10-Q: PPG Q3 2025: Sales Up 1%, Income Dips Amid Cost Pressures

PPG Industries Inc. reported a 1% increase in net sales to $4.082 billion for Q3 2025, while income before income taxes decreased by $22 million to $556 million, primarily due to cost inflation and divestitures.

Summary

• Net sales for the three months ended September 30, 2025, increased by 1.2% to $4.082 billion compared to $4.032 billion in the prior year.
• Net sales for the nine months ended September 30, 2025, decreased by 1.3% to $11.961 billion compared to $12.116 billion in the prior year.
• Income before income taxes for the three months ended September 30, 2025, decreased by $22 million to $556 million compared to $578 million in the prior year.
• Income before income taxes for the nine months ended September 30, 2025, decreased to $1.656 billion compared to $1.771 billion in the prior year.
• Net income attributable to PPG for the three months ended September 30, 2025, was $453 million, down from $468 million in the prior year.
• Net income attributable to PPG for the nine months ended September 30, 2025, was $1.276 billion, down from $1.396 billion in the prior year.
• Earnings per common share (attributable to PPG) for the three months ended September 30, 2025, remained flat at $2.01.
• Earnings per common share (attributable to PPG) for the nine months ended September 30, 2025, decreased to $5.62 from $5.96 in the prior year.
• Adjusted earnings per diluted share for the three months ended September 30, 2025, increased by 4.9% to $2.13.
• Adjusted earnings per diluted share for the nine months ended September 30, 2025, decreased by 3.0% to $6.06.
• Cash from operating activities continuing operations for the nine months ended September 30, 2025, was $1.047 billion, a slight decrease from $1.056 billion in the prior year.
• Total assets as of September 30, 2025, were $22.144 billion, up from $19.433 billion at December 31, 2024.
• Total liabilities as of September 30, 2025, were $14.188 billion, up from $12.471 billion at December 31, 2024.
• Total PPG shareholders' equity as of September 30, 2025, was $7.800 billion, up from $6.785 billion at December 31, 2024.
• Operating working capital as a percentage of sales increased to 19.6% at September 30, 2025, from 15.6% at December 31, 2024.
• The company repurchased 1,385,977 shares of common stock in September 2025 at an average price of $108.31.
• An impairment charge of $146 million was recognized in Q4 2024 related to the sale of Russia operations.
• Net impairment and other related charges of $24 million were recorded in Q3 2025 related to a consolidated joint venture in the Performance Coatings segment.

Sentiment

Score: 6

Explanation: While Q3 showed some positive trends in sales growth and improved EPS, the nine-month results indicate a decline in overall sales and income. Strong performance in specific segments like aerospace and packaging is offset by weakness in architectural and automotive refinish coatings. The company is actively managing costs and repurchasing shares, but faces ongoing cost inflation and divestiture impacts. Significant legal and environmental contingencies, particularly the Di Gregrio litigation, present a notable financial risk, despite management's belief that the risk of loss is remote.

Positives

• Q3 2025 net sales increased by 1.2% year-over-year, driven by favorable foreign currency translation (+2%), higher selling prices (+1%), and higher sales volumes (+1%).
• Q3 2025 diluted EPS from continuing operations increased by 3.2% to $1.96, and adjusted diluted EPS increased by 4.9% to $2.13, attributed to higher selling prices, cost-control actions, increased manufacturing productivity, and lower adjusted weighted average common shares outstanding due to share repurchases.
• Performance Coatings segment net sales increased by 3.0% in Q3 2025 and 5.4% for the nine months, with strong performance in aerospace, protective and marine, and traffic solutions coatings.
• Aerospace coatings organic sales increased by a double-digit percentage compared to the prior-year quarter, led by higher selling prices and sales volumes, with customer order backlogs increasing and global air travel levels now above pre-pandemic levels.
• Protective and marine coatings organic sales increased by a double-digit percentage, driven by share gains and demand for sustainably-advantaged products.
• Traffic solutions organic sales increased by a mid-single-digit percentage due to strong demand and share gains.
• Industrial Coatings segment income increased by 16.5% in Q3 2025, driven by higher sales volumes, cost-control actions, and manufacturing efficiencies.
• Automotive OEM coatings organic sales increased by a mid-single-digit percentage in Q3 2025, outpacing higher automotive industry production, with share gains in Brazil and growth in China exports.
• Packaging coatings organic sales increased by a double-digit percentage in Q3 2025, reflecting positive momentum from share gains in the U.S., Canada, Asia Pacific, and Europe, outpacing the market.
• Cash and short-term investments increased to $1.9 billion at September 30, 2025, from $1.4 billion at December 31, 2024.
• Cash used for investing activities decreased by $84 million for the nine months ended September 30, 2025, primarily due to lower capital expenditures.
• Cash used for financing activities decreased by $348 million for the nine months ended September 30, 2025, due to proceeds from long-term debt issuance, partially offset by higher share repurchases.
• Total restructuring savings are expected to be approximately $75 million in 2025.
• The U.S. dollar weakened against the Mexican peso and the euro, favorably impacting consolidated net assets by $849 million.

Negatives

• Income before income taxes for Q3 2025 decreased by $22 million, primarily due to unfavorable wage and other cost inflation, divestitures, and higher other charges/(income).
• Net sales for the nine months ended September 30, 2025, decreased by 1.3% year-over-year, primarily due to divestiture-related sales (-3%).
• Diluted EPS from continuing operations for the nine months ended September 30, 2025, decreased by 2.3% to $5.57, and adjusted diluted EPS decreased by 3.0% to $6.06, primarily due to raw material, wage, and other cost inflation, divestitures, and unfavorable foreign currency translation.
• Global Architectural Coatings net sales decreased by 5.0% for the nine months ended September 30, 2025, and segment income decreased by 17.5% due to lower sales volumes, raw material and other cost inflation, divestitures, and unfavorable foreign currency translation.
• Architectural coatings EMEA organic sales decreased by a low single-digit percentage compared to the prior year quarter, with lackluster demand in Europe, particularly western Europe.
• Automotive refinish coatings organic sales decreased by a double-digit percentage versus the prior year quarter due to lower U.S. collision claims, impacted by significant increases in automotive insurance premiums.
• Industrial coatings business organic sales decreased by a low single-digit percentage in Q3 2025 due to lower sales volumes and lower indexed-based prices, with pronounced weakness in kitchen and bakeware, consumer electronics, and extrusion.
• Operating working capital as a percentage of sales increased to 19.6% at September 30, 2025, from 15.6% at December 31, 2024, indicating less efficient working capital management.
• The U.S. dollar strengthened against currencies like the Mexican peso during the first nine months of 2025, resulting in an unfavorable impact of $19 million on Income before income taxes from foreign earnings translation.
• Net impairment and other related charges of $24 million were recorded in Q3 2025 related to a consolidated joint venture in the Performance Coatings segment.
• Legacy environmental remediation charges of $16 million were recognized in Q2 2025 related to certain non-operating PPG manufacturing sites.

Risks

• Global economic conditions and geopolitical issues may adversely affect business operations and financial performance.
• Increasing price and product competition could impact market share and profitability.
• Fluctuations in the cost and availability of raw materials, energy, labor, and logistics may affect operating margins.
• The ability to achieve selling price increases and maintain margins in a competitive environment is crucial.
• Customer and PPG inventory levels can impact sales volumes and working capital management.
• Maintaining favorable supplier relationships and arrangements is essential for supply chain stability.
• The timing and realization of anticipated cost savings from restructuring initiatives are subject to uncertainty.
• Difficulties in integrating acquired businesses and achieving expected synergies could hinder growth.
• Economic and political conditions in the markets served, including the imposition and magnitude of tariffs, can create business volatility.
• Fluctuations in foreign exchange rates can significantly impact reported financial results.
• Changes in tax rates and the impact of future legislation, such as the OBBBA, could affect financial outcomes.
• The impact of environmental regulations and unexpected business disruptions, including cybersecurity events and global human health issues, pose operational and financial risks.
• The unpredictability of existing and possible future litigation, including asbestos litigation, could result in substantial monetary damages.
• Significant uncertainty exists in estimating asbestos-related liabilities due to factors like the ultimate number of claims, resolution amounts, insurance coverage, and changes in tort law.
• Environmental remediation costs are subject to considerable uncertainty regarding the nature and extent of contamination, remediation methods, and the timing of future events, with potential unreserved losses estimated between $100 million and $200 million.
• The Di Gregrio litigation in Brazil presents a significant potential liability, with an award against PPG (nominal defendant) that could total approximately $350 million to over $700 million, and Westlake Corporation, which assumed the liability, has refused to post bond or pay the judgment, potentially leaving PPG liable.

Future Outlook

In the fourth quarter of 2025, Global Architectural Coatings expects flat to low single-digit organic sales growth, with strong retail sales in Mexico offsetting soft consumer sentiment in Europe. Performance Coatings anticipates continued strength in aerospace and protective and marine coatings, while automotive refinish coatings are expected to see lower organic sales. Traffic solutions are poised to benefit from increased U.S. infrastructure spending. Overall, Performance Coatings' Q4 organic sales are projected to be down by a low single-digit percentage to flat. Industrial Coatings is expected to outperform the market in Q4 with share gains, anticipating flat to low single-digit organic sales growth. The company plans mandatory pension contributions of $10 million to $15 million for the remainder of 2025 and expects full-year capital spending between $725 million and $775 million.

Management Comments

• Management believes that, in the aggregate, the outcome of all lawsuits and claims involving PPG will not have a material effect on PPGs consolidated financial position or liquidity; however, such outcome may be material to the results of operations of any particular period in which costs, if any, are recognized.
• Management believes that, based on presently available information, the total reserves for asbestos-related claims will be sufficient to encompass all of the Companys current and estimable potential future asbestos liabilities.
• In management's opinion, the Company operates in an environmentally sound manner and the outcome of the Company's environmental contingencies will not have a material effect on PPG's financial position or liquidity; however, any such outcome may be material to the results of operations of any particular period in which costs, if any, are recognized.
• The Company continues to believe that cash on hand and short-term investments, cash from operations and the Company's ability to access the capital markets will be sufficient to fund our operating activities, capital spending, acquisitions, dividend payments, debt service, share repurchases, contributions to pension plans and contractual obligations.

Industry Context

Global international and domestic air travel levels have increased year over year and are now above pre-pandemic levels, driving strong demand for aerospace coatings. The automotive refinish coatings market is experiencing suppressed demand due to lower U.S. collision claims, influenced by significant increases in automotive insurance premiums. Conversely, the traffic solutions business is benefiting from strong demand and increased U.S. infrastructure spending. The automotive industry production is higher, and retail sales in China have increased, contributing to growth in automotive OEM coatings. Globally, beverage and food packaging demand remains solid, with PPG outpacing the market, while the broader macro industrial environment remains challenging for industrial coatings, despite PPG's share gains.

Comparison to Industry Standards

• Automotive refinish coatings organic business sales year to date are outperforming the double-digit percentage declines in U.S. collision claims.
• Packaging coatings sales volume growth is outpacing the global market.
• Automotive OEM coatings sales volumes outpaced higher automotive industry production.
• Performance for contingent share awards is measured by determining the percentile rank of PPG common stock's total shareholder return in relation to the TSR of the S&P 500 Index.

Corporate Governance

Legal Proceedings

• **Cadogan Property Environmental Litigation**: PPG settled claims for injunctive relief with the Sierra Club and PennEnvironment, agreeing to enhancements to the DEP approved cleanup plan and a $250,000 donation to a Pennsylvania nonprofit organization. A trial on a civil penalty under the Clean Water Act was held in June 2024, and the matter is now ready for a court decision. A Special Master was appointed to review the parties' positions regarding attorneys' fees.
• **Di Gregrio Navegao LTDA v. PPG Industries, Inc. (Brazil)**: A lawsuit asserting claims from a November 1998 cargo ship fire, alleging PPG chemical products caused it. A Brazilian court entered an award against PPG (the nominal defendant) that, with prejudgment interest, fees, and costs, could total over $700 million, or approximately $350 million with simple prejudgment interest. Westlake Corporation, which assumed the liability in 2013, has informed PPG it will not post any bond, pay any judgment, or take steps to prevent execution against PPG.
• **PPG Lawsuit v. Westlake (Delaware Court of Chancery)**: PPG filed a lawsuit against Westlake in June 2024, asserting claims for specific performance, declaratory relief, breach of contract, and equitable estoppel, arguing Westlake assumed all liability for the Di Gregrio litigation and is obligated to pay any award. A bench trial was held in May 2025, with a final oral argument in July 2025. PPG expects the trial court to issue its final decision before the end of 2025. PPG believes the risk of loss associated with this matter is remote.
• **Asbestos Matters**: PPG is a defendant in lawsuits alleging personal injury from exposure to asbestos (Products Claims, Premises Claims, and Subsidiary Claims). As of September 30, 2025, asbestos-related reserves totaled $42 million. Management believes these reserves are sufficient and that the financial exposure will not have a material adverse effect on PPG's consolidated financial position or liquidity, though it may be material to the results of operations of any particular period.

Related Party Transactions

• The Di Gregrio litigation involves Westlake Corporation, which acquired entities that assumed the liability from PPG's divested commodity chemicals business in 2013. Westlake's refusal to satisfy the Brazilian court award has led to PPG filing a lawsuit against Westlake for breach of contract and indemnification.

Stakeholder Impact

• **Shareholders**: Impacted by share repurchases, dividend payments, and potential volatility from legal proceedings (Di Gregrio litigation). Mixed financial results (Q3 EPS up, 9-month EPS down) could affect investor sentiment.
• **Employees**: Affected by ongoing restructuring actions and cost-control measures.
• **Customers**: Benefit from new products and services, but may face price adjustments due to cost inflation.
• **Suppliers**: Participation in voluntary supply chain finance programs offers flexibility in payment terms.
• **Creditors**: Impacted by debt issuance and repayment, and compliance with debt covenants (Total Indebtedness to Total Capitalization ratio of 47% is well within the 60% limit).
• **Communities**: Affected by environmental remediation activities at legacy manufacturing sites, such as the New Jersey Chrome site.

Next Steps

• Complete approved business restructuring actions, with the majority expected in 2025 and 2026.
• Evaluate the full impact of the One Big Beautiful Bill Act (OBBBA) legislative changes as additional guidance becomes available.
• Evaluate the impact of ASU 2025-06 on consolidated financial statements, effective January 1, 2028.
• Make required mandatory contributions to defined benefit pension plans in the range of $10 million to $15 million during the remaining three months of 2025.
• Continue to monitor overall economic demand and customer order patterns and take actions to mitigate adverse impacts from tariffs, as necessary.
• The trial court is expected to issue its final decision on the PPG Lawsuit against Westlake before the end of 2025.

Key Dates

Recommendation

PPG demonstrates resilience with Q3 sales growth and improved EPS, driven by pricing power, cost controls, and strong performance in key segments like aerospace and packaging. However, the nine-month results show a decline in overall income and sales, indicating persistent challenges from cost inflation and softer demand in architectural and automotive refinish markets. The significant, albeit remote, potential liability from the Di Gregrio litigation (up to $700 million) introduces considerable uncertainty. While management is actively managing capital through share repurchases and debt optimization, the mixed operational performance and the unresolved legal overhang suggest a 'Hold' recommendation. Investors should monitor the resolution of the Westlake lawsuit and the company's ability to sustain growth in its stronger segments while mitigating headwinds in weaker areas.

Keywords

Coatings, Paints, Chemicals, Architectural Coatings, Performance Coatings, Industrial Coatings, SEC Filing, 10-Q, Financial Results, Earnings, Revenue, Share Repurchase, Divestiture, Environmental Liabilities, Asbestos Litigation, Debt, Capital Expenditures, Foreign Currency, Interest Rates