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PPG Industries (PPG -3%) missed Q1 revenue estimates and painted a concerning near-term picture, projecting Q2 adjusted EPS below consensus, leading to sustained selling pressure today. While PPG did announce a $2.5 bln repurchase program, it was ultimately overshadowed by weak points in the quarter.

PPG reiterated its FY24 adjusted earnings target of $8.34-8.59 and its FY24 organic sales growth estimate of low-single digits. However, the underwhelming Q2 earnings outlook combined with in-line results in Q1 places considerable pressure on a much more robust second half of the year. CEO Timothy Knavish noted several reasons the company remains confident in reaching its FY24 earnings goal despite a challenging demand backdrop. Nevertheless, investors are not sharing that confidence today, fearing that the soft Q2 guide has made PPG's FY24 guidance flimsy.

• PPG's confidence in its FY24 outlook stems from several factors. For starters, PPG delivered its sixth straight quarter of yr/yr segment margin expansion, culminating in Q1 adjusted EPS of $1.86, a couple pennies above the midpoint of its $1.80-1.87 forecast. PPG's earnings performance was its second-best-ever, supported by moderating input costs and improving manufacturing activity, partly offset by lower sales volumes and higher wage costs.
• PPG believes volumes will turn positive in Q2, given the trend in Q1. While Q1 volumes did slide by 3% yr/yr, it was due to one-time impacts, such as lapping a significant customer win and enduring fewer selling days in March. When adjusting for these items, PPG's volumes were flat yr/yr, sustaining accelerating momentum from the previous five quarters. PPG is also entering the peak buying period due to the seasonality of the paint industry.
• Meanwhile, many of PPG's important markets are either performing well or improving. For example, in Q1, China (PPG's third largest country by sales) delivered double-digit organic sales growth yr/yr. Similarly, India also grew by double-digits. At the same time, in the U.S., PPG noticed ongoing demand improvements while the European market experienced stabilization.
• Additionally, divesting its architectural coatings business in the U.S. and Canada would likely lift margins. For instance, when excluding architectural coatings, PPG's Performance Coatings segment would have enhanced margins by an average of 200-300 bps over the past several years. PPG announced a strategic review of this business in February and noted during its Q1 conference call that it would communicate a path forward regarding this business no later than Q3.

Overall, PPG did not deliver very reassuring Q1 results or Q2 guidance despite management's confidence that the front half of the year will merely be a speed bump on its way to achieving its previously outlined FY24 guidance. However, investors are wary that the year's second half will not be strong enough to push PPG through its FY24 goalposts, especially given relatively tepid global industrial production. Lastly, PPG's results are a somewhat alarming sign ahead of peers' quarterly reports, such as Sherwin-Williams (SHW), Axalta Coating Systems (AXTA), and RPM Inc (RPM).