PPG INDUSTRIES INC (PPG)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and the notes thereto included in the condensed consolidated financial statements in Part I, Item 1, “Financial Statements,” of this report and in conjunction with the 2025 Form 10-K.

Highlights

Net sales were approximately $4.5 billion for the three months ended June 30, 2026, an increase of 7% compared to the prior year primarily due to higher selling prices, higher sales volumes and the favorable impact of foreign currency translation.

Income before income taxes was $569 million for the three months ended June 30, 2026, a decrease of $29 million compared to the prior year. Earnings growth in the aerospace and architectural coatings Latin America businesses was offset by lower sales volumes in automotive refinish coatings.

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Results of Operations

Net Sales by Region

Three Months Ended June 30, 2026

Net sales increased $300 million due to the following:

● Higher sales volumes (+2%)

● Higher selling prices (+2%)

● Favorable foreign currency translation (+2%)

● Acquisitions (+1%)

For specific business results, see the Performance of Reportable Business Segments section within Item 2 of this Form 10-Q.

Cost of sales, exclusive of depreciation and amortization, increased $255 million primarily due to higher sales volumes, raw material cost inflation and the unfavorable impact of foreign currency translation.

Selling, general and administrative expense increased $59 million primarily due to overhead cost inflation and the unfavorable impact of foreign currency translation, partially offset by cost-control measures.

Six Months Ended June 30, 2026

Net sales increased $546 million due to the following:

● Favorable foreign currency translation (+4%)

● Higher selling prices (+2%)

● Higher sales volumes (+1%)

For specific business results, see the Performance of Reportable Business Segments section within Item 2 of this Form 10-Q.

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Cost of sales, exclusive of depreciation and amortization, increased $388 million primarily due to higher sales volumes, raw material cost inflation and the unfavorable impact of foreign currency translation.

Selling, general and administrative expense increased $106 million primarily due to overhead cost inflation and the unfavorable impact of foreign currency translation, partially offset by cost-control measures.

Depreciation expense increased $22 million primarily due to higher capital spending in 2025.

Other charges, net increased by $22 million primarily due to higher environmental remediation charges and the settlement of a legal matter.

Effective Tax Rate and Earnings Per Diluted Share

For the three months ended June 30, 2026, earnings per diluted share, continuing operations declined slightly while adjusted earnings per diluted share increased slightly, as the impact of lower earnings was offset by lower adjusted weighted average common shares outstanding due to share repurchases.

Earnings per diluted share, continuing operations and Adjusted earnings per diluted share for the six months ended June 30, 2026 increased year over year due to higher organic sales, the favorable impact of foreign currency translation, cost-control actions and lower adjusted weighted average common shares outstanding due to share repurchases, partially offset by the impact of cost inflation.

Regulation G Reconciliations - Results from Operations

PPG believes investors’ understanding of the Company’s performance is enhanced by the disclosure of net income from continuing operations, earnings per diluted share from continuing operations, PPG’s effective tax rate and segment income adjusted for certain items along with segment income before interest, taxes, depreciation and amortization ("Segment EBITDA"). PPG’s management considers this information useful in providing insight into the Company’s ongoing performance because it excludes the impact of items that cannot reasonably be expected to recur on a quarterly basis or that are not attributable to our primary operations. Net income from continuing operations, earnings per diluted share from continuing operations, the effective tax rate and segment income adjusted for these items along with segment EBITDA are not recognized financial measures determined in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and should not be considered a substitute for net income from continuing operations, earnings per diluted share from continuing operations, the effective tax rate, segment income or other financial measures as computed in accordance with U.S. GAAP. In addition, adjusted net income, adjusted earnings per diluted share, the adjusted effective tax rate and segment EBITDA may not be comparable to similarly titled measures as reported by other companies.

Income before income taxes from continuing operations is reconciled to adjusted income before income taxes from continuing operations, the effective tax rate from continuing operations is reconciled to the adjusted effective tax rate from continuing operations and net income from continuing operations (attributable to PPG) and earnings per share – assuming dilution (attributable to PPG) are reconciled to adjusted net income from continuing operations (attributable to PPG) and adjusted earnings per share – assuming dilution below.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion includes a comparison of our results of operations and liquidity and capital resources for the years ended December 31, 2025 and 2024. A discussion of changes in our results of operations for the year ended December 31, 2024 as compared to the year ended December 31, 2023 has been omitted from this Form 10-K, but may be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our 2024 Form 10-K, filed with the Securities and Exchange Commission on February 20, 2025.

Highlights

Net sales of approximately $15.9 billion in 2025 were flat compared to 2024, with higher selling prices, sales volume growth and favorable foreign currency translation offset by the impact of divestitures.

Income before income taxes was $2,045 million in 2025, an increase of $193 million compared to the prior year. This increase was primarily due to lower business restructuring charges and impairment and other related charges, higher selling prices, improved manufacturing productivity and restructuring savings, partially offset by the impact of unfavorable sales mix and overhead and other cost inflation.

Performance Overview

Net Sales by Region

Net sales increased $30 million due to the following:

● Higher selling prices (+1%)

● Higher sales volumes (+1%)

● Favorable foreign currency translation (+1%)

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Partially offset by:

● Divestitures (-3%)

For specific business results, see the Performance of Reportable Business Segments section within Item 7 of this Form 10-K.

Cost of sales, exclusive of depreciation and amortization

Cost of sales, exclusive of depreciation and amortization, increased $64 million due to the following:

● Wage and other cost inflation

● Higher sales volumes

● Unfavorable foreign currency translation

Partially offset by:

● Increased manufacturing productivity

● Divestitures

Selling, general and administrative expenses

Selling, general and administrative expenses increased $48 million primarily due to:

● Wage and other cost inflation

● Unfavorable foreign currency translation

Partially offset by:

● Restructuring savings

● Divestitures

Depreciation

Depreciation increased $43 million primarily due to:

● Accelerated depreciation expense

● Unfavorable foreign currency translation

Partially offset by:

● Divestitures

Other charges and other income

2025 PPG ANNUAL REPORT AND FORM 10-K 20

Business restructuring, net

In October 2024, the Company approved a comprehensive cost reduction program focused on reducing structural costs primarily in Europe and in certain other global businesses, along with other corporate costs following the divestitures of PPG’s silicas products business and the architectural coatings business in the U.S. and Canada. In connection with approval of this restructuring program, the Company recorded a pretax restructuring charge of $239 million, representing employee severance and other cash costs. Refer to Note 8, “Business Restructuring” in Item 8 of this Form 10-K for additional information.

Impairment and other related charges, net

In 2025, the Company recognized pretax net impairment and other related charges of $24 million related to a consolidated joint venture in the Performance Coatings segment. The charges primarily represented the impairment of definite-lived identified intangible assets.

In 2024, the Company received written approval from Russian regulatory authorities of a definitive agreement to sell the Company’s remaining Russian business. As a result, the Company classified the business as held for sale as of December 31, 2024 and recognized an impairment charge of $146 million, primarily related to accumulated foreign currency translation losses.

Refer to Note 7 ”Impairment and Other Related Charges, Net” in Item 8 of this Form 10-K for additional information.

Other charges/(income), net

Other charges/(income), net was higher in 2025 compared to 2024 primarily due to a net charge related to the anticipated resolution of an outstanding tax matter that includes both income taxes and non-income taxes and the absence of a gain recognized in 2024 on the divestiture of the silicas products business. Refer to Note 18, “Other Charges/(Income), Net” in Item 8 of this Form 10-K for additional information.

Effective tax rate and earnings per diluted share, continuing operations

The effective tax rate on continuing operations for the year ended December 31, 2025 was 22.4%, a decrease of 3.2% compared to the prior year, primarily due to the absence of the 2024 impairment charge, which had no associated income tax benefit, and a reduction in the provision for uncertain tax positions. The adjusted effective tax rate was 23.5%, which was slightly higher than the prior year adjusted effective tax rate.

Earnings per diluted share from continuing operations for the year ended December 31, 2025 increased year over year primarily due to lower business restructuring and impairment and other related charges, higher selling prices, improved manufacturing productivity, restructuring savings and the lower effective tax rate, partially offset by the unfavorable impact of sales mix and overhead and other cost inflation.

Adjusted earnings per diluted share from continuing operations for the year ended December 31, 2025 decreased year over year due to the unfavorable impact of sales mix and overhead and other cost inflation, partially offset by higher selling prices, increased manufacturing productivity and restructuring savings.

Refer to the Regulation G Reconciliations - Results from Operations for additional information.

Review and Outlook

During 2025, PPG demonstrated resilience in a challenging macroeconomic environment by growing both selling prices and sales volumes and generating $1.9 billion in operating cash flow. Net sales were $15.9 billion, similar to the prior year. Results were supported by the breadth and diversity of the business portfolio, as the Company benefited from higher prices and sales volumes in several businesses and favorable foreign currency translation, which was offset by the impact of divestitures completed in 2024. Net sales, excluding the impact of currency, acquisitions and divestitures ("organic sales") increased 2% during the year with continued strong growth in our aerospace coatings business and share gains in both the packaging coatings business and the protective and marine business, which were partially offset by declines in the automotive refinish coatings, industrial coatings and architectural coatings EMEA businesses. Earnings per diluted

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share from continuing operations was $6.92, compared to $5.72 in the prior year. Adjusted earnings per diluted share was $7.58, a decrease of 4% compared to $7.87 in 2024. Total segment income decreased by 3%. Aggregate segment margins were 60 basis points lower than the prior year, driven by a decline in industry project-related spending on architectural coatings in Mexico in the first half of 2025 and a decline in automotive refinish coatings sales volumes in the second half of the year.

Demand for PPG products was mixed by end-use market and geographic region during 2025. Demand for aerospace coatings and protective and marine coatings was strong with double-digit percentage organic sales growth year over year. Automotive refinish coatings demand was impacted by lower collision claims in the U.S. which drove volume declines in the second half of 2025. Global automotive OEM manufacturers’ production increased by about 4% versus 2024 with higher demand in the Asia-Pacific and Latin America regions more than offsetting lower demand in the United States and Europe. PPG outperformed the market in the third and fourth quarters of 2025 driven by share gains.

On a regional basis, sales volume increases in the United States and Canada, Asia-Pacific and Latin America regions were partially offset by decreases in Europe. In the U.S. and Canada, demand was strong for aerospace coatings, protective and marine coatings, packaging coatings and traffic solutions but declined for most other businesses. In Asia, demand was strong with sales volume growth in protective and marine coatings, automotive OEM coatings, and packaging coatings. In Latin America, demand was negatively impacted in the first half of the year as project-related spending was paused due to tariff uncertainties. However, demand for architectural retail sales was strong within the region, and the Company delivered growth in automotive OEM products and packaging coatings. Demand was soft in Europe with the largest impact on the automotive OEM coatings business and the architectural coatings business.

In 2026, we anticipate demand in Europe and in global industrial end-use markets to remain challenged. Despite the macroeconomic environment, we expect growth will be driven by aerospace coatings and architectural coatings in Mexico as well as share gains in our Industrial Coatings segment, resulting in organic sales growth in the range of flat to a positive low single-digit percentage. This reflects the strength of our focused organization and our sharpened portfolio of technology-advantaged products and services.

Significant other factors

During the year, PPG made significant progress to reduce costs and improve the profitability of the overall business portfolio through the global restructuring programs. In October 2024, the Company approved a comprehensive cost reduction program with anticipated annualized pre-tax savings of approximately $175 million onc

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