PPG (PPG) Q4 2025: Aerospace Sales Jump Double Digits, Offsetting Auto Refinish Drag
PPG’s Q4 capped a resilient year, with double-digit aerospace growth and strong Mexico recovery offsetting persistent auto refinish destocking and European architectural weakness. The company’s disciplined cash deployment and continued innovation, especially in AI-formulated coatings, set the stage for margin expansion as operational headwinds fade later in 2026.
Summary
- Aerospace Momentum Accelerates: Double-digit aerospace growth now rivals auto refinish in size, driving segment outperformance.
- Auto Refinish Destocking Weighs: Ongoing channel destocking continues to mute operating leverage despite broad-based share gains.
- Margin Expansion Expected H2 2026: Normalization in refinish and operational cost-outs set up stronger earnings growth in the second half.
Performance Analysis
PPG delivered 3% organic growth in Q4, with net sales reaching $3.9 billion, as volume gains were broad-based across regions, led by Asia Pacific and Latin America. Full-year organic sales growth of 2% outpaced a slightly contracting market, reflecting the company’s ability to drive share gains in core technologies and productivity solutions. Segment EBITDA margin held at 18% for the quarter and 19% for the year, showing operational resilience amid macro volatility.
However, auto refinish, a high-margin business, continued to experience high single-digit volume declines due to persistent distributor destocking, which muted overall EBITDA growth. By contrast, aerospace coatings achieved record sales and earnings, with double-digit gains for the second consecutive year, now nearly matching the size of the refinish business. Architectural coatings in Mexico rebounded strongly, posting high single-digit growth, while European architectural demand remained soft but profitable due to disciplined pricing and cost management.
- Aerospace Outpaces Expectations: Aerospace coatings and specialty materials posted another year of double-digit growth, now approaching refinish in segment scale.
- Refinish Destocking Dominates Margin Math: Channel destocking in auto refinish offset positive mix and price, limiting EBITDA expansion despite broad-based share gains elsewhere.
- Mexico Retail and Project Recovery: Latin America architectural coatings saw mid- to high-single-digit volume growth, reversing earlier project-related softness.
PPG’s cash from operations climbed to $1.9 billion, enabling $1.4 billion in shareholder returns and a robust balance sheet with $2.2 billion in cash. Still, margin expansion will hinge on normalization in refinish and the realization of announced cost reductions in the second half of 2026.
Executive Commentary
"Despite a very mixed and dynamic macroeconomic environment throughout the year, we delivered consistent organic growth, both volume and price, capping the year off with our strongest organic growth of over 3% in the quarter. We achieved record aerospace coating sales and earnings, led by strong demand for our technology-advanced products."
Tim Kanevich, President and Chief Executive Officer
"Our segment earnings did grow in the fourth quarter, so they were up about $20 million year over year... We bought just under 980,000 shares at an average price of about $102 and spent around $100 million in the fourth quarter."
Vince, Vice President and Chief Financial Officer
Strategic Positioning
1. Aerospace as a Core Growth Engine
Aerospace coatings, sealants, and specialty materials now represent a major growth pillar, with double-digit sales gains for two consecutive years. The business is equally weighted between OEM and aftermarket, with accretive margins and strong presence in commercial, military, and general aviation. Capacity constraints are being addressed via $120 million in de-bottlenecking CapEx and a $380 million new factory, positioning PPG to capture high single-digit growth as industry builds accelerate.
2. Auto Refinish: Transitory Headwinds, Structural Strength
Auto refinish remains structurally advantaged despite current destocking, with best-in-class productivity solutions and digital tools (including AI-formulated products) winning share. Management expects industry normalization and volume recovery in the second half of 2026, which will unlock margin expansion as high-margin volumes return.
3. Architectural Coatings: Regional Divergence and Cash Generation
Mexico retail and project sales rebounded strongly, while European architectural demand stayed soft but profitable due to relentless pricing discipline (39 straight quarters of positive price). Europe’s depressed market still generates good cash, funding higher-growth segments and supporting margin improvement as maintenance cycles reset.
4. Industrial and Packaging Coatings: Share Gains and Technology Leverage
Industrial coatings achieved 5% sales volume growth, well ahead of market, driven by share wins in automotive OEM and packaging, especially in Europe and the US. Technology shifts toward sustainable products and targeted wins with leading EV manufacturers underpin continued outperformance versus flat end-market demand.
5. AI and Digital Innovation: Early ROI, Pipeline Potential
PPG’s internally developed AI formulation tools have commercialized 50 optimized products, delivering early millions in savings and productivity. The company’s digitized formulation database positions it ahead of peers, with material ROI expected as the pipeline broadens across business lines.
Key Considerations
PPG’s Q4 and 2025 results highlight a diversified model, where innovation, operational discipline, and targeted capital deployment offset cyclical and regional headwinds. The coming year will test the timing of margin recovery as refinish normalizes and cost actions take hold.
Key Considerations:
- Aerospace Capacity Expansion: Investments in de-bottlenecking and new facilities are essential to capture sustained high-single-digit growth amid persistent demand and current capacity constraints.
- Refinish Normalization Catalyst: The timing and magnitude of channel restocking in auto refinish will be the critical swing factor for EBITDA leverage and segment margin recovery in 2026.
- Architectural Europe Cash Engine: Despite muted volume, disciplined pricing and cost management allow the segment to generate cash and fund growth elsewhere.
- AI-Driven Product Innovation: Early returns from AI-based formulation and digital productivity tools signal future cost and margin upside as adoption scales.
- Balanced Capital Allocation: Ongoing share repurchases, disciplined M&A filter, and strong cash generation provide optionality for both organic and inorganic growth as industry consolidation opportunities emerge.
Risks
Persistent destocking in auto refinish and cyclical softness in industrial/auto OEM segments remain near-term risks, potentially muting margin expansion if normalization is delayed. Rising interest costs, healthcare inflation, and regional macro volatility (especially in Europe and China) could pressure earnings. Tariff-driven raw material inflation and competitive price pressure in China auto coatings also warrant close monitoring.
Forward Outlook
For Q1 2026, PPG expects:
- Flat to low single-digit EPS growth, with muted leverage due to continued refinish destocking.
- Organic sales growth to be flat to positive low single-digit percent, led by aerospace and Mexico architectural coatings.
For full-year 2026, management guided:
- Mid-single-digit EPS growth at the midpoint, with margin expansion weighted to the second half as refinish normalizes and cost-outs take effect.
Management highlighted:
- Raw material costs expected to be flat, with favorable supply-demand offsetting tariff-driven increases in epoxies and specialty pigments.
- Operational excellence programs targeting $50 million in cost reduction and further digital/AI-driven productivity gains.
Takeaways
PPG’s diversified portfolio and innovation engine cushioned macro volatility, with aerospace and packaging share gains offsetting auto refinish headwinds. Margin expansion hinges on the timing of refinish normalization and realization of cost-out programs, both of which are expected to accelerate in the second half of 2026. Disciplined capital allocation and early AI wins provide optionality for both organic and inorganic growth as industry dynamics evolve.
- Portfolio Strength: Aerospace and industrial share gains are structurally reshaping segment mix, while cash-generative legacy businesses fund innovation and growth.
- Operational Leverage Delayed by Refinish: Margin expansion and EPS growth are back-end loaded, with H2 2026 inflecting as channel restocking resumes.
- Watch for AI and Digital Scale-Up: Early commercial success in AI-formulated products signals future cost and margin upside as the approach scales across business lines.
Conclusion
PPG’s Q4 and full-year results underscore the company’s ability to generate growth and cash flow in a challenging macro, with aerospace and digital innovation emerging as defining levers. The path to higher margins and earnings in 2026 will depend on the pace of normalization in auto refinish and continued disciplined execution on cost and capital allocation.
Industry Read-Through
PPG’s performance highlights the increasing importance of aerospace and packaging coatings as secular growth drivers in the broader coatings industry, with capacity constraints and technology-driven share gains favoring well-capitalized players. Auto refinish destocking and European architectural softness are common headwinds, but disciplined pricing and digital productivity tools can preserve profitability. AI-driven formulation and digital innovation are poised to become key differentiators, with early commercial wins suggesting a broader industry shift toward data-enabled product development and operational efficiency. Capital allocation discipline and balance sheet strength provide optionality as M&A and industry consolidation opportunities emerge.