PPG Industries (PPG) Q1 2026 earnings call transcript

I would now like to turn the conference over to Alex Lopez, Director of Investor Relations. Please go ahead, sir.

Thank you, Tracy. And good morning, everyone. This is Alex Lopez. We have posted detailed commentary and the accompanying presentation slides on the investor center of our website, PPG. com. Following management's perspective on the company's results, we will move to Q&A session.

Both the prepare commentary and discussion during this call may contain forward-looking statements reflecting the company's current view of future events and their potential effect on PPG's operating and financial performance. These statements involve uncertainties and risks, which make costs actual results to defer. The company is under no obligation to provide subsequent updates to these forward-looking statements.

The presentation also contains certain known gap financial measures. The company has provided the appendix of the presentation materials, which are available on our website, regarding situations of these known gap financial measures to the most directly comparable gap financial measures. For additional information, please refer to PPG styling with the SEC.

Now, let me introduce PPG Chairman and CEO, Jim Kanabish.

Thank you, Alex, and good morning, everyone, and welcome to our first quarter, 2026 earnings call. Before we begin today's call, I want to take a moment to remember our dear friend and colleague, John Bruno. His passing last week is a tremendous loss. John was not only an exceptional contributor to our company, but a wonderful husband, father, and friend, whose leadership, intellect, compassion, and humor touched everyone who knew him.

Thank you to the many of you that reached out. It meant a lot to us here at PPG, but more importantly meant a lot to his family. Now, I'd like to start by providing highlights of our first quarter, 2026 financial performance. And then I will share our outlook. I am pleased to report the PPG delivered solid performance in the first quarter, demonstrating our ability to maintain growth momentum and a challenging macro environment, led by our differentiated aerospace and PPG COMEX businesses.

We achieved organic sales growth of positive 1%, marking our fifth consecutive quarter of higher year over year organic sales. This growth was driven by higher selling prices with further selling prices increased, announced, and expected price realization for the remainder of the year targeted to offset any inflationary impact much more quickly than prior inflation cycles.

First quarter net sales total $3.9 billion, up 7% year over year, with adjusted earnings per share of $1.83, and an increase of 6% versus the prior year.

Our segment EBITDA margin was over 19%, reflecting solid execution of our share gains, the benefits of our technology advantage products, strong brand recognition, along with excellent commercial execution.

Turning to our segment performance in global architectural coatings, first quarter net sales rose 13% to $965 million, with positive 2% organic growth.

Organic sales for architectural coatings Latin America and Asia Pacific increased by a mid single digit percentage compared to the first quarter of 2025, with equal contributions from selling price and sales volumes. In Mexico, retail sales were especially strong, and project related sales continued their recovery.

Art potential coating sales in Europe remained mixed by country, with a low single digit percentage decline in total, which was partially offset by favorable pricing.

Segment income increased more than 30%, supported by pricing and execution of self-help actions, which drove EBITDA margins up 230 basis points above prior levels. We expect organic sales and margin momentum to continue into the second quarter of 2026. Also, we continue to reduce our overall structural costs in our architectural business in Europe. And we have four manufacturing plants that will be closed in the second half of 2026, resulting in lower fixed costs going forward. Our performance coating segment delivered 5% positive net sales growth to $1.3 billion, led by double digit organic growth in aerospace, and high single digit growth in traffic solutions and protective and marine coatings. PMC has now delivered 12 and second quarters of positive volume growth.

As expected, automotive refinish organic sales decreased by double digit percentage as sales volumes were lower, reflecting customer order patterns stemming from our U. S. distributors during the first half of 2025. On a positive note, we are seeing improvements in the U. S. industry accident claims. February and March industry claims were down 1% year over year, which now makes three out of the last four months when low single digit declines year over year, reinforcing a normalization trend after the high single digit to double digit declines most of last year.

Another positive data point, we are seeing our U. S. distributor fulfillment orders sequentially improve as inventory levels normalize. In refinished as we previously communicated, we expect year over year organic sales volume declines in the second quarter, as we lap strong prior year first half order patterns. We anticipate volume growth during the second half of 2026. Segment EBITDA was strong at 24%, driven by the strength of our aerospace business, despite the unfavorable year over year refinished volume comparisons. In fact, the investments that we are making aerospace to support our customers demand have resulted in improved productivity and improved output. We are well positioned to deliver consistent growth in this key end market for the next several years.

I would like to again emphasize the important and sizable role that our aerospace business plays as a key growth engine for our company. Demand is expected to remain strong, given our highly specialized and qualified products for both the OEM and aftermarket channels. Our backlog remains at about $350 million, despite year over year output increasing.

The PPG aerospace business provides unique technology advantage products in various sub segments, transparencies, sealant incentives, coatings, services and engineered materials. In each one of these verticals, we have a strong presence that allows us to provide a superior customer operating, including excellent distribution capabilities, creating a truly unique value driver for our company and for our shareholders.

Another differentiator of PPG aerospace business is the balance is not only between OEM and aftermarket, but also we are not overly dependent on any sub segment as we are well balanced across commercial, general aviation and military.

I'd like to highlight just two examples of the proprietary technology advantage aerospace products that are designed to provide customized chemistry solutions inside the can and improve productivity for our customers outside the can. PPG's PRC's seal caps deliver lightning strike protection for aircraft while significantly improving application time and material usage for our customers. ARE 3D printed sealants are customized gasket solution that offers superior quality and increased customer productivity solutions.

Now, moving to the industrial coding segment, first quarter net sales grew 4% to 1.6 billion. Organic sales were flat, including share gains that led to 1% sales volume growth, well out pacing industry demand. As we realized the benefit of share gains were strength in automotive OEM coatings and packaging coatings. We expect to launch additional share gains in the industrial segment throughout this year and into 2027.

From a business unit standpoint, our automotive OEM business delivered flat sales volume, which outpaced the decline in global automotive industry production by about 300 basis points. The industry decline was largely due to year over year comparisons in China as the first quarter 2025 was very strong and first quarter of 2026 was tepid. Expectations for China industry comparisons are to improve in the coming quarters.

For PPG due to our strong product portfolio and commercial execution, we expect to continue outgrowing the market in the second quarter and for the full year in 2026. Organic sales for our industrial coatings business were down a low single digit percentage as lower volumes due to inconsistent demand were partially offset by positive pricing actions in this business.

Packaging coatings, organic sales increased by a double digit percentage year over year, growing significantly above industry rates. Sales volumes for PPG are up over 20% on a two year stack basis driven by share gains as customers continue to select our leading technologies.

Segment EBITDA margin was negatively impacted by regional mix as China automotive production dropped in comparison to a particularly high level of our school year last year. Looking ahead, we expect sequential margin improvement driven by incremental industry and PPG sales volume growth, selling price realization and aggressive cost manager.

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 are focused on our ability to supply or technology differentiated products services to our customers, which will allow us to maintain our organic growth momentum. I'm expecting the actions we are taking combined with PPG's portfolio strengths to offset geopolitical driven impacts.

To date, we have had limited impact from supply shortages and we have the ability to leverage our unique broad and global supply chain footprint to securely source raw materials and drive competitive pricing for those raw materials.

Additionally, we are leveraging our years of expertise in product formulation technology and our ability to maximize the use of AI to optimize products to drive reductions in our raw material costs.

Considering our procurement capabilities, our global footprint, our formula flexibility, our portfolio strengths and the current macro environment, the impact of PPG is expected to be a mid single digit percentage and the cost of goods sold for the remainder of the year.

We expect to fully offset these costs and we are proactively raising prices to secure raw materials for our customers. Given the distribution models and price mechanisms we have in place, we expected to deliver price cost realization much more rapidly than we did in previous inflation cycles. This realization will impact our global architectural coatings, performance coating segments first, and then flow through our industrial coating segment.

Importantly, there are areas where we anticipate potential upside to the second half of 2026, such as our growing aerospace business and our architectural coatings Mexico business where demand has been strong. Additionally, industry demand and automotive refinish has been recovering faster than we initially expected. As a result, we are reaffirming our full year, 2026 EPS guidance range of $7.70 to $8.10.

Again, let me reemphasize our top priority is supporting our customers needs through technical expertise, products with consistent quality and continuity of supply, even as market conditions remain highly dynamic.

Now, let me talk about our balance sheet and cash. Our strong balance sheet continues to provide financial flexibility. We ended the quarter with cash and short-term investments of about $1.6 billion. We repaid 700 millions of debt that matured in the first quarter and returned approximately 260 million to shareholders for dividends and share repurchases. Our cash deployment remains focused on maximizing shareholder value creation.

Looking ahead, our accelerating organic growth momentum and proactive pricing actions positioned us well for the year. For the second quarter of 2026, we expect strong growth in aerospace, architectural coatings in Latin America, protective and marine coatings, automotive OEM coatings, and packaging coatings. While demanding architectural coatings Europe, automotive refinish coatings and in global industrial and used markets will remain below prior year.

We expect overall pricing for the company to be positive, with the strength from our performance and architectural coating segments and flat year over year price in the industrial coating segments, with all three segments having improved pricing versus the first quarter. This will result in organic sales growth for the second quarter in the range of flat to positive low single digits versus the prior year.

Given our ability to outperform the macro through our commercial momentum, combined with our pricing realization and self-help actions, we expect to deliver adjusted earnings for shared growth in the range of flat to a positive low single digit percentage for the second quarter versus the prior year period.

We are confident in our strategy and the strength of our portfolio that are delivering higher growth and earnings, despite challenging market conditions. Thank you to our PPG team around the world who make it happen and deliver on our purpose every day. We appreciate your continued confidence and PPG.

Now, before we open the line for questions, I would like to congratulate Vince on his upcoming retirement on this, his final PPG earnings call. Thank you, Vince, for more than 40 years with PPG. Thank you for being a great contributor to our company, a driver of results, a driver of shareholder value, a great mentor to many talents, a great teammate to our operating committee, a great partner to the last three CEOs and a great friend to me.

Thank you, Vince. As PPG makes the CFO transition, we are delighted to welcome Jamie Banks as our new Chief Financial Officer. With her extensive background and financial leadership, Jamie brings a wealth of experience that will be instrumental in driving our continued growth and success. Please join us in extending a warm welcome to Jamie as we work together to achieve new milestones and create lasting value for our stakeholders.

We are thrilled that Jamie is joining our team. Now, operator, please open the line for questions.

Thank you. Yeah, thanks, John. Look, the difference, the difference this cycle from a volume standpoint is, as you know, well, for the last three years, we've been building our organic growth muscle, right? So we have tremendous muscle or tremendous momentum from an organic growth standpoint that will help as we move forward with price increases. And if you compare it a couple of cycles, you know, the pre COVID cycle of 2017, 18 took us about a year and a half to get to run rate neutrality.

The 2021 cycle, which was the, you know, the post COVID combined with the Texas freeze took us about a year. Now, and now we're talking months. So it's a combination of two things gone. So number one, we've always had a good pricing muscle. And with each cycle, we refine that. We learn. We get better. We get faster. Now, from a volume standpoint, we're combining it with the positive momentum on the organic growth muscle that we've been building and demonstrating results through these last five quarters or so. So, you know, we're confident that we're going to be able to strike the right balance between pricing and growth.

You know, in everything, unfortunately, you kind of have the timestamp right now because it's just so fluid out there, right? But based on today's environment, we feel good about the second half volume. A couple of things. First of all, aerospace beat our own expectations in Q one. And we continue to see improving output there. And as you know, we're essentially sold out. So every, every incremental output that we get is your incremental volume for us.

Second, and this is a significant one for us. You know, we had said all along that refinish with a positive volume in the second half is recovering a little earlier than we expected. Improving US distributor or fulfillment orders. Then on top of that, we've got, we've got the industrial segment share wins that we will continue to launch as we move through the year.

You know, and finally, Mexico, you know, is really recovered nicely for us. Retail is doing great. And with each passing quarter projects get projects get a little better. And some of our other businesses, you know, packaging is doing great up double digits PMC is doing, you know, is doing well and has been doing well for a couple of quarters. We've got a good order book there. We have not seen any order book changes with the with the Iran conflict. Obviously, we've seen change in feed stock pricing.

But when it comes to volume and order books based on today's current environment, we have not seen any negativity in our order books.

Yeah, Mike, this has been just just appeal the onion back a little on the refinish comments, just as a reminder for everybody in the base load. We had very strong refinish activity in the first half of 25 distributors stopped up inventory. We were well above market. The second half the patterns hurt us. So we have much easier comps. So we still expect muted volumes in refinish for the year. But the comparisons are why Tim said we expect we're over here in a second.

And with the dynamic pricing that's going on out there, are there gaps opening up between competitor pricing or is it relatively orderly and competition is generally moving up together?

John, thanks for your support of Mr. Bruno. It's really hard for me to say what our smaller competitors are seeing. But what I will say is we are getting more favorable deals and contracts and agreements because of our volume. So even though prices are going up and we're projecting basically net single digits here based on today's knowledge.

And that's on the back of our volume, our global footprint and our ability to get the best deals in the market because of our scale. So I would imagine that our smaller competitors are likely likely seeing higher prices than what we're seeing on the input costs.

Yeah, thanks, Chris, and thanks for your support here recently with the passing of John as well. First of all, I'm confident that we'll have positive volume in the second half. I'm confident that our net EBITDA margin will improve in the second half. And that's because of a number of things. Number one aerospace will continue to grow the margin contributor. The, you know, refinished recovery that we've already talked about a big impact on our, on our net, net margin.

You know, Mexico continuing to grow. That's a good contributor to our net margin. So from a mixed standpoint, it's really all good news for us. Right. And then from, from, from kind of a top line and gross margin impacts standpoint, it's all those three things added together plus the launch of our industrial segment, share gains as we progress through the, and these are ones that are already already locked in. So we've got a favorable mix.

We've got pricing actions underway. Yes, Ross will be higher energy costs will be higher and logistics costs will be higher, but we feel good about the playbook and the actions that are in place to drive not only the price cost side of the offsets, but also these other really PPG portfolio differentiators that will drive.

Elevated, elevated mix and volume as we move through the second half.

And then baked into our guidance, Chris, if you recall, we, we still have cost actions were taken. We, we have several plans coming out in Europe in the second half of the year. And so that'll help from a cost structure perspective.

Yeah, so thanks, David. Thanks for your support. So we even, we announced, I announced to the world price increases up to 20%. And that's because I had to notify our customers around the world that there are some products that will have to go up that much, right? It will be, you know, we'll have the actual realization will be spread out, depending on customer size, depending on what products they actually buy, depending on the actual cost impact of those products.

So in order to offset the mid single digit cost of goods sold increase that we're expecting for the remainder of the year. We need, we need to realize low single digits to offset that as a total company. And then, you know, we're ready if, if the situation gets worse, if we have to flex more, moving through the year, we will, yeah, we'll do more and we'll drift our price up to mid single digits. But right now, based on, based on today's operating environment, net net, we need to get solid low single digits to offset mid single digit cogs inflation.

Now, what happens if and when it comes down the other side, you know, just like there's a lag going up, there'll be a lag coming down. And also what's yet to be determined, Dave is, you know, what's the impact of the structural damage to petro chem facilities in the region that may stretch out, you know, when power went back down.

And just a reminder to everybody in the prior cycles, in almost every business, we went out for more than one price increase as the situation is developed. So, so again, this is not uncommon that we price for what we know today. And then we adjust as necessary.

Thank you Frank. You look at our cash from ops. We were up about $50 million. First prior year, we did have elevated capital spending lower than the prior year, which was our target. So again, our cash forecasts do not do not change versus what we gave in January. We're expecting a good strong cash here. You can talk about the priorities.

Yeah, yeah, look. You know, first of all, we were thinking about a dart board rather than a plaque here. You know, we expect a good proxy walking around number four is for cash flow to be up 10% of our sales. Right. And then the prioritization of that, of course, of course, we got a, we got a dividend that not everybody has.

We'll keep that going. We've got some really good organic investments. Like, like what we're doing in aerospace, for example.

You know, we've been looking at M&A. It's not our number one priority. It's not the tip of this fear for us, but we, you know, we will do deals when they make sense for our shareholders. You know, in my three and a half years, we've done two small bolt on. So we'll use that if and when the right asset comes along at the right price. But beyond that, I think we're now at 10 straight quarters of doing repo. And you should expect me and my events in my new CFO to follow that same pattern.

Yeah. Jeff, we might have lost you at the tail end of your questions, but I think I got all three parts of them. So.

We lost you at the end. But would it, would it, would it, you know, go ahead, please?

Okay. Thank you, Jeff. I'm going to take the two and I'll let it take the currency one on auto. I mean, look, we all know it's, it's, it's the, you know, the toughest of our businesses to get, to get pricing, but we get pricing. If you look at the last cycle, we got pricing coming out of COVID and, and on the Texas freeze.

One thing that helps with this situation, actually, Jeff, is it's such an acute and well-known event and driver to, to inflation and a petrochem feet stocks that, you know, you start from a stronger point of not having to demonstrate and explain in advance. Now, that said, we, as you know, we also have some index contracts that will, will automatically move, but will automatically move with some time lag. So in our, in our guide, in our, you know, normalization by cute, run rate normalization by the beginning of 27, you want to 27, we've got all of that factor in. Okay. Now, Arrow, absolutely, you will see increases in output volume and therefore revenue for our aerospace business going forward.

I would put it in, in a couple of different buckets. One, we're continuously improving output with some of these incremental debodel necking kinds of investments that we've been making. Round numbers over the last year. So we've, we've put about 150 million into those kind of investments and they're paying off as we, as we go. You'll see some improvement in late 26 into 27 coming out of those investments.

Second, we announced a new plan to the two to about 380 million that will be more of a step change in volume output as we get out into like the 28 timeframe. The third category, Jeff, is we got a lot of engineering work happening right now. We're not done with, with investments and I can't get ahead of my board or anything, but we're still working on. Additional investment. So you should going forward, expect to see, you know, a nice increase in our, in our aerospace revenue.

Vince, you want to take the currency? Yeah, Jeff, the currency impact for Q one, it was less than 10 cents. We are positive. That was included in our guide for the year and for the quarter. If you look at the balance of the year, the remaining three quarters, the total is going to be less than half of that.

And most of that in Q two. So again, I'll include it in our, in our original guide back in January.

Yeah, thanks Kevin. So Ozark, you know, I would call that an opportunistic asset. Highly synergistic for us with double underline under highly. You know, we paid, we got a good price relative to what it was sold for a number a few years, just a few years ago.

You know, walking around number Kevin about a hundred million in revenue. So it's a small bolt on, but what it does because of the highly synergistic nature of it is it actually helps our margin position and cash generation position for that small business force of traffic. So it raises its margin profile a little bit, but the reason we have that in our portfolios, it's a really consistent cash generator for us that we can use to then deploy that cash on things like new aerospace plants. And it's steady because it's safety and infrastructure. It's very, very, very stable. And so it kind of spits off cash for us year over year. And now with Ozark, it'll deliver financial, great financial returns for us in our shareholders because of the high synergies and the relatively low, low purchase price.

Now, more broadly, I am very pleased with how the teams have grown that organic growth muscle. And, you know, Kevin, I remember some of our conversations four or five years ago. And so we're, you know, we're not done, so we're pleased with five straight quarters of organic growth. And by the way, outperforming market over those five quarters. So I think we've always had a license. We've always had a strong enough balance sheet to do whatever M&A we want. But the way I think about it is first of all, it's got to be the right asset.

I'm not interested in just buying something so that I can put another flag somewhere or buying something purely for the sake of raw material synergies. I want to buy something that adds to our future organic growth and margin profile.

Second, it's got to be the right time. The last few years has not been the right time as we've been first of all exiting some things in our portfolio and tripling down on organic growth. I think we can handle some deals now, but it still has to be at the right price because I've got some pretty darn good organic investment opportunities that have great financial returns. And so I'm really, you know, to use your word discipline, we will continue to be disciplined.

But I do think we have the right license to do selective M&A. And you've seen us with two small bolt-ons this year. We actually did a, you know, kind of a productivity outside the can, allied products acquisition earlier in the year to help industrial refinished type lines. So it's still not the tip of this beer for us. We will still be extremely disciplined. We will look at every asset that comes available, but it's got to meet the right asset, the right time, and the right price.

We don't, as far as the go forward, right? The go forward. It's not it's not going to be a high volume growth industry, but it's still a good revenue growth and even that growth machine for us because of our ability to capture value for the total value that we deliver. Because of the work we've been doing to expand our team, right, we're selling more into the body shops now than we ever did beyond just the coatings.

Right. So when you think about digital tools, moonwalks, allied products, we just have a bigger target team that's enabling us us to grow. And then we've had a really good run of share gains there. And so it's the market normalizes. This will be it'll never be our highest growth business, but this will be a nice low single digits growth business for us with really good margin and really good cash. Out of the first part of your question, you know, we have not had to do massive restructuring with this decreased volume. So what you should expect instead is as things normalized in the second half, you should expect outstanding leverage because you've seen some of that negative leverage in a second half of last year, right?

So you should expect a really nice snapback in larger leverage. Now to find snapback, though, that's really a bottom line snapback. What we would reach this industry, we expect to return to normal over the last x number of years and normal being a minus one minus two industry volume will do better than that because of our expanded TAM and then a really nice even done machine for us.

Thanks James. I'll give you the spoiler alert answer first and I'll give you a little more details. We see no impact of the potential slowdown in flight miles in some parts of the world in 2026. And now here's why. First of all, the business is balanced roughly 50% OEM 50% aftermarket. And then it's balanced across commercial aviation, general aviation and military.

So kind of one of those sub segments may be affected from a flight miles standpoint, but it's one of many sub segments. And then even that sub segment has learned a very hard lesson coming out of COVID. What the commercial customers did is they radically depleted their inventories of aftermarket products, including a lot of what we sell.

And because of the strength across the breadth of this industry, that has never been able to be rebuilt. And I still get phone calls like literally weekly about restocking and our ability to keep aftermarket parts and components in stock and rebuilt. So what you should expect if that does happen, I think we would be rebuilding aftermarket inventory for some time period while the all the other segments that I mentioned remain remain red hot.

And I think if anything, it could be an improved mix for us because typically your aftermarket mix is a little richer than your OEM mix. So I watch news like everybody does. I see the impacts and I see my customer CEOs talking about this on the news, but we see really no impact here because don't forget. Because of what's going on in the world here and the NATO rebuilding their own defenses, the military side of the business growing tremendously on both OE and aftermarket as well.

Thank you.

So just by the laws of big denominators, we did expect that to come down somewhat, but we're very pleased that Q one we still put up high single digit high single digit growth of a much bigger denominator. I'd say in the short term, the real strength is is Asia and has been Asia and both both marine new build and marine aftermarket have been stronger, but we there's a lot of protective coatings work on around the world. There's a lot of data center work going on around the world. We just launched and announced the comprehensive end to end offering for data centers. There's a lot of infrastructure work going on. So, you know, we see that business continuing to be a growth engine for us for the rest of 26.

And frankly, frankly, beyond because it's got some strengths and some segments that are relatively unaffected by some of the macro issues that are affecting other places.

I think it's a function of the index contracts, but can you just help us understand why the margin contraction was so great and how to think about it through the balance of the year? Thank you. So Vincent, you could answer the question for me because you nailed it, right?

So let me just give a little more color to it. See the biggest impact was China auto. As predicted, it was going to be down and it was down well into the double digits as far as China auto builds for the quarter. And that we are we outperformed that a bit because of some of our wins, but it's still down significantly. That is, that's a really good operating margin business for us.

Because if you think about it, one out of every three cars in the world is built in China. So the scale and the leverage is stronger on the upside when things are being produced in China, but the negative also happens. So that was that was the biggest. The second was, you know, even though we're all we're talking constantly over these last two months about raw material increases, we were still rolling off some index contracts from the deflationary cycle mostly in our automotive and our packaging businesses, which are both in industrial segment. We should be wrapping up the roll off of those in Q2.

We've got a few more that have to roll off, but that's really been the drivers. Number one, automotive OEM builds in China and number two index contracts.

And just to add some more color on China auto builds. So last year's to mention very, very strong quarter for the industry for PPG this year, the reverse on the two year stack basis. We're almost flat in China. So again, we had the comp issue is really what we're dealing with your next question.

Yeah, Josh. We do, you know, we are using surcharges and some of our businesses more this time because freight costs are up. Whereas most of our contracts and even non contractual businesses, you know, we're typically talking about raw materials. But we've got, we've got two additional ones that don't get as much attention but are pretty significant to that MSD contributor. And that's, that's logistics cost because of diesel fuel and European energy costs because of what's going on. So I'd say in those two specific areas, we're using surcharges more than we typically have in beyond that. It's largely been our typical price increase, which we prefer there, there's, there's stick here.

And again, on the auto question, most of the auto contracts are designed around raw material inflation. Less so around, you know, freight and energy. But, you know, those are discussions that we should have with our customers first and we've started those discussions. So more more to come there, but most just most of the index contracts that we have in auto and packaging are pretty much limited to raw materials.

And I'll let you this in first. Okay, thanks. So there's no doubt that the China automotive OEM industry has gone through an absolutely radical transformation in the last couple of years with the Western JVs dramatically shrinking and the China domestic dramatically increasing. And there's also no question that those Chinese domestics have worked hard to get Chinese supplier content on the vehicles. But I would say thus far that has all been on is called hard parts, rigid parts, widgets that the Chinese companies can produce when it comes to to automotive coatings in China. There's already more competition the rest of the world because you've got the traditional three plus you've got two Japanese players and one Korean player.

But, you know, the finished film on a vehicle, it's very hard to duplicate, very hard to reverse engineer all the way back to resin formulation, which is really the backbone of automotive OEM coatings. And so that gives automotive OEM coating some protection. I don't know what my peers do, but I know we produce the secret sauce outside of China and ship it into China. So the coatings by nature of your buying kind of mixed chemicals and the end product is a finished film on the vehicles, which because of the transformation that happens in the application and current process is different. Then the mixed chemicals, it does give a nice buffer of protection for automotive OEM coatings versus other automotive parts.

Thanks, Rhonda. I'd say two comments on that. Of course, you know, our suppliers are seeing that energy impact, you know, most mostly in Europe. And we've got that built into that blue box of mid single digits overall cost of good sales inflation. And then the second piece of energy is logistics cost and we've got that building there as well. And so we have all of that everything that's, you know, you got a timestamp that based on our best estimates of today's operating environment. But we've got that all built in. We're absolutely seeing what you described, but we've got that all built into our guide.

Yeah, Laurent, as you're fully aware, most large coding companies do not pay anything close to spot, especially when you have commodity inflation spikes. So we're contracted and we're negotiated with most of our raw material supply, not only for the quarter, but for the full year. And one final comment I'll make really, Laurent, on your question and even more broadly on the whole raw material and total inflation.

One big difference between this cycle and the cycle coming out of COVID, which was a combination of post COVID recovery and the deep Texas freeze.

At that time, you'll recall that coatings industry volumes were very high. A lot of coatings companies could not keep up with customer demand. So that is a significant difference when it comes to what does a coatings company see, particularly a large coatings company see versus what is being seen upstream. Supply demand economics still matter. And that's a big differentiator between this cycle and the last cycle.

So you have four plants. Here's a good walking around number for you. You'll see this savings in 2000 and 27. But a good walking around number is about a $25 million reduction in our fixed cost base from the closure of those four plants and that'll go on in perpetuity for us. Now, in total, you'll see you'll see about a $50 million structural restructuring benefits for our company this year. You'll see another 50 next year with 25 of that 50 being tied to these four plants.

Now, that's not the only, you know, kind of fixed cost reduction initiative. We've got some restructuring, some some back office people cost being reduced. We've got a lot of formula optimization costs going over there as well. So the value to this business when markets are even flat.

This business delivers really good earnings and really good cash to us. That's the value in the portfolio. We have over the last couple of months seen a little better volume. We had a we had a good March in architectural Europe. So as you think about this market getting the flat volume and the mission of this business in our portfolio is the spit off good earnings and good cash so that I can deploy that in some of our higher growth, higher technology businesses. And, you know, every we're constantly evaluating the each of our businesses mission and how they're performing to that mission in our portfolio.

But that's how we're viewing viewing it today. And, you know, we've got, you know, we're not waiting. We're not sitting around hoping and waiting for a European recovery. We're building a business that can perform well at flat volume.

I would now like to turn the call back over to Alex for closing remarks. Thank you, Tracy. We appreciate your interest and confidence in PPE. This concludes our first quarter earnings call.