管理層發言
Good morning. My name is Chase, and I will be your conference operator today. At this time, I would like to welcome everyone to the Second Quarter 2026 PPG Earnings Conference Call. I would now like to turn the conference over to Alex Lopez, Director of Investor Relations. Please go ahead, sir.
Thank you, Chase, and good morning, everyone. This is Alex Lopez. Joining me today from PPG are Tim Knavish, Chairman and CEO; and Jamie Beggs, Senior Vice President and CFO. Our remarks relate to the financial information released on July 28, 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 discussion during this call may include forward-looking statements and non-GAAP financial measures. Forward-looking statements involve uncertainties and risks, which may cause actual results to differ. Please read our cautionary statement on Slide 2 of the presentation materials. Please refer to our presentation materials and SEC filings located on our Investor Center website for additional information and reconciliations of non-GAAP financial measures. Tim, over to you.
Thanks, Alex, and good morning, everyone. Welcome to our second quarter 2026 earnings call. Before reviewing our results, I want to welcome Jamie to our first earnings call as PPG's CFO. Jamie brings deep financial, operational and strategic experience to the role, and I'm confident that she'll be a strong partner as we continue executing our growth strategy, expanding margins and creating long-term shareholder value. I'd also like to thank our employees in the Middle East for their dedication and resilience during this very difficult period. Their commitment to our business, our customers, our values and to each other has been truly inspiring. I know some of you are listening, so please continue to prioritize your safety and the safety of your family above all else. Now I'd like to start by providing highlights of our second quarter 2026 financial performance, and then we'll share our outlook for the remainder of the year. I am proud to report that PPG delivered its sixth consecutive quarter of organic sales growth, a solid increase of 4% with equal contributions from sales volumes and selling prices. As many of you know, we have been systematically building our organic growth muscle through commercial excellence, innovation excellence and operational excellence, and we are seeing positive momentum from these initiatives. We outpaced the industry by 300 basis points, achieving organic growth in all 3 segments and in 8 of our 9 businesses, demonstrating our ability to accelerate momentum in a complex and rapidly evolving environment. This growth momentum was led by our strategy to deliver product innovation and productivity solutions, both inside and outside the can for our customers. Our second quarter net sales totaled $4.5 billion, up 7% year-over-year. Adjusted earnings per share of $2.23 was slightly higher year-over-year, driven by strong results in our differentiated aerospace and Architectural Coatings Latin America businesses, offsetting the expected lower sales volumes in Automotive Refinish. Our total company adjusted EBITDA margin was over 17%, reflecting solid commercial execution of both pricing and share gains, which partially offset portfolio mix dynamics. During the quarter, we also covered about 90% of cost of goods sold inflation with pricing, and we repurchased $75 million of shares, bringing year-to-date repurchases to $175 million. Turning to our segment performance. In Global Architectural Coatings, second quarter net sales rose 8% to $1.1 billion with 2% organic growth driven by higher selling prices, partially offset by slightly lower sales volumes. Organic sales for Architectural Coatings in Latin America and Asia Pacific increased by a mid-single-digit percentage, driven by volume growth in Latin America and higher selling prices. In Mexico, retail sales were strong and project-related sales improved compared to prior year. In EMEA, we reached an inflection point with organic sales turning positive, increasing a low single-digit percentage with our higher selling price actions partially offset by modestly lower volumes as market demand remains mixed by country. Segment EBITDA increased by 14% and EBITDA margin improved 100 basis points to 19.4%, driven by the realization of higher selling prices and cost control actions, partially offset by cost of goods sold inflation. Importantly, we delivered EBITDA and margin expansion in both of our major regions this quarter. In Europe, in particular, our pricing and cost actions drove a return to margin expansion after several quarters of contraction, marking a change in trajectory for this business. In the third quarter, we expect year-over-year strengthening in retail sales and project-related spending in Mexico, while consumer sentiment in Europe is anticipated to remain mixed. We expect higher prices and self-help actions to increase earnings. Quarterly aggregate organic sales growth for the segment is expected to be in the range of flat to positive low single-digit percentage compared to the third quarter of 2025, and year-over-year EBITDA margin is anticipated to be relatively flat. Our Performance Coatings segment delivered 7% net sales growth to $1.6 billion, with organic sales up 3%, led by Aerospace, Protective and Marine Coatings and Traffic Solutions, partially offset by the lower automotive Refinish sales volumes. Aerospace achieved exceptional quarterly sales with double-digit percentage growth. Our order backlog remained around $300 million as we are starting to see the benefits of our capacity and productivity investments in this business. Protective and Marine Coatings organic sales increased by a double-digit percentage, achieving their 13th consecutive quarter of sales volume growth, including above-market marine growth in both Asia Pacific and Europe. Traffic Solutions grew a mid-single-digit percentage on strong commercial excellence performance. Automotive Refinish Coatings organic sales decreased by a double-digit percentage, reflecting both the expected challenging comparisons to customer order patterns in the second quarter of 2025 and a modest recovery of underlying industry demand. U.S. automotive insurance claims continue to improve and over the past 2 quarters have declined by a mid-single-digit percentage versus double-digit percentage in prior year. While the pace of improvement was not as fast as we would like, the data reinforces a normalization trend for this industry. Importantly, auto insurance premiums declined a low single-digit percentage in the second quarter. This is the first quarterly year-over-year decline in the past 5 years. Segment EBITDA margin was 22.7%, declining 300 basis points year-over-year, driven almost entirely by the Refinish year-over-year comparison. Higher selling prices were offset by lower automotive Refinish sales volumes due to the strong Refinish results in the first half of 2025. In the third quarter, we expect organic sales growth for the segment in the range of mid- to high single-digit percentage. And in the second half of '26, we expect EBITDA margin expansion to return driven by pricing actions and automotive Refinish stabilization. Now I'd like to recap the highlights of our PPG Aerospace deep dive that took place last month and the importance and sizable role that our Aerospace business plays as a growth engine for our company. As a technology leader with nearly 100 years in the industry, we offer a very unique roughly $2 billion portfolio of qualified products and productivity solutions across sealants, adhesives, transparencies and coatings. The demand for our business is expected to remain robust given our highly specialized and qualified products for both the OEM and aftermarket channels, supported by our deep global distribution and customer productivity capabilities. In addition, we are diversified not only across OEM and aftermarket, but also across commercial, general aviation and military end uses. We are not overly dependent on any single subsegment, and all of them have strong order books. We are investing more than $0.5 billion in additional capacity to drive scale and support strong growth with technology developed through collaboration and synergies across our other PPG businesses. This positions us to deliver consistent above-industry growth in this key business for years to come. In the Industrial Coatings segment, second quarter net sales grew 7% to $1.8 billion, led by higher sales volumes. Organic sales increased 5% due to volume growth in all 3 businesses, reflecting the benefits of our previously communicated share gains. Automotive OEM coatings organic sales increased a low single-digit percentage with mid-single-digit percentage sales volume growth, including share gains outpacing global automotive industry production by about 500 basis points. Industrial Coatings organic sales improved a mid-single-digit percentage, marking a change in trajectory for this business, driven by volume and price in Asia Pacific, Europe and North America. Packaging Coatings organic sales increased by a double-digit percentage with sales volumes now up over 20% on a two-year stacked basis as customers continue to adopt our leading technologies. Segment EBITDA increased 2%, while EBITDA margin declined 70 basis points to 15.9%, driven by cost of goods sold inflation, partially offset by higher sales volumes. Looking ahead, our share gains in automotive OEM coatings, industrial coatings and packaging coatings are yielding benefits, and we expect to outperform the respective markets again in the third quarter. For the segment in the second half of 2026, we expect modest organic sales growth and EBITDA margin compression due to the timing of index-based pricing. Specifically for the third quarter, aggregate organic sales growth for the segment is anticipated to be in the range of flat to positive low single digits compared to the third quarter of 2025. With the impact of the Iran war, costs have risen for raw materials, energy, logistics and packaging across the coatings value chain. In this rapidly evolving macro environment, we have ensured supply continuity of our technology differentiated products and services to our customers. We have proactively made price adjustments globally and across all of our businesses, resulting in a net 2% selling price improvement in the quarter with an exit run rate of 3% for the month of June. In the second quarter, we covered about 90% of our cost of goods sold inflation with pricing, and we expect to reach 100% coverage by the fourth quarter. I am proud of this progress, which is one quarter ahead of our commitment made just 90 days. This represents a faster rate of price realization than we achieved during the previous cycles. This is enabled by our customer value propositions, our procurement capabilities, our global footprint, our formula flexibility and the strength of our portfolio. We estimate cost of goods sold inflation in the range of mid-single-digit to high single-digit percentage between the second quarter and fourth quarters, and we have executed and remain poised to implement further selling price actions as necessary to fully offset inflation. Importantly, a top priority remains supporting our customer needs through our technical expertise, consistent product quality and continuity of supply even as the market conditions remain dynamic. With that, I'll turn the call over to Jamie Beggs, our Senior Vice President and Chief Financial Officer, to take you through the balance sheet and cash as well as our third quarter and full year financial projections. Jamie?
Thank you, Tim, for the warm welcome, and good morning, everyone. We are building upon our strong balance sheet as we ended the quarter with cash and short-term investments of $1.6 billion. Net debt decreased by more than $400 million from the second quarter of 2025, leaving net debt at 1.9x adjusted EBITDA. We also issued long-term bonds of CHF320 million due in 2030 and 2034 with a weighted average interest rate of approximately 1.4%. Year-to-date cash from operating activities was approximately $600 million, more than $220 million higher year-over-year, primarily driven by working capital improvement. During the quarter, we returned approximately $235 million to shareholders through dividends and share repurchases. Our cash deployment remains focused on maximizing shareholder value creation. Looking ahead, our organic growth momentum and proactive pricing actions position us well for the remainder of the year. For the third quarter, we anticipate robust organic sales growth across most of our businesses, led by strength in aerospace, Latin American Architectural Coatings and Packaging Coatings. We expect third quarter organic sales growth in a range of a low single-digit to a mid-single-digit percentage and company adjusted EBITDA margin, which includes corporate expenses to be in the range of a flat to a decline of 100 basis points year-over-year. We are reaffirming our full year adjusted earnings per share guidance range of $7.70 to $8.10. This reflects our confidence in our earnings trajectory given our positive momentum, the realization of pricing and the execution of our self-help actions. With that, let me turn it back over to Tim for closing remarks.
Thanks, Jamie. In closing, we are confident in our strategy and the strength of our business models and our momentum in delivering higher sales and earnings growth and in outperforming the market. With a very unique portfolio, strong brands, technologies, an asset-light and flexible cost structure and consistent cash generation, PPG remains a compelling long-term investment. Thank you to our PPG team around the world who make it happen and deliver on our purpose every day. We protect and beautify the world. We appreciate your continued confidence in PPG. That concludes our prepared remarks. Chase, we're now ready to begin the question-and-answer session. Please open the first line for questions.
分析師問答
Your first question comes from the line of Matthew DeYoe of Bank of America.
I appreciate that comps can vary quarter-to-quarter. But as I look at Performance Coatings, I kind of wanted to know why they were down so much sequentially. And then as we try to bridge the gap to 2H, what gives you the confidence the business can actually accelerate, particularly as some of this raw material backdrop is actually going to creep up on you incrementally as we move through the rest of the year?
Yes. Thanks, Matt. Performance Coatings, the drop in sales was entirely Refinish year-over-year comps. That's the quick answer. All of our other businesses in that space grew: double-digit in Aerospace, double-digit in Protective and Marine, and mid-single digit in Traffic. So the rest of that segment is growing. The delta in performance was purely Refinish comps. To your second question, we had a great quarter on growth across the company, 8 out of 9 businesses. We fully understand what happened on the ninth, and that one is going to return to growth starting in this quarter. Refinish will grow in Q3 and Q4. We've got great momentum on the top line and we're beating the market across most of our businesses. I couldn't be happier with how fast we came out of the gates on pricing, able to pull forward our breakeven point. While there are a number of factors outside of our control, we've proven how quickly we can move on pricing to accommodate changes in the raw material environment. We are confident that Refinish destocking in the U.S. is behind us. So the one business that didn't grow is now going to start growing. When you add that plus our momentum in pricing, we feel really confident in our second half guidance.
Matt, this is Alex. And just to add some color to your first question, sequentially, the drop in margin on that segment, let's remember, price net inflation in Q1 was positive. Price net inflation in Q2 on that segment is neutral. It covered inflation, but it was positive in Q1 and flat in Q2.
And it will be positive in Q3.
Your next question comes from the line of Kevin McCarthy with Vertical Research Partners.
Tim, I wanted to move the discussion to your industrial business. The volume there of plus 5%, I think, was the best in 5 years. It looks as though maybe you punched above your weight in auto OEM. So maybe you can unpack the volume growth trajectory as you see it in that business? And then on a related note, I think your Industrial segment sales guide for the third quarter is like flat to down low single digits compared to the plus 7% total sales growth that you posted in June. So maybe just some comments on why that might decelerate sequentially would be helpful.
Yes, Kevin, you nailed it. We're thrilled with the growth results out of the Industrial Coatings segment, and it's one that we've been working on for a couple of years. As you know, when you win business in auto or packaging, it can be 1.5 years until you actually launch that business. We've been talking about share gains in those businesses for two years, and it's starting to hit the P&L now as we launch at our customer facilities. The good news is you can count on about $25 million of new business wins in that segment per quarter hitting the P&L as we go forward, across auto, packaging and industrial. So great quarter for growth in Industrial. All three businesses have growth momentum. If you look at auto, plus low single digits for Q2, that's accelerating as we launch more share gains in Q3. Industrial is the one that really flipped for us that had been down for a number of quarters. Now the share gains in that business have started to launch up mid-single digits in Q2. We expect that to grow in Q3 and beyond. The reason the overall range is a little bit lower is because packaging is comping double digits. So the year-over-year comp starts to get mathematically harder, but we'll still be growing nicely for the rest of 2026. Some wins won't even launch until 2027. So yes, exciting turnaround in Industrial Coatings.
Your next question comes from the line of James Hooper with Bernstein Research.
I'd like to go into a little bit more detail about the Refinish margin and how you see that coming back over time. Previously, you said this was the highest margin business in the group. I think more detail on how that rebuilds will help drive the EPS growth story.
Yes, James. It's definitely one of our top margin businesses in the portfolio. There are a couple of others that are in a tight race as well with Refinish, but it's one of our top margin businesses. Within Refinish, Refinish is majority collision, which is what we talk about, but there are other parts of that business that use Refinish technologies that aren't exactly collision. Within that business, collision is the highest margin portion. When you have a big year-over-year comp delta on one of your top segments, it has a sizable negative margin impact on the whole segment. Our confidence level going forward is a couple of things. Number one, we are confident that the destocking in the United States is behind us. So our run rate going forward and our year-over-year comp changes significantly. Number two, while we moved quickly on pricing in Refinish with what happened with the Iran conflict, we'll continue to drive pricing to get gross margin back where it needs to be. The combination of those two gives us confidence that going forward, you won't see that margin delta. In fact, if you look at the total Performance Coatings segment, you'll see sales growth, earnings growth, and we'll return to margin growth as we move through Q3 and beyond.
Your next question comes from Ghansham Panjabi of Baird.
Welcome to you, Jamie. I guess just going back to the price cost recovery timeline coming in one quarter ahead of schedule, Tim. Can you give us more color as to how you were able to accomplish that? Was it pricing execution on your end? Did raw materials moderate relative to what you thought? What's driving that change?
Ghansham, it's not that raws moderated. Raws were up more than we thought initially. What happened is we learned through these inflationary cycles. We learned some things last time and got faster. We learned more this time and got even faster. The abruptness of the increase driven by the conflict with Iran removed the lag period between assessing and acting, which accelerated pricing decisions. We incented the teams to beat our prior pace and applied learnings from the last cycle. All of our businesses came out of the gates a lot faster and with more meaningful price increases. We were able to offset 90% of it in just a quarter. We have more price actions coming this quarter and beyond, which gives us full confidence to pull forward the breakeven run rate period we previously committed to.
Your next question comes from David Begleiter with Deutsche Bank.
Jamie, welcome as well. Tim, just for Refinish, to be clear, do you expect volumes to still be up in Q3? And if so, how much? Also, one of your competitors announced some pretty large body shop wins this past quarter. Are you seeing similar wins and share gains in Refinish as we move forward?
Yes, David. Volumes will be up in Q3 and Q4, though not huge amounts because this business is typically low-volume and you make the top line with a combination of expanding TAM, productivity solutions and share gains plus pricing. On volumes, liters of paint are probably more like up low single digits in the second half, with price and digital ecosystem and subscriptions adding on top. Regarding share wins, unlike automotive or packaging, where cost of change is high, there is share shift in Refinish more frequently. We closely watch net wins. Sometimes there's an MSO share shift, which is larger than a single body shop. Last quarter we discussed a big MSO win that has now converted. We have another big MSO converting in the future. It's a normal period and nothing extraordinarily different in the Refinish market.
Your next question comes from the line of Mike Harrison with Seaport Research Partners.
So Tim, if we just take a step back and get away from Refinish for a second. In the second half of the year, and I'm not going to ask you for a crystal ball for '27 quite yet, but where are the areas—the three or four areas—where you're winning the most share and you are incredibly confident with your team that you are growing above market sustainably? Would that be essentially Aerospace, Protective and Marine, Comex and perhaps Packaging? Is there anywhere else you think you should be winning more share? If you could give us a little more to triangulate where you think you should be growing relative to market rates over the next 6 to 12 months, that would be helpful.
Chris, I prefer to say winning share versus stealing share. Looking across our businesses: Aerospace—incrementally increasing a strong share position; PPG Comex—continuous improvement of share wins; Packaging—step change driven by our technologies, with much of the share gain this year coming from Europe; Protective and Marine—share gains mostly in marine businesses in Europe and Asia; Industrial—we've been building for five or six quarters and are now launching share wins, especially powder coatings; Auto—we outperformed the market by 500 basis points; Architectural Europe—in key countries we operate in, about 75% are gaining share and 25% have held or lost slightly; Traffic—small US business but a recent acquisition contributes to step change. Add these together and this is why we feel good about our momentum. There's no business where I'm concerned we might be losing share.
If I can add on, it's been impressive to see the commercial efforts across PPG. Six consecutive quarters of organic growth and the majority of SBUs grew volume, which is difficult in this environment. Structural improvements in the selling machine give us confidence in continuing organic growth into the second half, which is an important objective for the company.
And then on Refinish, Chris, you'll recall in October we told everyone we expected significant destocking until the middle of '26. We're now in the middle of '26 and that significant destocking is behind us. Now the path forward is net-net body shop wins, which we typically do very well at. So again, we feel great about our momentum.
Your next question comes from the line of Frank Mitsch with Fermium Research, LLC.
Maybe if we go to the next question, Chase. I don't know if it's Mike open, but we can try—I see Chris Parkinson on the line.
Tim, within general industrial or the general industrial SBU within the Industrial segment, two of the largest competitors of yours are merging. I think that's where they may have the most antitrust overlap. Is that a contributor to the inflection that you're seeing in your growth there?
John, it's hard to say because some of this growth we are achieving in general industrial is business we won last year. Most of it was announced before the merger potential announced in November, and some announced after. So it's difficult to quantify how much is driven by pre-announcement versus post-announcement. The merger may have brought some anxiety and distraction in the short term, which could have contributed slightly. But our team is out there every day pursuing share gain opportunities in general industrial, which is a bigger growth opportunity for us because we have lower market share there relative to some verticals and strong technologies. So it's more about execution, commercial excellence and the selling machine than directly attributable to the merger.
Your next call comes from the line of Duffy Fischer with Goldman Sachs.
Just a couple of questions back on Refinish. When was peak sales for that business? How much are we down from that peak sales period on a run rate basis? Underlying, has there been a mix shift within the business—are customers trading down because of financial difficulties around insurance? And at this lower level of sales, how has structural margins been impacted within that business?
Duffy, we'll let Alex confirm the specific quarter of peak, but if you think about the market downturn, it was largely mid-2024 through 2025, so peak was likely around 2024. However, we've been expanding TAM, pricing and share, so there may be a delta. We have not seen a negative mix shift despite challenging end-user financials. Quite the opposite: when shops are under pressure, they value productivity and shop output, and we sell coatings with best-in-class productivity tools and a digital ecosystem that helps reduce labor costs, increase throughput and reduce waste, which improves shop economics. So we did not see a step down in premium or value during this period.
Yes. The big derailment, if you look at annual sales for it, was insurance premiums escalating 16%–17% every year in '24 and '25. That created the big disconnect with miles driven. As Tim pointed out at the beginning of the call, we saw U.S. insurance premiums lower this quarter, and it's the first time since 2023 that they have declined year-over-year.
Your next call comes from the line of Jeff Zekauskas with JPMorgan.
I have a two-part question. In your press release, you say that cash flow from operations was higher by roughly $220 million year-over-year. Is that temporary? Or is that something you can maintain over the course of the year? Second, on Auto Refinish, your first half volumes are down around 12% or 13%, and you think your second half volumes will be up maybe 8%. So you're looking for roughly a 5% volume decrease this year. Is that the right encapsulation?
Jeff, I'll take part B and let Jamie take part A on cash. You're in the right ballpark on first half volumes—down low double digits. You might be a little high on second half volumes. On pure volumes, second half is probably up low single digits, and then you add price and digital ecosystem on top of that. So down low double digits first half, up low single digits second half on pure volume.
Jeff, on cash flow from operations, teams have done a lot of good work on managing working capital. We expected continuous improvement rather than waiting toward the back half of the year, and the team managed that earlier in the year. I don't expect a change from what we provided for operating free cash flow; we expect north of 10% on a sales basis for the year. It was a strong win by the team to manage working capital earlier in the year.
Your next question comes from the line of John McNulty with BMO Capital Markets.
This is Cal on for John. Tim, you've spoken a lot about pushing through pricing and also going for share. How are you balancing those two dynamics?
Cal, we haven't really seen lost business as a result of pricing efforts. We don't push price; we collaborate with customers. We're part of their operations and their success, so pricing is collaborative. We help their business and they help ours. We don't typically lose share when approaching pricing because of the way we approach it. Momentum on sales growth is continuous execution of the sales pipeline, and when cost inflation requires it, we adjust pricing in collaboration with customers.
Your next question comes from the line of Vincent Andrews with Morgan Stanley.
I wanted to ask on buybacks. The pace decelerated in 2Q versus 1Q, but your cash flow was better and the share price was lower for most of the quarter. Were you looking at M&A or any other issues? Also, how is the smaller bolt-on M&A pipeline looking?
Vincent, on capital deployment, we still deployed about the same amount because we closed a small bolt-on that cost about $65 million and bought back about $75 million. Working capital execution came in better than expected, so timing affected buybacks. We assess cash mid-quarter—me, Jamie and our Treasurer—consider dividends, CapEx (notably in Aerospace), and M&A pipeline, and then decide repurchases. The slight deceleration was timing; it's not a change in strategy. We continue consistent repurchases—11 straight quarters—and we won't let cash grow on the balance sheet. Regarding M&A pipeline, nothing big right now, a couple of small bolt-ons that may or may not happen. Expect continued same capital deployment strategy assessed each quarter.
Your next question comes from the line of Josh Spector with UBS.
I want to come back to Performance and initial questions around the margins in that segment. Quarter-on-quarter you had almost $300 million higher sales and about $40 million higher EBITDA, which is about a 15% incremental. That seems lower than expected if price covered cost. Are there other items—investments or mix—that impacted incrementals?
Josh, it was really two things: the year-over-year Refinish comp, which we already discussed, and price/cost dynamics. Price/cost was positive in Q1 but slightly negative in Q2, which will be positive going forward. Those two items explain the majority of the variance.
Your next question comes from the line of Mike Harrison with Seaport Research Partners.
Welcome aboard, Jamie. My question is on the Protective and Marine business. You seem to be in a sustained upswing—13 straight quarters of organic growth. Do you feel the underlying strength is related to infrastructure growth, pent-up maintenance demand, or specific verticals? What are the main drivers and how sustainable is the strength? Is a peak possible soon?
Mike, we put up double digits and actually outperformed our own expectations. I don't think we're near a peak, though we may see high single digits or mid-single digits over time as denominators increase. We're doing well in marine aftermarket and new build in Asia, and we're strong in fire protection for data centers and warehouses, which drives demand for structural steel, flooring and specialized coatings. Energy and data center pipelines are robust. Maintenance is a steady floor. We see quite a bit of runway and don't see a peak on the horizon, though comps will moderate as denominators grow.
Your next question comes from the line of Eric Boyes with Evercore.
Could you remind us on the cadence of your raw material purchases? Do you lock in a large portion at the beginning of the quarter or late in the prior quarter? When we see temporary spikes in crude, does PPG vary purchase cadence or is it programmatic? How impactful is short-term crude volatility for PPG?
Eric, on average we're locking materials in about 45 to 60 days in advance, but contracts vary. Solvents linked to oil move quickly because they are close to the wellhead; that spend may be 10%–15% of total spend. Only about half our raw material basket is a petrochemical derivative; other materials like pigments are typically annual contracts and less tied to oil. Some oil derivatives are a step removed from the wellhead and move less quickly. So short-term crude volatility impacts certain components quickly, others less so. Average cadence is 45–60 days with exceptions.
Your next question comes from the line of Frank Mitsch with Fermium Research, LLC.
Welcome, Jamie. On auto, can you talk about sustainability of market shares in both Refinish and Auto OEM? It sounds like you're gaining share in OEM and continuing to win in Refinish despite destocking—how sustainable are those shares?
Frank, Auto OEM share gains we started talking about last year and we've seen those come through on the P&L. About 40% of our cited industrial segment wins are in Auto OEM. We expect additional outperformance for several quarters, with solid line of sight to more wins. Refinish has few big share shifts; it is more incremental singles and occasional doubles. Despite destocking effects on the P&L, we've continued to win those singles and doubles at more than our fair share. So we expect incremental share gains in Refinish and step change in Auto OEM.
Your next question comes from the line of Arun Viswanathan with RBC Capital Markets.
Just thoughts on the portfolio as it stands. Are any areas delivering returns below your threshold due to structural volume issues? It appears some momentum in aerospace and other businesses is being offset by other verticals. Any areas you think could be optimized or exited?
Arun, spoiler: I have nothing of size for sale right now. We did sell two sizable businesses previously and many small ones to clean up the portfolio. We have a couple on the fringes I'd like to clean up—small items you would not notice. Every business must earn its place in the portfolio. Aerospace is at the high end of profitability and growth. We have some below-average businesses we're working hard to improve. If we didn't see a path to improve margins, we'd have another conversation, but right now we're focused on improving performance, not selling major assets.
Your next question comes from the line of Laurence Alexander with Jefferies.
For Industrial and Auto, given the innovation pipeline contributing to performance ahead of end markets, do you expect that gap to widen into next year or be stable through the end of next year?
Laurence, we've been outperforming the industry for some time. We expect to continue to outperform, probably not at the same 500 basis points level as this quarter. Last quarter we outperformed by 300 basis points. Certainly we expect that gap to continue, though not necessarily at the same magnitude.
On innovation, we have a continuous pipeline in Auto, which is one of our highest-technology businesses. Many share wins come from innovation plus commercial excellence and field service. We have a number of initiatives not yet launched that drive productivity and lower energy for customers, and several product initiatives for EVs—particularly in China—are in development. Our line of sight shows good outperformance ahead, and the innovation pipeline has several items not yet commercialized that we feel good about for coming quarters and years.
Your next question comes from the line of Patrick Cunningham with Citigroup.
For Architectural EMEA, how much of the margin improvement is sustainable from price realization versus early benefits from restructuring and planned closure of European manufacturing plants?
Rachel, margin enhancement in Europe is a combination of three things. We've taken share in key countries, which provides volume leverage. We've launched sustainable products for European customers that have incrementally higher gross margins. We got price in that business ahead of the inflation spike and will get more price after this quarter. We've also removed some SG&A and are starting to see benefits. You haven't seen benefits from plant closures yet because they won't close until Q4 or Q1, so there's continuous incremental margin improvement now and another step change in 2027 as we execute closures.
Your next question comes from the line of Abigail Eberts with Wells Fargo.
You called out $0.5 billion in aerospace CapEx. I recall the Shelby, North Carolina project was supposed to run about $380 million. Is the $120 million delta for debottlenecking projects at other sites?
Abigail, the $0.5 billion includes the Shelby plant at about $380 million. The other $120 million is above and beyond for existing facilities—Huntsville, Alabama; Mojave, California; and others—to debottleneck and add incremental capacity. We're starting to see improvements from that $120 million, and the $380 million Shelby plant will come online later. We'll continue to invest in this high-growth, high-return business.
There are no further questions at this time. I will now turn the call back over to Alex Lopez.
Thank you, Chase. We appreciate your interest and confidence in PPG. This concludes our second quarter earnings call.
This concludes today's conference call. You may now disconnect.