Carly: operator today. At this time, I would like to welcome everyone to this third quarter EPG earnings conference call. All lines will be placed on mute to prevent any background noise. After the speaker's remarks, there'll 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 and to remove yourself from the line of questioning 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 now like to turn the call over to our host, Alex Lopez, Director of Investor Relations. Please go ahead, sir.
Alex Lopez: Thank you, Carly, and good morning, everyone. This is Alex Lopez. We appreciate your continued interest in PPD and welcome you to our third quarter 2025 earnings conference call. Joining me today from PPD are Tim Fenevich, 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 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 PPE's operating and financial performance. These statements involve uncertainties and risks, which may cause actual results to differ. 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, the most directly comparable GAAP financial measures. For additional information, please refer to PPE styling with the SEC. Now, let me introduce PPE Chairman and CEO, Tim Canady.
Tim Fenevich: Tim Canady 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 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. In addition, sales volumes in our industrial coding segments once again outpaced industry demand, reflecting benefits from share gains in both packaging coatings and automotive OEM coatings. Several of our businesses in the performance coating segment delivered outstanding results, including double-digit organic sales growth in both aerospace 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. Looking at each of our segments, in the global architectural coding 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 remain 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. 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 coding segment delivered record net sales with a 2% increase in organic sales. Within the segment, aerospace delivered double-digit percentage organic sales growth with recordly quarter 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 percentage 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. 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 link 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 refinished product and application that combines high-quality appearance with increasing speed of application. This also redefines our innovation process, and then 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. 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 percentage organic growth in the quarter, driven by share gains, given the strength of our industry-leading value propositions. 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. A performance coating 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 percentage over the next three years. For PBG, this is a business that is equally weighted to OEM and aftermarket, with margins that are credo to the overall reporting segment. We've experienced significant OEM growth, and customers have recently increased their bills 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. 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 25 and into 26 to further de-bottleneck 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. These investments represent more than a half a billion dollars and are being completed in order to capitalize on the significant multi-year growth opportunity we have in this business. 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 PPG and our shareholders for the foreseeable future. Now moving to the industrial coating 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 coating 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. 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. 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 coding segment, driven by our technology-advantaged 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 coding 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. In the industrial coding segment, the share gains in automotive OEM, packaging, and industrial codings 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 in our global architectural codings and industrial coding segments. This will be offset by lower earnings in our performance coding 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 macro environment where industry demand remains subdued, we are benefiting from our sharpened portfolio of with technology-differentiated products and customer productivity solutions, which is delivering positive sales price and volumes in 2025 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 midterms. 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. And now, would you please open the line for questions?
Carly: 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. We're pressing star followed by 1 on your telephone keypad. And to remove yourself from line of questioning, we'll be star followed by 2. 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. John, your line's now open.
John McNulty: Yeah, good morning. Thanks for taking my question. Tim, 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. So 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. 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? Thanks.
Tim Fenevich: 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. And we do have market share momentum in this business as we continue to introduce new productivity tools for our customers. Look, this is and will be a marquee business for PPG, 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. 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. So 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. So direct your question. Here's what happened. We highlighted in July that we expected some destocking. The industry, not just PBG, the industry expected normalization of claims as we moved through the year. 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. So, you know, what's happening out there? You know, miles driven or still climbing? Actually, accident rates are okay. It's translating those accident rates into collision claims that has been depressed 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. If you look at the insurance rates from like 2022 to 2024, they were growing at about a 16% CAGR per year, right? 16% per year average. Now, We have started to see that moderate in 2025 to about a 3% growth taker, which is normal, normal to be expected with inflation. So we're expecting that normalization of the insurance situation to drive normalization of collision claims going forward. Now, we're expecting a couple more quarters of this normalization through the whole supply chain and collision network situation. to flow through. From an industry standpoint, we're expecting that normalization to be seen, you know, in the middle of 2026. 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 the middle of 2026. Now, normalization I'll remind everybody, normalization is collision claims down low single digits. And that's been the case for more than a decade. And in normal situation, even with collision claims down low single digits, our refinish business delivers record year after record year after record year of sales growth and earnings growth. So again, that plays to our productivity value proposition as we normalize. You know, and right now 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. It resonates with what they need to be successful in these challenging times, but also as the market normalizes. So tough market conditions play to our strengths. 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.
Carly: Thank you very much. Our next question comes from Chris Parkinson from Wolf Research. Chris, your line is now open.
Chris Parkinson: Hey, Tim. When I take a step back and look at your business, I mean, the strategy is ultimately paying off. But at the same time, I mean, suffice to say, we're still in a very challenging macro. You know, as the sell and the buy side kind of look out till 2026, and I look at your three new segments, you know, what are the one or two things you think we should be all focusing on in terms of, you know, volume growth, sub-segment market outperformance in terms of your end markets, new products, margin opportunities, just, you know, how do you see the PPG story evolving, you know, if and when the macro, I'd say, eventually gets better over the next, you know, hopefully, you know, 12 to 24 months? Thank you.
Tim Fenevich: Yeah. Hey, Chris, good to hear from you. Thanks. So, I'll make, you know, 26, 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 on how we're thinking about it right now to try and answer your question. And if I miss anything, I'm sure Vince will fill it in. You know, 2026, as always, there'll be a lot of puts and takes. But I'll compare how we're viewing it today versus how we viewed it, you know, 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. So the macro means 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. And 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. You already heard me talk about refinish. So we do expect some carryover refinish volume challenges through the first half as that normalization in the industry doesn't really happen to the middle of 26th. And in addition, remind everybody that we had a very strong first half of refinish sales in the first half of 25 as our distributor order patterns were very favorable as they were stocking up on inventory. 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. So, look, a pretty muted industrial environment is our outlook for 2026 right now, Chris, with the 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. We do expect uh the raw material supply chain to to continue to be very long uh supportive of coatings companies as we move through 2026 because of the benign macro that i just described and of course we'll continue to have cash cash deployment so you know i got fiber 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. And on the bright side, we continue to control everything we can control. And to your point earlier, we're winning. We have momentum. We're organically growing. We're taking share. We're getting costs out. But all in, 2006 looked softer in the first half than what we envisioned earlier this year.
Chris Parkinson: Craig Culler, thank you.
Carly: Thank you very much. Our next question comes from Dave Belaita from Deutsche Bank. Dave, your line is now open.
Dave Belaita: Thank you. Good morning. Tim, just on 25, can you talk to what drove the change in your FLIR guidance and resulted in implied Q4 guidance coming in below consensus expectations? Thank you.
Tim Fenevich: Sure. Hi, Dave. Frankly, it's all refinished. 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. So a little bit of a double whammy from refinish is really what caused us to lower our Q4 guide.
Vince Morales: Yeah, Dave, this is Vince. And if you look at more externally and we look at the claims data, you know, which we get each month from the insurance industry, claims in the beginning of the year were down high single digits, some cases low double digits. Our latest claims data was down mid-single digits. So we do see that starting to improve but still negative.
Kevin McCarthy: Thank you.
Carly: Thank you very much. Our next question comes from Michael Cesar from Wells Fargo. Michael, your line is not open.
Michael Cesar: Thank you. Morning guys. Nice quarter. Um, just curious, you know, maybe I'll pick it. One of the other red arrows, architectural EMI. What do you think needs to happen for that business to sort of turn around?
Tim Fenevich: um you know maybe sometime next year you know maybe remind us the regions that is most important for you and and how that business gets back to growth yeah hey mike thanks for the question i i thought you're gonna ask me about the brown steelers this year but we'll defer that uh for another day but um look acma first of all i'll answer the last part of your question first Our biggest markets are France, the Netherlands, UK, and Poland, okay? Now, beyond those kind of big four, we're number one in a total of like 12 to 15 countries over there, okay? But those are the ones that would move the needle the most. So what's happening, and we continue to see soft demand. I just got back from Europe, and it's consumer confidence driven. It's a Inflation, it's interest rates. It's the wars. 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 remodel standpoint. 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. 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 now, flat demand will be a really good situation for our business because of all the costs out and all the price in. So we'll get really, really good leverage as that thing evolves. 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. 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. 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 great leverage that we're expecting.
Carly: Thank you very much. As a reminder, if you would like to raise a question, please simple 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's now open.
John Roberts: 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? And do you think anti-involution actions there are going to have any impact on the coatings industry?
Tim Fenevich: Hey, John. Yeah, BYD did put up a quarter that for them was a bit disappointing. But, you know, the overall auto growth in China has been pretty strong all year. And, you know, we expect that to continue. And we're growing in China, China auto, despite the challenges there. You know, I do think I don't have insight into BYD's books, obviously, but I do think it is extremely competitive over there. And so perhaps that's driven a lot of their recent challenge. But they continue to be the biggest winner. We are working with and, frankly, selling to a lot of the other Chinese domestics. 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 nicely across a number of winners in the marketplace. So 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.
Vince Morales: Yeah, John, this is Vince. 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. 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.
Carly: Thank you very much. Our next question comes from Kevin McCarthy from ZRP. Kevin, your line's now open.
Kevin McCarthy: Yes, thank you, Anne. Good morning. Tim, if I look at your performance codings results, your sales actually grew year over year, notwithstanding the refinish pressure that you articulated. And yet the operating income declined on a year over year basis, notwithstanding the Looks like a 4% contribution from price. So can you talk through that? Is that all to do with mix issues related to refinish? Or are there other items that you might call out that would explain that dynamic?
Tim Fenevich: 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. So when we take a pause and refinish earnings growth and go to earnings reduction, that drives some deleveraging from an EBITDA standpoint for the segment. But 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. 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.
Carly: Thank you very much. Our next question comes from Duffy Fisher from Goldman Sachs. Duffy, your line is not open.
Duffy Fisher: 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. What are their margins like today? Obviously, they're lower than this 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? 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?
Tim Fenevich: Hey, Duffy. So let me try to – as you know, we don't give specific business margins, but let me frame it for you. So first of all, performance coding 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. And so that leaves two other businesses which must be below segment average, with one of them being PMC. Okay, 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 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. Where I'd say PMC, probably a little shorter, where the investments are more incremental in PMC, the larger investments are in aerospace.
Vince Morales: Yeah, Bobby, 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, 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. 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 into 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, given the nature of these industries.
Tim Fenevich: And every one of these investments, I can assure you, has IRRs significantly above our risk-adjusted WACs. So good investments for our long-term future and shareholders.
Carly: Thank you very much. As a further reminder, if you would like to raise a question, please signal now by pressing star followed by 1 on your telephone keypad. And a further reminder to limit yourself to just one question today. Our next question comes from Gansham Punjabi from Baird. Gansham, your line's now open.
Gansham Punjabi: Yeah, thank you, operator. Good morning, everybody. Tim, can you just give us a 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. Yeah.
Tim Fenevich: Hey, Gancham. 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. So 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. 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. Because remember, a lot of these projects were already in flight. And so they've got to be completed. And, you know, if you believe that a deal will be reached with Mexico, then that's a huge accelerator to that project spending. So 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.
Carly: Thank you very much. Our next question comes in from JP Morgan. Jeff, your line is now open.
Jeff: Thanks very much. When I look at your aerospace capital expenditures going up more than $500 million, is the conclusion that should be drawn is that you're 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 changes that you've had, but it looks like cash flows from operations are around 1.6 billion this year. 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?
Tim Fenevich: Yeah. Hey, Jeff. Good to hear from you. So, Aerospace CapEx, it will, let's say, peak this year, 26 and 27. 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%. So this is really a temporary spike. And 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? 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. So I called that out so you'd see it, but it doesn't change our long-term objective of about 3% of sales. 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 at first, we did pre-buy a bunch of raw materials to capture it at a good price. That bought us time and 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, and Vince, you can answer that.
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 percent of sales or DIO 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. So I would expect our operating cash flow to grow at a faster clip than EBITDA in the future years.
Carly: Great. Thank you very much. Excuse me. Next question comes from Aziza Gazidia from Fermium Research. Aziza, your line is not open.
Aziza Gazidia: 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 and maybe some of the puts and takes for the expectations for low single digit inflation on Roth. Thank you.
Tim Fenevich: Yeah. 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. But maybe you can pass that question on for me. So epoxies were actually impacted prior to Trump, right? 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 contributors to the low single-digit 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, 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. And again, it's all built into 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 our upstream suppliers in many spaces, including epoxy, are looking to do volume deals more than price increases.
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 PPT, we expanded our supplier base to make sure we had a 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... to the raw material environment we're seeing today.
Carly: Thank you very much. Our next question comes from James Hooper from Bernstein Society General. James, your line's not open.
James Hooper: Good morning, and thank you very much for taking my question. My question's about a bigger picture question. It seems that a lot of the coatings suppliers and your peers are all seeming, you know, calling out share gains. And this seems to be an increasingly competitive volume environment. So, for example, if we take refinish, your competitor reported yesterday said they gained share and grew mid-single digit. Are you seeing a more competitive, you know, volume environment? Or are you expecting more pressure across your businesses, you know, going forward in 2026? Yeah.
Tim Fenevich: 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, and that's China. China has more competitors. That's not a change. And so it's a more competitive environment. But specific to your point about refinish, I've said many times, you know, there are two companies that kind of lead the pack with productivity solutions, 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 are the net losers over time. And 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 one particular competitor announced gain share yesterday? Absolutely not. 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 today. to our portfolio over finished to win even more share. We just announced a couple of new ones this quarter. So as we continue to boost that value proposition, I'm confident that we'll continue to gain share. And as I mentioned in my remarks, I think 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. 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.
Vince Morales: Yeah, James, and this is Vince. Let me just add a comment here. I think we always measure the litmus test of the value proposition as you're gaining share, i.e., higher volume, plus you have positive price. That shows you have a true value proposition, and I think when you look at our results, you'll see that across many of our businesses.
Tim Fenevich: Plus, we get paid for those digital solutions in addition to the coatings that we sell.
Carly: Thank you very much. Our next question comes from Patrick Cunningham from Citigroup. Patrick, the line's now open.
Patrick Cunningham: All right, good morning. Thanks for taking my question. Maybe a related question on share gains. You previously quantified some of the industrial share gains at $100 million. 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?
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. 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. And so our biggest earnings lever off that volume is that leverage we're getting on our fixed cost base.
Tim Fenevich: 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. 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 the 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. You know, again, it won't. Unfortunately, particularly in the first half of 2026, it won't 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, but those are transitory items. So as the transitory pressure starts to come off, then we'll be better positioned as we go forward for the midterm.
Carly: Thank you very much. Our next question comes from Vincent Andrews from Morgan Stanley. Vincent, your line is now open.
Vincent Andrews: Thank you. Good morning, everyone. Tim, wondering 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. Another on their conference call was talking up sort of potential for further consolidation in the industry overall, but, you know, not clear what it was going to be. So just curious, you know, how you're thinking about things. You referenced your balance sheet and the flexibility earlier in the call. You've been, you know, inquisitive and good at it in the past. So what do you think in going to 26, both large and small? Thanks.
Tim Fenevich: Yeah, thanks, Vincent. 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. 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 we're not going to exclude M&A. It's part of the algorithm for growth for us long term. 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. I talked earlier about a couple that we did take a close look at with the Brazil architectural, with the recent auto refinish and pretreatment opportunity. You know, 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. And that hasn't changed and doesn't change now. It 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 or 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.
Carly: Thank you very much. Our next question comes from Alexey Yefimov from Key Group. Alexey, so sorry. Alexey, your line is not open.
Ryan (for Alexey Yefimov): Hey, guys. Good morning. This is Ryan for Alexey. No, 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? 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? Thanks.
Vince Morales: Hey, Ryan. This is Vince. Let me start, and then 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. So 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. So, again, that, I think, provides additional color around the insurance premiums being a causation factor in the U.S.
Tim Fenevich: Yeah, and on the share gains, you know, we're gaining share. Most of the wins that we've been seeing have been across both the U.S. and Europe. You know, the number one and number two are net-net winning. Sometimes a three or a four or a five will talk about, you know, a share gain that's driven by, you know, maybe one shift of a customer, but not the broad multi-hundreds per quarter net shop wins that us and I suspect that that other number one or number two delivers. So 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. And net-net, that is driving share gain across the United States and Europe for the most part. Of course, in the other smaller regions, there's also share shift, but that's what's moving the needle.
Vince Morales: 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. 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 polls 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. So again, for PPG in particular, we're able to re-expand that pie from a revenue perspective.
Tim Fenevich: Yeah, so again, refinish is getting a lot of airtime today, and that's, by the way, no surprise. So 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 products that are used and consumed by the body shops. So 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.
Carly: Thank you very much. Our next question comes from Mike Harrison from Seaport Research Partners. Mike, your line's not open.
Mike Harrison: Hi. Good morning. You mentioned, Tim, the new ClearCode 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.
Tim Fenevich: Yeah. Hey, Mike. Hope you're doing well. Yeah, we're really excited about this. You know, we've been, 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 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 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, 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. 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 technology confidential, proprietary data. 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, but that will be a discussion for another day. But we call this out because it's really a milestone moment for us with the launch of this first of many products.
Vince Morales: And, 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. So 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, et cetera.
Carly: Thank you very much. Our next question comes from Aaron Viswanathan from RBC. Aaron, your line is now open.
Aaron Viswanathan: Great, thanks for taking my question. I hope you guys are well. I guess I just wanted to ask 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. 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. And along those lines, are there any businesses where you're potentially a number three or number four competitor? Has that also been addressed? Thanks.
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. You know, we did have about a $0.05 decrement year over year due to that, 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 the straight headline number.
Tim Fenevich: 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 than we were since, you know, the big pivot from glass coatings, chemicals to, to, to coating. So a decade and a half or two decades, we're very active on the portfolio management, architectural U S silicas, uh, Russia traffic solutions, uh, exiting Africa countries that were holding us back and a number of other pruning around the corner around the corners. One thing, um, 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 main COVID years, but 18, 19, 22, we're consistently like a 15% EBITDA company. We're consistently like a 20% EBITDA company now. So we're very pleased with the work that we've done to date from a company a kind of cleanup and optimization standpoint. We will continue to prune. I will tell you there's nothing that we're working on right now to exit that would move the needle. It's more pruning around the edges. 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. It's one of my main jobs as a CEO, and I will continue to do that going forward.
Carly: Thank you very much. As a reminder, if you would like to raise a question, please signal now by pressing star followed by 1 on your telephone keypad. As a further reminder, analysts can limit themselves to one question. Our next question comes from Josh Spector from UPS. Josh, your line is now open.
spk14: Yeah, hi. Thanks for squeezing me in. Just a quick one relating to capital allocation again. It's 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. So the quick question here is why aren't you buying back more stock now? What's holding you back? Thanks.
Tim Fenevich: Yeah. Hey, Josh, we didn't squeeze you in. We love to have you in. So 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. And I said I will not let cash grow on the balance sheet. And 11 straight quarters, I've been saying that. Three of those quarters, we had to pay down some high-cost debt after Tickerilla. And the other eight, we have been buying back shares eight quarters in a row. So, you know, for the 12th quarter, I'll continue to say I will not let cash grow on the balance sheet. I would 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. And, you know, but for all of those, you should expect the behavior that we've done in the last eight quarters. Now, remember, some of what we did, you know, fourth quarter last year, first quarter this year, we got proceeds from the sales of some businesses. So we deployed those and bought more shares back. And look, to your point on stock price, yeah, it's absolutely undervalued right now. And so that's a pretty good use of the cash that we have. And so you should expect me to continue to behave and operate in that way.
Vince Morales: 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. We have some debt coming due in the fourth quarter that we're going to pay off here in a couple weeks. So that cash balance at the end of the quarter reflects that debt payment coming due here.
Carly: Thank you very much. Our next question comes from Lawrence Alexander from Jefferies. Lawrence, your line is now open.
Lawrence Alexander: 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. Is that roughly right? And as you think about adjacencies or innovation platforms? What can you do to accelerate that?
Tim Fenevich: Oh, man, 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? Well, the biggest piece of this business is our sealant business. In that, we have a very strong technology differentiation, and we're constantly growing content per build across the sealant space and 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 NCAP format to really help our customers not only with the performance of the sealant itself, but with productivity and applying it. And we continue to innovate new ways of applying that value-add sealant including 3D printing. We 3D print some sealants for military aircraft. So 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 aircraft. With each new design of an aircraft, the content per canopy gets higher, right? There's 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. Then we also have the traditional coatings, right? And that, I think, is a space that we're all pretty familiar with. 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. I call it aerospace because we do so much, so much more than just the coatings. And I think, you know, 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, you know, at a higher rate than the rest of our portfolio so we become more and more of an aerospace solutions provider.
Carly: 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.
Alex Lopez: Thank you, Carly. We appreciate your interest and confidence in PPE. This concludes our third quarter earnings call.
Carly: As we conclude today's call, we'd like to thank everyone for joining. You may now disconnect your lines.
