Executive Summary / Key Takeaways

• PPG Industries is undergoing a significant strategic transformation, optimizing its portfolio through key divestitures to focus on higher-growth, higher-margin businesses and regions.
• The company's Q1 2025 results reflect a mixed macroeconomic environment, with sales down 4.3% year-over-year due to FX and divestitures, but organic growth beginning to materialize in Performance Coatings and stabilization in other areas.
• PPG is leveraging its differentiated technology and innovation pipeline, particularly in Aerospace, Automotive Refinish (digital tools like MoonWalk), Protective and Marine (SIGMAGLIDE), and Specialty Products, to drive share gains and enhance customer productivity.
• A comprehensive restructuring program is underway, targeting $175 million in total savings ($60 million in 2025), aimed at eliminating stranded costs and optimizing the manufacturing footprint, which is expected to bolster profitability.
• Management reaffirmed its full-year 2025 adjusted EPS guidance of $7.75 to $8.05, anticipating stronger performance in the second half driven by share gains, restructuring benefits, and expected stabilization in certain end markets.

Setting the Scene: A Coatings Giant Reshapes for the Future

With a heritage stretching back to 1883, PPG Industries has long been a titan in the global paints, coatings, and specialty materials industry. Operating across a diverse array of end markets, from automotive and aerospace to architectural and industrial applications, PPG has built a formidable presence through innovation, strategic acquisitions, and a vast global footprint spanning over 70 countries. The industry itself is characterized by intense competition, with major players like Sherwin-Williams (NYSE:SHW), AkzoNobel (AKZO), BASF (BAS), and RPM International (RPM) vying for market share. While some competitors, like Sherwin-Williams, hold dominance in specific areas such as North American architectural retail, PPG has historically differentiated itself through a balanced portfolio and a strong focus on highly technical and performance-driven coatings.

In recent years, PPG has embarked on a deliberate strategic pivot, launching its Enterprise Growth Strategy in 2023. This initiative signals a shift from primarily growth-through-acquisition to building robust organic growth capabilities, underpinned by commercial excellence, targeted innovation, and operational efficiency. The strategy aims to enhance customer value through new products, upgraded manufacturing, and evolving business models, particularly in key verticals like automotive refinish and traffic solutions. This strategic evolution is set against a backdrop of dynamic macroeconomic conditions, including uneven regional demand, fluctuating raw material costs, and geopolitical uncertainties, which continue to shape the operating landscape for all industry participants.

The Power of the Palette: Technology as a Competitive Moat

At the heart of PPG's strategy lies its commitment to technological differentiation. The company invests significantly in research and development, aiming to create coatings and materials that offer tangible, quantifiable benefits over standard alternatives. This focus is particularly evident in its Performance and Industrial Coatings segments.

In Automotive Refinish, PPG's digital tools like MoonWalk and LINQ are transforming body shop operations. With over 2,700 MoonWalk installations in service as of Q1 2025, these systems improve productivity and color accuracy, driving share gains despite lower overall industry collision claims. In the Protective and Marine business, the innovative SIGMAGLIDE technology provides significant fuel savings and sustainability improvements for marine vessels, directly contributing to double-digit organic growth and share gains in Q1 2025.

PPG's innovation extends to sustainable products, such as the newly introduced PPG ENVIROLUXE Plus powder coatings, which incorporate recycled plastic content and are PFAS-free, offering up to a 30% reduction in carbon footprint compared to standard coatings. In architectural extrusions, PPG CORAFLON Platinum powder coating demonstrates superior durability, exhibiting 20 times the color retention of competitor products in testing. Beyond coatings, PPG's Specialty Products segment offers unique materials like TESLIN substrates, known for their enhanced durability in various applications, and optical monomers and coatings that provide performance advantages in lenses and displays.

These technological advancements are not merely product features; they are critical components of PPG's competitive moat. By offering solutions that enhance customer productivity, improve sustainability, and deliver superior performance metrics, PPG can command pricing power, drive organic growth through share gains, and achieve better margins compared to competitors whose offerings may be more commoditized. While competitors like BASF possess significant R&D scale, PPG's targeted innovation in specific high-value applications allows it to outperform in niche areas, contributing directly to its strategic goal of becoming a higher-margin company.

Reshaping the Canvas: Portfolio Optimization and Restructuring

A pivotal element of PPG's strategic transformation has been the active management of its business portfolio. Recognizing that not all businesses offered the same growth and margin potential, the company undertook strategic reviews that culminated in significant divestitures. In the fourth quarter of 2024, PPG completed the sale of its Global Silicas business, followed by the sale of its Architectural Coatings business in the U.S. and Canada in December 2024 for a transaction value of $550 million. The first quarter of 2025 saw the completion of the sale of the remaining Russian business.

These divestitures were explicitly aimed at improving PPG's overall financial profile. Management noted that, on a three-year pro forma basis, excluding the U.S. and Canada Architectural business, PPG's sales volume results would have improved by over 200 basis points, and the Performance Coatings segment operating EBIT margin would have seen an approximately 300 basis point improvement in 2023. This strategic pruning allows PPG to channel resources – capital, R&D, and management focus – towards businesses and regions with stronger growth trajectories and higher margin profiles, such as Aerospace, Protective and Marine, and its well-performing operations in Mexico and China.

Complementing the portfolio optimization is a comprehensive restructuring program designed to capture synergies and enhance operational efficiency. This program targets approximately $175 million in total savings upon full implementation, with $60 million expected to be realized in 2025. These actions include eliminating stranded costs associated with the divestitures and rationalizing the manufacturing footprint, particularly in Europe. Expected cash outlays related to this restructuring are approximately $100 million in 2025. These self-help initiatives are crucial for driving margin expansion and offsetting broader inflationary pressures, reinforcing PPG's commitment to aggressive cost management.

Performance and Positioning in a Dynamic Market

PPG's recent financial performance reflects the ongoing strategic transformation amidst a challenging macroeconomic backdrop. In the first quarter of 2025, net sales decreased by 4.3% year-over-year to $3.684 billion, primarily impacted by unfavorable foreign currency translation and the effects of recent divestitures. Income before income taxes declined by $40 million to $502 million, influenced by FX headwinds and cost inflation, partially offset by higher selling prices. Net income attributable to PPG was $373 million, or adjusted earnings per diluted share of $1.72, compared to $1.87 in the prior year period.

Despite these top-line and earnings pressures, driven largely by external factors and portfolio changes, there are clear signs of underlying operational strength and strategic execution. The Performance Coatings segment demonstrated resilience, with net sales increasing by 6.8% to $1.265 billion and segment income rising by 9.2% to $274 million in Q1 2025, resulting in a robust 21.7% EBIT margin.

The Industrial Coatings segment faced headwinds, with net sales down 8.1% to $1.562 billion and segment income decreasing by 13.7% to $215 million, yielding a 13.8% EBIT margin. This decline was primarily due to divestitures, unfavorable FX, and lower organic sales from soft automotive OEM builds and lower index-based prices, partially offset by cost control. However, organic sales performance improved significantly compared to the prior quarter, and PPG is capturing share gains in areas like Automotive OEM in Latin America and Asia Pacific, and Packaging coatings, anticipating over $100 million in annualized Industrial segment share gains in 2025. The Global Architectural Coatings segment saw sales decline by 11.3% to $857 million and segment income drop by 28.9% to $118 million (13.8% EBIT margin), mainly due to unfavorable FX and lower volumes in Europe and project-related spending pauses in Mexico.

Competitively, PPG's strategic focus positions it favorably in high-value segments. While Sherwin-Williams maintains a strong retail presence and higher overall margins (SHW TTM Gross Margin ~48%, Operating Margin ~16%), PPG's strength lies in its specialized industrial and performance coatings, where its technological advantages drive higher segment-specific margins (Performance Coatings Q1 2025 EBIT Margin 21.7%). PPG's global footprint and local-for-local manufacturing model offer resilience against supply chain disruptions and geopolitical shifts, contrasting with competitors like RPM International, which has a more limited global reach. The restructuring program is expected to further enhance PPG's cost structure relative to peers, particularly in Europe.

PPG's balance sheet remains strong, providing crucial financial flexibility. As of March 31, 2025, cash and short-term investments stood at $1.90 billion. The company's Total Indebtedness to Total Capitalization ratio was 50.0%, well within covenant limits. Disciplined capital allocation continues, with approximately $400 million in share repurchases completed in Q1 2025 and a quarterly dividend of $0.68 per share, marking 53 consecutive years of annual increases. Capital expenditures are projected at $725 million to $775 million in 2025, supporting organic growth initiatives and footprint optimization.

Outlook and Risks

Looking ahead, PPG management anticipates a slow start to 2025, with Q1 organic growth flat to slightly down, reflecting ongoing challenges in European and global industrial end markets. However, they expect performance to strengthen in the second half, driven by the realization of share gains, the benefits of the restructuring program, and anticipated stabilization in key economic indicators like light vehicle builds and industrial production.

The company reaffirmed its full-year 2025 adjusted EPS guidance range of $7.75 to $8.05. This outlook is based on assumptions of stabilizing, rather than rapidly recovering, macroeconomic conditions, continued benefits from cost control and productivity, and the positive impact of the portfolio transformation and restructuring. Raw material costs are expected to see low-single-digit inflation in Q1 2025 due to enacted tariffs, with pricing actions planned to mitigate this impact.

Key risks to this outlook include the potential for a more significant or prolonged downturn in global demand, further geopolitical instability impacting specific regions like Mexico or Europe, unexpected increases in raw material costs beyond current expectations, and the unpredictable nature of litigation, including ongoing asbestos and environmental liabilities. The Di Gregório litigation in Brazil, while assessed as remote risk of loss by PPG, presents a potential financial exposure depending on the outcome and Westlake's (WLK) adherence to indemnity obligations. Foreign currency fluctuations and interest rate changes also pose ongoing market risks.

Conclusion

PPG Industries is in the midst of a deliberate and significant transformation, shedding lower-margin, slower-growth businesses to sharpen its focus on areas where its technological leadership and global presence provide a distinct competitive edge. While the macroeconomic environment remains challenging, impacting recent results, the company's strategic divestitures, comprehensive restructuring program, and relentless focus on organic growth drivers like technology and share gains are positioning it for a higher-margin, higher-growth future. The reaffirmed 2025 EPS guidance, weighted towards a stronger second half, signals management's confidence in these internal initiatives to drive performance despite external headwinds. For investors, the story of PPG is one of a coatings leader actively reshaping its destiny, leveraging its core strengths to navigate uncertainty and unlock value in a dynamic global market. The successful execution of the restructuring program and the continued realization of organic growth, particularly in its high-performing segments, will be critical indicators to watch as this transformation unfolds.