PPG (PPG) Q3 2025: Aerospace Backlog Hits $310M, Driving Multi-Year Growth Investment
PPG’s Q3 results highlight a decisive pivot toward high-value aerospace and industrial coatings, with a $310 million aerospace backlog fueling over $500 million in targeted capital deployment. While refinish headwinds and European softness weigh on near-term earnings, management’s aggressive portfolio curation and cost controls are positioning PPG to outgrow subdued end markets. Investors should watch for margin leverage as new capacity and AI-driven innovation ramp into 2026.
Summary
- Aerospace Scale-Up Accelerates: Multi-year investments target expanding share and content per aircraft.
- Refinish and Europe Remain Drag: Insurance-driven U.S. refinish slump and tepid Western Europe volumes persist.
- Organic Leverage Builds: Share gains and cost actions set up margin expansion as macro stabilizes.
Performance Analysis
PPG delivered low single-digit organic sales growth in Q3, with volume and price both contributing despite a persistently choppy macro environment. Segment results were mixed: aerospace and protective and marine coatings posted double-digit organic growth, while automotive refinish declined sharply due to U.S. insurance claim normalization and distributor destocking. Industrial coatings volumes outpaced global light vehicle production, driven by share gains in both automotive OEM and packaging coatings. Architectural coatings remained pressured in Europe but showed resilience in Latin America and Asia Pacific, notably with sequential improvement in Mexico.
Margins reflected the business mix shift: EBITDA margin in architectural coatings improved on pricing and cost control, while performance coatings margin declined due to lower refinish volumes and stepped-up investment in aerospace and protective and marine. Cash deployment remained disciplined, with $150 million in buybacks and $160 million in dividends during the quarter, and year-to-date shareholder returns totaling $1.2 billion. Management emphasized ongoing cost takeout and operational excellence as levers to offset volume softness and inflationary pressure.
- Aerospace Backlog and Output: Record sales, $310 million customer backlog, and capacity bottleneck investments signal strong multi-year trajectory.
- Refinish Volume Correction: U.S. insurance dynamics and distributor destocking drove double-digit sales declines, expected to persist through mid-2026.
- Industrial Outperformance: Automotive OEM net sales up 8%, with PPG outgrowing global production in all regions.
Overall, PPG’s diversified portfolio and cost discipline are cushioning macro headwinds, but the near-term outlook remains muted as legacy segments work through cyclical normalization.
Executive Commentary
"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."
Tim Fenevich, Chairman and Chief Executive Officer
"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."
Vince Morales, Senior Vice President and Chief Financial Officer
Strategic Positioning
1. Aerospace as a Core Growth Engine
PPG is doubling down on aerospace, which now comprises a third of the performance coatings segment and is growing at a mid-single-digit CAGR, with expectations for mid- to high-single-digit growth over the next three years. Over $500 million in capex and opex is being deployed to de-bottleneck facilities and build new capacity through 2027. Aerospace’s unique mix—equally weighted between OEM and aftermarket, with content per aircraft rising—positions PPG for durable, high-margin growth as global build rates and content expand.
2. Portfolio Pruning and Margin Focus
Recent divestitures (Russia, silicas, select African and architectural units) have lifted PPG’s EBITDA profile from 15% to 20%, demonstrating management’s willingness to exit subscale or structurally weaker businesses. The company continues to evaluate smaller non-core assets for pruning, while reinforcing its commitment to organic growth and margin expansion as the “tip of the spear.”
3. Digital and AI-Driven Innovation
PPG is leveraging proprietary formulation AI to accelerate product launches, evidenced by the Deltron Premium Glamour Speed Clear Coat—developed entirely with AI and proprietary data. Management expects 50 AI-enabled products commercialized by year-end, not only optimizing raw material costs but also enhancing speed-to-market and customer productivity. Subscription-based digital tools in refinish are expanding PPG’s revenue streams beyond traditional coatings.
4. Aggressive Cost and Operational Discipline
Operational excellence and cost control are central to offsetting volume headwinds, particularly in Europe and refinish. Management is executing structural cost actions in EMEA architectural coatings, aiming for significant margin leverage as volumes stabilize. Supply chain normalization and supplier consolidation are expected to support low single-digit inflation in raw materials.
5. Capital Allocation and Shareholder Returns
PPG is maintaining disciplined capital deployment, balancing investment in high-ROI growth projects (notably aerospace), steady buybacks, and a reliable dividend. Capex is expected to peak in 2025 and trend back toward 3% of sales by 2027, freeing up incremental cash flow for further buybacks or opportunistic M&A as warranted by market conditions.
Key Considerations
This quarter marks an inflection in PPG’s portfolio strategy, with a visible shift of capital and management focus toward high-growth, high-margin businesses, while legacy headwinds are being actively managed.
Key Considerations:
- Aerospace Investment Ramp: Over $500 million in multi-year capital and operating outlays signal conviction in sustained demand and content growth.
- Refinish Normalization Timeline: U.S. insurance-driven demand slump is expected to persist until mid-2026, with share gains and digital solutions partially offsetting volume drag.
- Europe Remains a Margin Play: EMEA architectural coatings are near flat year-over-year, with aggressive cost actions positioning for significant leverage on even modest volume recovery.
- Industrial Share Gains Flowing Through: Automotive OEM and packaging coatings are capturing incremental volume and fixed-cost leverage, with $100 million in new business wins now flowing into results.
- Disciplined Capital Return: Buybacks and dividend continue, but incremental deployment is balanced against high-return organic investments and select M&A.
Risks
Persistent macro uncertainty, especially in Western Europe and U.S. collision claims, could prolong volume headwinds and delay margin recovery. Execution risk around large-scale aerospace investments and digital innovation must be monitored, as delays or cost overruns could impact returns. Competitive intensity in China and refinish remains elevated, with share gains dependent on continued product and service differentiation.
Forward Outlook
For Q4 2025, PPG guided to:
- Continued structural strength in aerospace and protective and marine coatings, offset by low refinish volumes.
- Organic sales decline in line with Q3, driven by distributor inventory normalization in refinish.
For full-year 2025, management updated guidance:
- Adjusted EPS of $7.60 to $7.70.
Management highlighted:
- Growing benefits from operational excellence and cost reduction programs, especially in architectural and industrial coatings.
- Margin expansion expected as volume growth accelerates and business mix normalizes, with aerospace and protective and marine as key drivers.
Takeaways
PPG is executing a deliberate shift toward high-value, high-growth segments, with aerospace and industrial coatings now at the center of its capital allocation and innovation strategy.
- Aerospace and Industrial Outperformance: Share gains and backlog support multi-year growth, with significant incremental margin potential as new capacity comes online.
- Legacy Headwinds Managed: Refocus on cost, digital tools, and portfolio pruning is mitigating the impact of cyclical declines in refinish and Europe.
- 2026 Setup Hinges on Macro Normalization: Investors should watch for stabilization in collision claims and European demand as triggers for margin expansion and accelerated earnings growth.
Conclusion
PPG’s Q3 2025 results underscore a business in active transition—leaning into aerospace, digital innovation, and operational excellence while methodically addressing cyclical and structural drags. The company’s disciplined capital allocation and portfolio strategy are positioning it for above-market growth and margin leverage as macro conditions normalize.
Industry Read-Through
PPG’s results reinforce two major industry signals: First, aerospace coatings and content expansion remain a secular growth engine for specialty chemicals, with OEM build rates and aftermarket demand supporting multi-year investment. Second, digital productivity solutions and AI-driven formulation are fast becoming table stakes in coatings, with subscription and non-traditional revenue streams gaining traction. For peers and suppliers, persistent volume headwinds in legacy segments (refinish, EMEA architectural) highlight the need for aggressive cost control and portfolio discipline. Raw material supply remains long, with volume deals favored over price hikes, tempering inflation risk for coatings producers into 2026.