PPG 3Q 2026 Earnings Call - PPG INDUSTRIES INC

Good morning. My name is Warren, and I will be your conference operator today. At this time, I would like to welcome everyone to the third quarter 2026 PPG earnings conference call. All lines have been placed on mute to prevent any background noise. I ask that you please pick up your handset to improve the quality of sound on the call. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you Would like to withdraw your question, press star one again. To allow everyone an opportunity to ask A question, the company requests that each analyst ask only one question. Thank you. I would now like to turn the conference over to Alex Lopez, Vice President of Investor Relations and Operational Finance. Please go ahead, sir. Thank you, Warren, and good morning, everyone. This is Alex Lopez. Joining me today from PPG are Tim Kanavish, Chairman and CEO, and Jamie Bex, 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 two of the presentation materials. Please refer to our presentation materials and SEC filings available on the 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'll share our outlook for the remainder of the year. Before reviewing our results, I'd 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 pbg we delivered record third quarter earnings and our teams around the world executed with exceptional discipline driving a five percent increase in organic sales including two percent volume growth this marks our seventh consecutive quarter of organic sales growth we outpace 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 seven percent year over year to 4.4 billion dollars adjusted earnings per share increased six percent to two dollars and 25 cents a third quarter record and total company adjusted ebitda margin was above 18 exceptional results in our differentiated aerospace and architectural Coding's 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 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. 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 EBITDMA 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 EBITMA margin expansion versus prior year. Our performance coding segment delivered net sales growth of 10 percent to 1.6 billion dollars organic sales increased an outstanding eight percent led by five percent 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 six percent in the second quarter to negative four percent 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 percent and ebit that 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 year. Turning to aerospace, this business is a significant growth engine for PPG, delivering its 22nd consecutive quarter of organic sales grow, with quarterly year-ever-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 dollars 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 coating segment third quarter net sales grew five percent to approximately 1.7 billion organic sales increased four percent 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 bills 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 long-standing technical partnerships with our customers. Industrial segment EBITDA declined 11%, percent and EBITDA margin decreased 260 basis points to 14.4 percent 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 customer 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. Looking ahead, our organic growth momentum and commercial actions position us well for the remainder of the year. For the fourth quarter, we expect organic sales growth of a low single-digit percentage, led by aerospace, architectural coatings in Latin America, and packaging coatings. We expect total company adjusted EBITDA margin to range from a flat to an increase of 100 basis points year-over-year. Within the segments, we expect global architectural coatings organic sales to be in the range of a flat to up a low single-digit percentage. Performance coatings' organic sales are expected to grow by a low to mid-single-digIT percentage, while industrial coatings organics sales are expected to be the range down to up to a low-singled-digIt percentage. We expect cost-of-goods sold inflation to be in the high single-digit range in the fourth quarter. We plan to offset this pressure through our pricing actions as we realize appropriate value for the unique products and productivity solutions we provide to our customers. Considering our strong growth momentum and the execution of productivity programs, we are raising the midpoint of our full-year adjusted earnings per share outlook and narrowing the guidance range to $7.90 to $8.10 per share. With that, let me turn it back to Tim for closing remarks. Thank you, Jenny. In closing, we delivered record third-quarter earnings, which reinforces our confidence in PPG's strategy and the strength of our business model. We delivered outstanding organic sales growth driven by both volume and price, fully offset cost of goods sold inflation, expanded earnings, delivered adjusted company EBITDA margin above 18%, and generated robust cash flow through disciplined execution across our portfolio. Additionally, our outside the can productivity solutions for PPG's customers are growing at three times faster than the average growth rate of our portfolio, and with a higher margin profile, and now represent a solid double-digit percentage of our total sales. Our customers greatly value the innovative solutions that we provide. Our investments in technology, brands, customer relationships differentiate us and enable us to solve some of our customers' hardest problems. Our field service capabilities and installed base keep us close to those customers, while our channel access and global reach provide a strong foundation to serve them with world-class effectiveness. Combined with our flexible cost structure and solid financial position, these capabilities give us the capacity to invest and win. We see meaningful opportunities to drive further organic growth through innovation, share gains, and continued investment in our differentiated businesses. We will also selectively consider portfolio actions to accelerate our strategy and drive shareholder returns. We are focused on creating long-term shareholder value by both investing organically and by evaluating opportunities to enhance our mix of high growth and high margin businesses.We will continue to allocate capital with discipline, balancing investments and growth with maintaining a strong financial position and returning cash to our shareholders. Thank you to our PPG team around the world for their focus and execution. Their dedication enables us to serve our customers and deliver on our purpose every day. We protect and beautify the world, and we appreciate your continued confidence in PPG. That concludes our prepared remarks. Warren, we're now ready to begin the question and answer session. Please open the line for our first question. At this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of David Begleiter with Deutsche Bank. Your line is open. Good morning. Tim, on industrial coatings, two things. Can you talk to when you expect the index-based pricing to catch up to the COGS inflation? In terms of your Q4 guide, are roughly flat organic sales growth versus up 4% in Q3? Can you tell us what's driving that more modest assumption in Q4? Thank you. Sure, David. Thank you, so on industrial codings index pricing, we started to see a little bit of that benefit in Q3 and Q4, but most of that benefit will come in Q1 and Q2 of next year just because of the structure of our contracts across our businesses. That said, we expect the margin compression to moderate as we move through Q4. And beyond that, as far as when it exactly matches neutrality in that segment, while we have met neutrality across company, you know, we'll have to see what our 2027 guide is and what happens to inflation in Q1 and Q2. But right now, our Q4 outlook is margin compression to be slightly better than it was in Q3. As for volumes, most of that is based on automotive builds, and as you know, we use S&P's IHS, and they have reduced their builds in Q4, and in particular in China, and most of what you see, the delta between Q3 and Q4 growth for that segment comes from that factor. your next question comes from the line of john mcnulty with bemo capital markets your line is open yeah thanks for taking my question um so wanted to unpack the refinish business a little bit um you know you you did largely as you as you'd called out i think you'd said you expected to kind of see an inflection um but but clearly the industry didn't i mean i think you cited claims were down 4% still and yet you were up. That seems like a bigger outperformance than what we normally see even from your refinish business. So I guess, can you help us to understand what drove that on the volume front? If there were any kind of major account wins or if it was just maybe some of the inventory timing, maybe just a little perspective on what drove that kind of significant, looks like mid-single digit outperformance? Yeah, John, first of all, you're right. This has played out. It's been a painful four quarters for us since we first raised this issue last year that we would see four quarters worth of destocking, and that's behind us now. And I would say that internally here, the quarter played out a little bit better than we expected, but not a huge amount better than we expected. It's a couple of things. One, the destocking is behind us. So you do have some more normalization of purchase orders. You know, body shop activity, while still below where it was, you know, pre-COVID, incrementally, sequentially improving a bit. You know, from a share shift standpoint, this business always has share shift. You know we track net body shop wins. And while we can't really point to anything huge for us. I know there's some other stuff happening out there. You know still win a couple hundred net body shops, a month, but more, you know, more than anything, it's the normalization of both the inventory patterns and slight normalization of the industry. In a way, I would summarize refinish going forward right now. Clearly, activity levels at the end user are not back to where they were pre-COVID. We had throughout 2025 U.S. collision claims down like an average of 10% every single quarter. Q1 and Q2 of this year, It's been minus six percent, Q3 minus four percent. So it's still an industry that is below 2019 activities. But some signs of normalization. The D stocking is behind us. We've got net body shop share wins, positive price. We this is one of our business where we have a lot of outside the can solutions that drive additional revenue for us. The other thing that's normalized, John, and then I'll move on, is another factor that was really impacting 2025 was high auto insurance rates, and you've started to see those come down a bit. So a number of factors point to modest sequential normalization, our inventory issues behind us, and net-net we're winning, but all in all, this was a little bit better than we expected, but not a ton. Your next question comes from the line of Kevin McCarthy with Vertical Research Partners. Your line is open. Yes, thanks very much and good morning. Tim, I was wondering if you could elaborate on the industrial subsegment within your industrial coding segment. You know, as I look at slide eight, you flagged that industrial posted high single-digit growth at the sub-segment level there, and if I'm not mistaken, I think that's probably the best in four years or so. So I just wanted you to kind of unpack how much of that is price acceleration versus volume acceleration and what your outlook is for that piece of the company. Yeah. First, Kevin, you just made the day of Juliana Heffel, who runs that business for us by calling out the best in in four years so thank you for that uh yeah this i'm really proud of this team for uh sequential improvement here q1 minus low single digits q2 up mid single digits and q3 up high single digits, and we feel really good about uh new business wins and pipeline uh going forward. So as far as the blend of how the team achieved that organic sales, it's almost exactly half volume and price. So we've got good momentum in the various pieces of that business. Think about powder, for example. We had double-digit growth in powder. We called out heavy-duty equipment, mostly in the non-ag area, transportation. We've got a nice little specialty business in there that's doing well. All regions grew, and we did get some nice bumps from data center-related electrical infrastructure. So it's fairly widespread, and it's not like we've seen, as you know, any big hockey stick improvement in industrial production. I would say a lot of this is just execution of the selling machine, the commercial excellence that this team has been working on for a number of years, and now we're starting to see it on the P&L. Your next question comes from the line of Mike Harrison with Seaport Research Partners. Your line is open. Hi, good morning. I have kind of a two-part question on the global architectural coatings business. First of all, the strength in margin there, just wondering if the 24% EBITDA margin is something that you feel like you can sustain going forward in these seasonally stronger Q2 and Q3 quarters? Or was there something unusual that helped to drive the margin strength and maybe suggest this is a high watermark? And then just digging in on architectural EMEA, curious on how the situation in France is potentially going to affect volumes and demand into Q4. Thanks. Yeah, hey, Mike, on the first one, you know, we have said, and I've consistently said, that our global architectural business should be consistently 20% plus EBITDA business, and I believe that strongly. Q3 was a combination of two things. Yes, we had great execution by the team you know we've got really strong brands really strong innovative products great relationships with our distribution partners and that helped us from a mixed standpoint as as well as a price standpoint so that definitely helped and that was the biggest contributor to the margin the strong margin you saw full transparency if you look at our Mexico business here, we buy in dollars and we sell in pesos. So we did get some help in Q3 from the stronger peso. So going forward, and I don't like to say high watermark because that implies that there's a cap on what we can do. But what I will say is our aspiration is this in total is a 20% plus plus EBITDA business. But we did have a bit of help in Q3 that you just watch the peso and that'll give you a little indication of how much headwind or tailwind we'll have in our in our Mexico margin. Now, as far as France, obviously, it's it's terrible to watch on television and see the violence and destruction. So far, fortunately, none of our stores have been affected um you know obviously it's not it's not likely to be a boost to consumer confidence or or to uh you know construction activity but so far we have not seen a demand impact but we're watching that closely we are seeing um logistics impacts uh some ability to move product around so i'd say in the short term mike that is uh that's all we're seeing but obviously longer term it's not it's not great for first of all the safety of the people on the ground there but it's also not great for consumer confidence your next question comes from the line of james hooper with bernstein your line is open hi good hi good morning um i wanted to ask a little bit about industry consolidation so clearly the merger going on your space has a couple of disposals been announced um how are you thinking about those in m a and just maybe as a follow-on are your team seeing any changes to the competitive um dynamics on the ground as we move towards these mergers completing thanks okay hey james um so the first part you know there's what's happened uh you know what's happening in brazil i think it was last year um obviously what's happened with serventis and the legacy bsf business and then you've got the the pending merger of uh axo exalta so far and again we're not we don't have a deco business in brazil we have a tiny little boutique business basically in in one state in the south but nationally we don t have a presence so we're n t really involved in whatever's going on there um and from serventist so far we really haven't seen any change in uh in behavior uh in the marketplace um and then of course it's still early days on on axo exalta because they're not officially together yet so we haven't really seen any any change there you know it's obviously you know we'll do what we can to take advantage of any distraction we've been through those acquisitions ourselves in the past so we'll do what we can um to help help customers that may be looking for opportunities but i'd say so far not much changing on the ground as for dispositions you know i think the serventis you know just uh it's still fairly recent so we will see how that plays out over time nothing nothing active now um with you know with that so we really weren't interested in their india business weren't interested in their deco southeast asia business and uh the only thing that's we're aware of kind of on officially is is wood uh here in the us and frankly doesn't fit our uh enterprise growth strategy uh i know there's some rumors about another part of their their business in europe when if and when those rumors become a reality we'll take a look at it but um it's not what i think about every every night or every morning your next question comes from the line of gansham panjabi with baird your line is open yeah thank you and first off congrats on a strong uh 3q uh you know so tim as you zoom out a little bit and think about uh 2027 um you know how are we thinking about the trend line for volumes across your major end markets because obviously interest rates have gone up significantly since you last supported and growth in some of the international geographies seem a bit more challenged from a macroeconomic perspective, including in markets like China. So how does that net out for PPG at this point, the way you see it at this point, in context of some of those advantage growth verticals you have, including an airspace? Thank you. Hey, Gancham. First of all, thank you for the comment. I'm sure my team will appreciate it because they work really hard, not only in a quarter, but the last couple of years building up this muscle. So appreciate that. Look, it's early for us to give our 2027 guide. You'll hear that from me and Jamie at the end of January. But what you should, you know, first of all, we're not you're not going to hear from us that we're expecting any significant hockey stick recovery across across any of our markets. So from an end market standpoint, sitting here today, kind of more of the same. But on the positive side, you should expect our organic growth momentum to continue. And we see that in our pipelines. You should expect Our margin expansion to continue as we continue to execute the commercial actions, continue to drive a richer, a richer mix. And we're confident in not only the technologies out there today, but the technologies that are in our R&D pipeline. So while we are not going to count on anything, any macro help, unless something changes between now and mid-January, the key themes will be organic growth momentum will continue, margin expansion momentum will continues. The rest of it will depend on what we learn in the next couple of months regarding inflation. Your next question comes from the line of Alexei Yifrimov with Barclays. Your line is open. Thanks. Good morning. Tim, could you just provide us an update on what has been achieved in terms of cost actions in architectural media overall and what do you expect to happen? the remainder of this year, and then 27? Yeah, so first I'll talk overall. I'll start there. In a high level, what you should expect in 26 and 27 is about $100 million combined between restructuring and productivity actions. And the mix between restructural and productivity may shift a little bit, but that's how I think of it, Alexi, is about 100 million total between those two for 26 and 27. Now, architectural EMEA specifically, we've been working on productivity throughout most of this year, and that's what's delivered some of our year-to-date margin expansion. But the bigger step change for us will be execution of the four plant closures that we talked about earlier this year. You won't see much of that benefit in 2026. But as you're modeling out 2027, you should expect a significant portion of that restructuring benefit that I just mentioned to come out of that business in the first half of 27. Your next question comes from the line of John Roberts with Mizuho. Your line is open. Thanks and congrats as well on a nice quarter. Could I ask what your highest priced house paint is in Europe currently? And I ask that because before the pandemic, I think we went a couple decades without volumes in the DIY business moving up or down more than a low single digit percent. All the cyclicality was in the pro business because it's new construction and high labor costs. But maybe it's not just this pull forward. Maybe prices are now high enough that we've got some demand elasticity. Yeah, I wouldn't say we have demand elasticity I don't feel that's what's driving. I think it's more the underlying macro, John, um that's driving the volume challenges as far as price point on the shelf and this is not just for ppg for industry you know uh having having traveled over there and looked at the looked at products on the shelves in different countries that um the the first of all the formulation costs and the preference of the local painters varies country to country surprisingly enough, even in the Benelux, if you look at the difference between what a painter in the Netherlands prefers versus a painter and Belgium is different. And as a result, without going through all of the countries we operate in off the top of my head, the highest price point would probably be in the Netherlands. And it's based on the, frankly, the higher formulation cost in the Netherlands. Hey, John, this is Alex. Just an additional data point. If you look at the savings rates of European consumers today versus pre-COVID level, 2.5 times, 3 times higher. So really the issue that Tim is mentioning, it's not that much the elasticity, it is the consumer confidence. Your next question comes from the line of Matthew Dio with Bank of America. Your line is open uh good morning um i'm gonna be a bit annoying and ask a uh three-parter um but i think it's kind of gets at what most investors were talking with uh and i guess myself or maybe struggling with or or want to know for the quarter so uh architectural natural EBIT up 40 million year over year. You mentioned the peso benefit, right? So if you have a billion of sales and price is 4%, that's 40 million bucks. So that kind of covers the growth, but you also had higher raw material costs, which is maybe most of that 40 million and a 2% drop in revenues. So it's almost like back to square one. I would almost look at that and say the peso benefit in and of itself could be 40 million. And I don't know if that's right or not, but that's kind of the hole that I'm looking at filling. And I can almost run the same math on performance, but there you have good volumes, right? So I can think of incremental margins of almost 80%. And I know refinish is a big incremental margin business, and that's growing again. But is that, am I in the right ballpark? And then last one, I know you talked about volumes and auto builds decelerating in 4Q, but you have implied volumes decelerated basically across the board in your business for 4Q. How should we read this? Is this more conservatism given the macro crosscurrents? I mean, it's particularly interesting in performance because some of these markets are conceptually more durable, right? But you're going from high single digit to low mid on the guidance. And so, I think clarity on all these topics would be helpful. Okay, Matthew, let me do my best at that, and I'll look for my teammates to help me here. But first of all, architectural codings, EBIT, the walk you described, the $40 million was not the benefit of the peso. It would be significantly lower than that, right? And so that plug, I think, would be a bit off. I'd say it's a couple of the big drivers there are volume in Mexico, mix in Mexico. Price in Mexico price in Europe and cost out in Europe. Those would be the biggest drivers. And then we got a little bit of help from from the Mexico peso. On performance, two things I'd say. First of all, your thesis on, you know, kind of refinish, being a very rich business, dropping good EBIT to the bottom. Yes, you're correct there. You know, aerospace is also a very good business for us. So their growth drops at a good margin for us, but your point on volume being a bit, softer there remember we have two businesses there that are lapping multiple double digit quarters multiple double-digit q4s so just you know just by the laws of big denominators it starts to get it starts again a little you know a little more high single digits and mid-single digits volumes overall um in q4 it's it's largely two things automotive builds a pretty significant uh reduction if you look at just china alone matthew um you know china roughly builds one third of all the new cars in the world and s&p has reduced their builds projection to china for something like minus 8%. And you might have seen the journal article this morning. And while export China is helping us pretty significantly, domestic China is a true headwind. That's the biggest. And then the second one is contributing to overall volumes, just uncertainty in Europe. the European to the previous question. The problem is not only in France, there's problems across the continent affecting consumer confidence. And so we built some of that concern into our Q4 guide. So hopefully, team, did I miss anything that Jamie? Sure. Yeah. Let me just go back to architectural for just a moment. I think Tim highlighted a couple of the great things that that business is doing between both Europe and Mexico. Part of it is pricing appropriately to cover inflation. The other part of it is about more than 50% of our productivity initiatives and restructuring actions are actually happening in the architectural business. So that's another reason for the uplift. And now, you know, Tim mentioned earlier of getting that to that sustained 20% EBITDA margin, which I do think based on what we're trying to do with the cost structure also allows us to be able to maintain those types of margins. He also mentioned that the peso dynamic was a benefit to the quarter. That's about 15 to 20 million of that bridge that we're talking about. So it definitely did impact the quarter, but like I said, the majority of that had to do with other pricing initiatives as well as some of those productivity initiatives. And if I just touch real quickly on the performance segment, half of that sales increase was related to volume, the other half related to price. And as you've seen and heard us talk about aerospace and also the impact of our refinished business, there's a really nice healthy mix associated with that. And that's another reason why those margins continue to improve on a year-over-year basis. And then lastly, what I would say with those two segments in particular, we were able to cover net costs of goods sold inflation with our pricing initiatives, which I think is really important. The one that's slower based on index dynamics and pricing of a contract is industrial, and that's the only segment that hasn't yet covered at this point. Great. Thanks, Jimmy. Look, just to put a bow on it, Matthew, because I can read with all your questions a bit concerned over Q4. Our Q4 guide, while not as strong as our Q3 performance, is not a weak guide it is in a in a world of difficult macro we're going to deliver organic growth we'll deliver EBITDA margin expansion and we will deliver at our midpoint double digit EPS growth so despite some of these comp challenges and you know auto builds and a little anxiety over Europe, it's still a good border force. Your next question comes from the line of Jeff Tsakowskis with JPMorgan. Your line is open. Thanks very much. I have a two-part question. You talked about strength in the industrial coding subcategory. So if what we did is we excluded the performance of the auto OEM business and industrial coatings, where you have constraints because of index-based pricing, would industrial coating's operating income, would it have been up year over year in the quarter or down? Secondly, various companies seem to want to buy architectural coatings businesses in Europe. Is that a business that you would consider monetizing at the right price, or is it strategic and it holds a particular strong position within the overall PPG portfolio? How do you regard that business in the world we're in now? Yeah, thanks, Jeff. I'll take it. And then if Jamie or Alex wants to fill in gaps, fine. But look on industrial coatings subcategories I've already talked about. Your question around if it weren't for the challenges in automotive OEM, would EBITDA have grown in that segment? The answer is yes. But I will caution a little bit because auto OEM isn't the only one that has index pricing there. Packaging does as well. Packaging started to see some of their indices kick in, Jeff, where autos really will come in in Q1 and Q2. And even while we had positive price in both packaging and industrial, because of the structure of those contracts, even those two still have more work to do relative to the rest of our portfolio. So a high-level answer is yes, you're correct, but I want to give you a little more color there. And on architectural Europe, so we like this business, and here's why it's in our portfolio. It delivers really good earnings for us, really good cash for us. Clearly not a growth driver for us Jeff and you know that and it's been the case for years. But the role in the portfolio is get the margin to where we believe it should be and get us great earnings and great cash like we did just not that long ago. I think 2023 in a pretty difficult macro, we were spitting out records. And so the role in the portfolio is, while it isn't a great growth business for us, it should be. It's a good margin business, should be a great margin business. It's good cash generator for us. It should be great cash generator us. And that helps us fund a lot of what we need to do in our high growth, high margin businesses like aerospace. You know, we're spending a lot cash there. I got to get it. I got get it from somewhere. That said, every day, our job is to maximize long term shareholder value. And, you know, I think you saw with what we did with Architectural U.S., there's, you know, there's nothing that's sacred if we believe that we can maximize shareholder values some other way. Now, earlier this year, I lose track of time, There was talk of another architectural year of business and the implied multiple that was being thrown around at that time would not have added long term shareholder value vis-a-vis our organic strategy there. So every business has to earn its right to stay in the portfolio every day, but every business also, you know, at the right price, if it makes sense for long-term shareholder value, you know, that's certainly a path we'll consider, like we did with Architectural Cusco. your next question comes from the line of duffy fisher with goldman sachs your line is open yeah good morning guys um question just on cogs and raw materials so last quarter you saw the forward quarter up high single digits in the year of mid-single digits on inflation it's basically the same view today but since that period oil is up 30 percent so do you think that just your suppliers are going to eat that oil hit and that raw materials will roughly be similar to what you thought 90 days ago or is there some inflation yet to come do you thinking the raw materials if oil stays you know up at this 110 level and that will be a bigger issue so you know maybe just kind of a view into the first half of next year, if oil stays flat, you know, roughly what kind of raw material increase will you guys be looking at next year? Yeah, hey, Duffy. First of all, we were projecting in our last guide for Q3, we projected high single digits and we actually came in at mid single digits for actual Q3. Some of that is business and region mix, and some of that is procurement excellence, arbitrage abilities of our team that was able to bring that in lower than we had estimated. We're guiding high single digits for the fourth quarter. A bit early for us to guide for 27, but just mathematically, given that most of this inflation didn't really start kicking in until Q4. From a comp standpoint, we'll have some significant year-over-year inflation in Q1. And beyond that, it's really hard for me to project, Duffy. I don't know what's going to happen in the Middle East, what's going to happened to the price of oil, what is going to happen to other supply-demand. But what I will say is, with our industry, the macroeconomic conditions, I always provide a bit of a shock absorber for coatings in that when macros are down, that typically drives some pressure for suppliers to go after volume. So that can be a bit of of a hedge to some of what you see on the news. But, you know, right now, I can't give you a guide yet for 27 i'll give you that in january but just mathematically we'll see high single digits in q4 it'll be relatively high in uh in q1 just from a comp standpoint and from there we'll see how the year plays out your next question comes from the line of frank mitch with fermium research llc your line is open oh thank you and good morning um tim in the uh in the prepared remarks and in the press release, you spoke about the performance, I'm sorry, the protective and marine business with a special emphasis on the marine side. We've heard from others speaking about the protective side being a key area of growth. I wanted to give you an opportunity to expand upon all that might be going on on the protective site and the sustainability of the growth that you might see there. Thank you. Yeah, thanks, Frank. We're performing on both sides of the business we call it out the marine particularly in marine asia because um i call i would call it strong outperformance and it's given that it's mostly technology driven with some of our uh anti-fouling and filing release technologies that that's super super exciting to us but protective is doing well too around the world you know infrastructure everybody talks about data centers. We're doing well there. You may have seen our article in the Times the other day. We are doing well with the infrastructure investments across the United States and other countries. It's a mix of both, but if I were to rack and stack looking at our own results, marine new build, marine dry dock are our two strongest subsegments. Data centers, yes, strong, but it's a fairly small denominator. So even as good as the pipeline is, and I think we tripled our sales from 2025, but off of a small number, in total, data center protective coding sales are still low single-digit percent of our whole company. So that's exciting and fun to talk about. But with scale right now, it's marine new build and marine dry dock. your next question comes from the line of josh specter with ubs your line is open yeah hi good morning um i wanted to ask a couple of follow-ups i could kind of going down the line that matt was going down just thinking about overall cogs and inflation you know it looks like in 3q your cogs inflation was up less than what it was in 2q even though raw material inflation accelerated, albeit it sounds a little bit less than what you thought. Was there anything in there other than FX that would be a call-out, either tariffs or LIFO or something else? Because it just doesn't seem to fit the narrative that we're seeing. And then just a quick follow-up on FX. We're talking about that a lot in 3Q. It looks like the benefit would have been similar, maybe even better in the first half. So I'm not sure kind of what changed if there's a bigger impact now. So maybe you can help unpack that a littlebit more, please. sure josh you know i might need some help from my team on this one because my recollection is uh q2 cogs inflation we saw mid single digits q3 we thought we were gonna see high but we saw mid again and the only uh unique factor that i can think of uh that would have held q3 down was the peso strength um as i mentioned on on the previous question though you know our procurement team i'll put against anyone as far as their ability to to get the best deal and use use our global footprint and our global arbitrage so there may have been a little bit of that as well but the only one that hits my radar screen is some specifically specifically mexican peso effects because most of our businesses other than that one buy and sell in the same currency josh so it's really You know, the peso, if you want to see an impact on our net raw material inflation, the Mexican peso is the one that we should watch. And in reality, Josh, this is the impact that we saw in Q2, mid-single-digit inflation, let's call it solid mid- single-digits versus Q3 on the high-end range of those mid-ingle-digits. So it's higher in Q3 than Q2. Probably without the peso it would have been on the highest single. based just in pure math. So it's really the pricing action accelerated. If you look at pricing Q2 to Q3, pricing accelerated, and we expect similar acceleration going into Q4. Your next question comes from the line of Salvatore Tiano with KeyBank Capital Markets. Your line is open. Yes, thank you very much. So I want to drill down a little bit more on the price-cost situation. And firstly, you said you reached net neutrality when you take into account commercial actions. I wanted to clarify, is this purely pricing or are there any other things that we're taking in the mix when we think about the neutrality? And given that you've already reached the price cost neutrality at this point into three, does this mean in the next few quarters we're going to get actually a tailwind from price costs or, you know, as you're seeing the acceleration in rows a little bit later, I guess, than you expected, we're going to stay at that neutral place for Q4 and Q1? Yes, hey, Salvatore. First of all, the commercial actions are well over 90% price, okay? So, you can clear that one off the deck. There's a littlebit of other mixed elements in there, but it's well over 95% price. Now, Now, as far as how to think about it going forward, we are at neutrality for COGS inflation as a total enterprise, but you heard me say mostly in the industrial segment, we've still got some catching up to do within individual businesses, and we'll be holding in others pending on what happens to inflation. So we've still got some catching up to do, but I would not expect a tailwind, you know, again, depending on what happens in inflation. And we just don't know that yet for 27. But I would certainly not assume price inflation to be a tail wind in the short term because we've Still got some we've Still got Some work to do and the raw material basket continues to escalate. So the commercial teams are very focused on initiating new actions as needed as the dynamic environment continues to unfold. So we're a little cautious, I think, on saying there's a tailwind. Obviously, that would happen if raw materials stabilized, but that's not what we're seeing today. Your next question comes from the line of Vincent Andrews with Morgan Stanley. Your line is open. Thank you. Good morning. Tim, I was wondering if you could comment a little bit about the European Union is set to put some quotas on Chinese automobile imports. And I know you obviously paint cars in both geographies, so there's probably a littlebit of a wash on volume. But maybe you could just talk about what, if any, effect on PPG that will have, whether it's from a mixed perspective, a margin perspective, or just any thoughts on that. Thank you. Yeah. Hey, Vincent. So I would say very little impact on us because, to your point, we're well-represented in every car-producing country in the world. And what we care most about is net vehicle sales off the lot because that's what drives the painting of cars. The only the only asterisk I would put is EV penetration, because for our earlier discussions, EVs give us content opportunity. And so to the extent that EV penetration accelerates, as it is in some parts of the world, not here, but most parts ofthe world, it is that that's a content opportunity for us. But as far as whether the car is produced in China or Europe or Latin America or U.S., Canada, we're pretty agnostic to that. Your next question comes from the line of Eric Boyce with Evercore. Your line is open. Good morning and thanks. Maybe another one on refinish. Could rebate thresholds or year-end purchasing be cushioning some of the stabilization there? And what does that mean for comps in first quarter or first half for our expectations? Thanks. That's a good question, a great question, Eric, because we really don't know how a lot of our distributors are going to play out at year- end because while the major destocking is behind us, You know, each of these folks are independent private business owners, and they manage their own cash flow. And so if they're within striking distance of a rebate, they may buy a lot in Q4. If they're not, they May say, you know what, I'll just hold off till Q1 and make my 27 rebate. So that is a dynamic that we watch very closely. It's still pretty early in the quarter here for us to say how that's going to play out. We've given the best guide we could possibly give, but you have nailed on a subject that always affects Q4, but it could bring in some variability, some additional variability. this q4 given the two dynamics that we talked about earlier one the kind of previous destocking in the first half of this year and second the the really close monitoring that everybody is doing on what is happening with actual body shop activity and u.s collision claims so that is it's a good call out it's watch closely and we've built our best possible estimate into our guide your next question comes from the line of arun vizwanathan with rbc capital markets your line is open great thanks for taking my question um if i could just maybe uh get your thoughts on um maybe some initial framework for for 27 so it sounds like you know you are implementing price increases that'll flow through maybe in the low to mid single digit range um maybe mid single digit range. And then, you know, your volumes, it seems like your business wins and then strength in a few categories, maybe aerospace and packaging could lead you to, you know, also consolidated low single digit volume growth. And so that could put you maybe in the mid to high single digit EBITDA growth. And then maybe with some capital deployment, you get to high single digit EPS growth. Is that a fair framework that we can keep in mind? um maybe just any help on that would be appreciated thanks a lot yeah arun i said a couple times uh it it's a bit early for us to give a granularity on our 27 guide you know we're just early in a in a in a fourth quarter here which in a world that has more volatility than normal from both a a demand side a geopolitical side and an inflation side so can't get into granularity yet but the themes i mentioned earlier that i do feel confident in is uh we will continue our i mean based on what we know today without some something falling off a cliff we will continue our organic growth because we've got a good uh pipeline we will continue our margin expansion because we have some catch-up to do on pricing in some businesses and we've got significant productivity and restructuring actions that that will drive some margin enhancements for us across across the business so we're expecting top line uh top line growth and And we're expecting EBITDA expansion too early for me to quantify that. And if you look by business, I can talk about the ones that we have great certainty over. And, you know, aerospace will continue to grow. I've got backlog that will last for years, unfortunately. I wish I could sell it all today. But that will continue To grow for us now, when you lap 22 quarters of averaging double digit maybe it goes from double digit to the higher mid but that'll that'll still grow for us our packaging business the same the same thing confident in our mexico business because we've got retail sales being pretty robust and while i mentioned in my opening remarks that we've seen sequential recovery in fdi it's still not back to where it was pre-tariff and usmca uncertainty so there's still upside in mexico that's a potential as those things release and the other businesses are a little more um uncertain at this point until we see how consumer demand is till we see how auto production is so net net confident in in the growth confident in in the ebitda expansion and uh the rest of it we'll share with you in january your next question comes from the line of abigail eberts with wells fargo your line is open hi thanks for taking my question just a quick one on traffic solutions anything worth calling out there or was the mid single digit organic growth decline mainly weather related yeah hey abigail two things you you nailed part of it now this is a business first of all uh it is by far our most seasonal business so you really need to watch it in the summer months that's when we we make all of our money and there's you know you could call it uh one summer month in in the quarter and then And it's a pretty volatile base then because you've got a small denominator as you move through September, October. That was one piece. It was, you know, we don't like to call it weather because I don't want to be one of those people that blame things on weather and then not take credit for it when weather is good. But the cycle of our customers, actually, their buying patterns were different than what last Q3 would have been, which is what drove the minus mid-single digits. Yeah, and if you look at those buying patterns, Abigail, first half of traffic solutions was very strong. So I think that some of those customers were taking advantage of that nice spring we had. your next question comes from the line of lawrence alexander with jeffries your line is open good morning just very quickly most of our discussion the past few years about the price versus cost has been about um innovation or demand helping you um get through pricing faster and be able to offset cost inflation but can you talk a little bit about what's happening structurally? That is, you know, when we look at moves in the oil price, the amount of inflation that flows through to you, is there anything that has strategically changed or is improving? Or are there moves that you can do over the next several years that could structurally change the sensitivity that you have to the kind of underlying moves in The Rock commodities? Yeah, a couple of things. We've been able to move much faster this time for a number of reasons. One, we learn. We learn from prior cycles, done well, do better. Our commercial excellence is much, much better than it was historically. Our selling machine, we're on top of what's happening to our cogs. We're armed to have earlier and better conversations with our customers. Another reason I'll point to is our R&D investments eventually lead to better innovation. Better innovation leads to a better offering for our customer to help their businesses be more successful. So that's a very different discussion than just pure price versus inflation. So we've kind of progressed all of those things as we've moved over the last couple of years, Lawrence. But fundamentally, we're still going to be tied to certain commodity chemicals. You know, I don't want to do anything that links 100 percent of our pricing directly to those chemicals because we have innovative products that provide value far beyond the combination of raw materials. So we focus mostly on innovation excellence to bring value to our customers, commercial excellence to articulate that value to our customers. And that enables a much different discussion when you do have inflation and you're delivering good productivity to our customers and enables us to capture it faster. Yeah, and I think that it's structurally, Lawrence, the industry, the chemical industry is still long and still excess capacity. So we, our procurement team is working on diversify our supplier base to have better supplier for PPE. And then one last thing I will say, because it's exciting and fun to talk about, is I mentioned on one of my calls a couple of quarters ago what we're doing with AI formulation. um we we use ai to optimize uh our raw material combinations without sacrificing performance for our customers and you know 100 years worth of formulas scattered across 100 labs around the world um and ai has brought us that capability and you Know we're we're over 150 formulas now that we've done that with and that delivers us delivers us good good offsets to what happens out there from an inflationary standpoint your next question comes from the line of chris parkinson with wolf research your line is open hey guys this is harris fine i'm for chris um just a quick one for me you outpaced the industry by 300 basis points in the quarter I guess how much of that was, you know, you being aligned with the right existing customers versus new incremental share gains that you can point to flowing through? And, you Know, across the portfolio, how much in the past you've called out like dollar amounts on sharing that you see in the pipe? Just how much, in terms of share gains, do you have visibility to that still hasn't flowed through yet? Thanks. Yeah, so it's both, Harris. We have a win with the winners strategy where that cuts across many of our businesses. And I'll credit Alicia, who started it in automotive, but we've spread it across many of our businesses where, you know, we try to pick the winners and deliver our value proposition to them and then ride their growth, right? So that's part of it. But we also have talked about some pretty significant share wins, chunky ones. That's largely in the industrial segment just because of the nature of the customer. If you think about an architectural coatings customer, that takes hundreds and thousands of micro-wins, and that's what we're fighting every day. Whereas industrial segment, where you're factory to factory, larger, chunky wins, I think we've said we've got a pipeline that we'll get about $25 million a quarter of new industrial segment wins. And that's been our run rate, andthat's what you should expect to continue to see over the next several quarters. Your next question comes from the line of Sean Gilmartin with Bloomberg Intelligence Research. Your line is open. There are no further questions at this time. I will now turn the call back over to Alex Lopez. Thank you, Warren. We appreciate your interest and confidence in PPD. This concludes our third quarter earning school. This concludes today's conference call. You may now disconnect.