG Industries, Inc. 2026 Q3 Earnings Call

Please go ahead, sir. Thank you, Warren, and good morning, everyone.

This is Alex Lopez. Joining me today from PPG are Tim Knavish, Chairman and CEO, and Jamie Beggs, Senior Vice President and CFO. Our remarks relate to the financial information released on October 27, 2026. Supporting materials are available in the Investor Center at ppg.com, and we will take questions following our prepared remarks. Both the prepared commentary and the discussion during this call may include forward-looking statements and non-GAAP financial measures. Forward-looking statements involve uncertainties and risks that may cause actual results to differ. Please read our cautionary statement on slide 2 of the presentation materials. Please refer to our presentation materials and SEC filings available on our Investor Center website for additional information and reconciliations of non-GAAP financial measures. Tim, over to you. Thank you, Alex.

Good morning, everyone. Welcome to our third quarter 2026 earnings call. I will begin with highlights from our record third quarter, and then we will share our outlook for the remainder of the year. Before reviewing our results, I would like to once again thank our employees for their dedication and resilience during this challenging period in many regions of the world. Please continue to prioritize your safety and the safety of your families above all else. This was an outstanding quarter for PPG. We delivered record third quarter earnings, and our teams around the world executed with exceptional discipline, driving a 5% increase in organic sales, including 2% volume growth. This marks our seventh consecutive quarter of organic sales growth.

We outpaced the industry by 300 basis points, clear evidence of the quality of our businesses, our innovation, our technology, and the value that we deliver to our customers. As we discussed over the past several quarters, we have been systematically building our organic growth muscle, and the results are now clearly visible. Our strategy to deliver product innovation and productivity solutions for our customers is accelerating our momentum. Third quarter net sales grew 7% year-over-year to $4.4 billion. Adjusted earnings per share increased 6% to $2.25, a third quarter record, and total company adjusted EBITDA margin was above 18%. Exceptional results in our differentiated Aerospace and Architectural Coatings Latin America businesses led this performance. Importantly, our commercial actions fully offset cost of goods sold inflation during the quarter, a significant milestone for us.

We achieved this in just six months, half the time it took in the 2021 inflation cycle, and one-third the time it took in the 2016 cycle. We remain focused on achieving appropriate value for our unique products and solutions with targeted actions where necessary to address inflation and market dynamics, all enabled by the innovative solutions that we provide to our customers. We also repurchased approximately $150 million worth of shares during the quarter, and our year-to-date operating cash flow is approximately $1.2 billion, about $100 million higher than last year. Jamie will provide more detail on our balance sheet and cash shortly. Turning to our segment performance, global Architectural Coatings grew net sales 4% year-over-year to approximately $1.1 billion. Organic sales increased 2%, driven by higher selling prices in all regions. Lower sales volumes in Europe were offset by solid growth in Mexico.

Organic sales for Architectural Coatings Latin America and Asia Pacific increased by a mid-single digit percentage, driven by higher selling prices and volume growth in Latin America. In Mexico, retail sales were robust, and project related sales grew at a moderate pace as foreign direct investment sequentially recovers. In EMEA, organic sales increased by a low single digit percentage as higher selling prices more than offset lower sales volumes. Our European architectural business continues to benefit from strong execution of our strategy. Productivity enhancements, footprint optimization, and structural cost actions are improving efficiency and are driving year-to-date earnings and margin expansion. Segment EBITDA grew 19%, and EBITDA margin expanded 300 basis points to 24%. Looking ahead, we expect fourth quarter organic sales to range from flat to growth of low single digit percentage year-over-year, along with EBITDA margin expansion versus prior year.

Our Performance Coatings segment delivered net sales growth of 10% to $1.6 billion. Organic sales increased an outstanding 8%, led by 5% sales volume growth. Aerospace delivered another exceptional quarter, with double-digit organic sales growth, and our order backlog remained at near $300 million. Demand for our unique Aerospace products remains robust, and shortly, I will go into more detail about the investments we are making to support this outstanding growth for today and well into the future. Automotive Refinish organic sales increased by a mid-single digit percentage, driven by both higher selling prices and higher sales volumes. In the U.S., collision claims versus prior improved sequentially from negative 6% in the second quarter to negative 4% in the third quarter. Protective and Marine Coatings organic sales increased by a high single digit percentage, extending this business's streak to 14 consecutive quarters of sales volume growth.

This included above-market marine volume growth in Asia Pacific, driven by our innovative technologies. Segment EBITDA grew 21%, and EBITDA margin expanded 220 basis points to 23.9%. In the fourth quarter, we expect organic sales growth in the range of low to mid-single digit percentage year-over-year, with further EBITDA margin expansion versus prior years. Now turning to Aerospace, this business is a significant growth engine for PPG, delivering its 22nd consecutive quarter of organic sales growth, with quarterly year-over-year growth during that period averaging above 10%. This year, we expect to generate more than $2 billion in sales in Aerospace, making it one of our larger businesses. We are investing more than $500 million to expand capacity and improve productivity across the business. This includes a recently announced $70 million expansion of our aerospace transparencies operations in Huntsville, Alabama.

This project will increase operational efficiency and create additional manufacturing capacity to support growing customer demand for aircraft cockpit and passenger windows. In addition to this CapEx, we continue to invest in Aerospace R&D to further expand our technology offering. These ongoing investments, combined with our broad portfolio of highly specified products, technology leadership, and global footprint, and deep customer relationships, reinforce our confidence in the long-term growth outlook for this unique business. In the Industrial Coatings segment, third quarter net sales grew 5% to approximately $1.7 billion. Organic sales increased 4%, with equal contributions from higher selling prices and sales volumes, reflecting the benefits of new business wins and successful launches. In Automotive OEM Coatings, organic sales declined by a low single digit percentage as a result of lower industry builds. Importantly, our team drove a sales volume performance that outpaced global automotive industry production.

Industrial Coatings delivered strong organic sales growth of a high single digit percentage, driven by sales volume and selling price growth in all regions. This marks the second consecutive quarter of growth for this business, with strength in heavy duty equipment and general finishes, including electrical infrastructure for data centers. Packaging Coatings delivered outstanding double-digit organic sales growth, with sales volumes now up more than 20% on a two-year stack basis. PPG is benefiting from share gains driven by our advantaged BPA non-intent technologies, our global manufacturing footprint, and our longstanding technical partnerships with our customers. Industrial segment EBITDA declined 11%, and EBITDA margin decreased 260 basis points to 14.4%, as cost of goods sold inflation outpaced the timing of index-based pricing. Higher selling prices and volumes partially offset that pressure, and we are now beginning to realize the benefits of index pricing.

In the fourth quarter, we expect segment organic sales essentially flat year-over-year. We expect the pace of EBITDA margin compression to moderate sequentially as index-based pricing and our productivity initiatives take hold. In our Industrial segment, our team continues to win additional business driven by our technology solutions that enable our customers' success. With that, I'll turn the call over to Jamie Beggs, our Senior Vice President and Chief Financial Officer, to discuss our balance sheet and cash flow, as well as our fourth quarter and full year financial outlook.

Jamie? Thank you, Tim, and good morning, everyone.

Our robust balance sheet continues to provide financial flexibility to invest in our businesses and return cash to shareholders. We ended the quarter with cash and short-term investments of $1.6 billion. Net debt was $5.2 billion, a decrease of approximately $200 million from the third quarter of last year. Year-to-date cash from operating activities was approximately $1.2 billion, about $100 million higher year-over-year. As a result, our net leverage moved lower to 1.8 times net debt to adjusted EBITDA. We repurchased approximately $150 million of shares during the quarter, bringing year-to-date repurchases to $320 million. We also paid more than $480 million in dividends through the first nine months of the year. Our cash deployment remains focused on maximizing shareholder value creation and maintaining a strong balance sheet.