10.27.16
Axalta Coating Systems Ltd. has announced its financial results for the third quarter ended September 30, 2016.
“Third quarter results demonstrated strong top line and Adjusted EBITDA performance thanks to ongoing base business development, recent acquisitions, and strong operating profitability, against a continued challenging macroeconomic backdrop. We continued to make good progress towards both our full year and longer term objectives of achieving consistent growth as well as improved productivity,” said Charles W. Shaver, Axalta’s Chairman and Chief Executive Officer. “Our capital structure was also significantly improved this quarter with two successful debt refinancings and a subsequent prepayment in October. Rounding out the quarter, we closed our largest acquisition to date and launched several notable new products which are expected to contribute to our planned growth.”
Third Quarter Consolidated Financial Results
Net sales of $1,023.4 million for the third quarter of 2016 benefited from volume and pricing growth, offset in part by a 2.1% negative impact from foreign currency translation. Constant currency net sales increased 4.4% compared to the year-ago quarter, driven by 1.9% higher average selling prices. Acquisitions contributed 2.6 percentage points of growth in the quarter. The strongest regional contributors to net sales growth were Asia Pacific, North America and Latin America, which benefited from price adjustments to offset ongoing currency weakness.
We reported a net loss attributable to Axalta of $10.7 million for the third quarter of 2016 compared with net income attributable to Axalta of $35.1 million in Q3 2015. The net loss in Q3 2016 was primarily driven by an $81.9 million loss on the extinguishment of our indebtedness and refinancing charges coupled with severance charges. Adjusted net income attributable to Axalta of $77.5 million for the third quarter of 2016 increased from $64.2 million in Q3 2015.
Adjusted EBITDA of $233.2 million for the third quarter increased compared to $216.9 million in Q3 2015. This result benefitted from strong volume and acquisition growth in Asia Pacific and EMEA, pricing contributions and lower variable costs as well as savings from our operating enhancement initiatives. These factors were somewhat offset by negative foreign currency translation and operational expenditures to support planned growth.
Performance Coatings Results
Performance Coatings net sales were $619.3 million in Q3 2016, an increase of 3.1% year-over-year including a 2.7% unfavorable foreign currency translation impact. Constant currency net sales increased 5.8%, driven by a 2.9% increase in volumes and higher average selling prices of 2.9% in the period. Acquisitions added 3.4% to volume growth in the quarter. Refinish end-market net sales increased 1.8% to $434.5 million in Q3 2016 (increased 4.9% excluding foreign currency translation), while our Industrial end-market increased 6.4% to $184.8 million (increased 8.2% excluding foreign currency translation).
The Performance Coatings segment generated Adjusted EBITDA of $148.5 million in the third quarter, a 6.8% year-over-year increase. Positive pricing contributions, coupled with variable cost savings, were partially offset by negative foreign currency translation and incremental operating expense to support growth initiatives. Segment Adjusted EBITDA margin of 24.0% in Q3 2016 reflected a 90 basis point increase compared to the corresponding prior year quarter.
Transportation Coatings Results
The Transportation Coatings segment produced net sales of $404.1 million in the third quarter, an increase of 1.1% versus third quarter 2015, largely driven by volume and price increases partially offset by negative currency translation. Constant currency net sales increased by 2.3%, including a 1.8% increase in volume and a 0.5% positive contribution from price. Acquisitions added 1.3% to volume growth in the period. Unfavorable foreign currency translation impacted net sales by 1.2% in the quarter. Transportation Coatings Q3 2016 net sales included a rebound in Light Vehicle growth compared to Q3 2015, particularly in the Asia Pacific region, offset by ongoing weakness in Commercial Vehicle particularly in North and South America. Light Vehicle net sales increased 5.7% to $321.1 million year-over-year (increased 6.7% excluding foreign currency translation), driven principally by the improvement in Asia Pacific versus last year, slight growth in North America and modest declines in EMEA. Commercial Vehicle net sales decreased 13.5% to $83.0 million versus last year (decreased 11.9% excluding foreign currency translation), driven by a combination of continued slower heavy truck production and ongoing slower volumes from our other non-truck product customers.
The Transportation Coatings segment generated Adjusted EBITDA of $84.7 million in Q3 2016, an increase of 8.7% compared to the third quarter of 2015, with positive volume, price and variable cost contributions partially offset by unfavorable foreign currency translation and ongoing operating expense increases to support planned growth. Segment Adjusted EBITDA margin of 21.0% in Q3 2016 represented a 150 basis point increase from 19.5% in the prior year quarter.
Balance Sheet and Cash Flow Highlights
We ended the quarter with cash and cash equivalents of $528.3 million. Our debt, net of cash, was $2,954.0 million as of September 30, 2016, compared to $3,141.9 million as of September 30, 2015. During the quarter we completed two refinancing transactions totaling $500 million and €785 million with a weighted average coupon of 4.29%. The transactions reduced annual pre-tax cash interest by approximately $20.6 million, extended maturities from 2021 to 2024 and 2025, and replaced €450 million of secured debt with unsecured debt. We also extended the maturity of our Revolving Credit Facility from 2018 to 2021 and improved pricing and certain terms of the facility. Subsequent to quarter end, we continued our debt reduction efforts by prepaying $150 million of our USD term loan, which will generate additional annual pre-tax interest savings of $5.6 million.
Third quarter operating cash flow was $144.5 million versus $158.8 million in the corresponding quarter of 2015, reflecting slightly higher working capital use. Free cash flow, calculated as operating cash flow less capital expenditures, totaled $114.0 million based on capital expenditures of $30.5 million.
“We are very pleased that in the third quarter we were able to substantially lower our interest expense through the refinancings while also extending and improving other terms in our debt agreements. In addition, we also saw continued strong free cash flow in the quarter,” said Robert W. Bryant, Axalta’s Executive Vice President and Chief Financial Officer. “Axalta also opened its new European headquarters in Switzerland in July which was done to achieve key operational and financial benefits, while also yielding a more favorable after-tax profit for the balance of 2016 and beyond.”
2016 Guidance Update
We are updating our outlook for the full year 2016 as follows:
As previously announced, Axalta will hold a conference call to discuss its third quarter 2016 financial results on Thursday, October 27th, at 8:00 a.m. EDT. The U.S. dial-in phone number for the conference call is (877) 407-0784 and the international dial-in number is +1 (201) 689-8560. A live webcast of the conference call will also be available online at http://ir.axaltacs.com. For those unable to participate in the conference call, a replay will be available through November 3, 2016. The U.S. replay dial-in phone number is (844) 512-2921 and the international replay dial-in number is +1 (412) 317-6671. The replay passcode is 13648024.
“Third quarter results demonstrated strong top line and Adjusted EBITDA performance thanks to ongoing base business development, recent acquisitions, and strong operating profitability, against a continued challenging macroeconomic backdrop. We continued to make good progress towards both our full year and longer term objectives of achieving consistent growth as well as improved productivity,” said Charles W. Shaver, Axalta’s Chairman and Chief Executive Officer. “Our capital structure was also significantly improved this quarter with two successful debt refinancings and a subsequent prepayment in October. Rounding out the quarter, we closed our largest acquisition to date and launched several notable new products which are expected to contribute to our planned growth.”
Third Quarter Consolidated Financial Results
Net sales of $1,023.4 million for the third quarter of 2016 benefited from volume and pricing growth, offset in part by a 2.1% negative impact from foreign currency translation. Constant currency net sales increased 4.4% compared to the year-ago quarter, driven by 1.9% higher average selling prices. Acquisitions contributed 2.6 percentage points of growth in the quarter. The strongest regional contributors to net sales growth were Asia Pacific, North America and Latin America, which benefited from price adjustments to offset ongoing currency weakness.
We reported a net loss attributable to Axalta of $10.7 million for the third quarter of 2016 compared with net income attributable to Axalta of $35.1 million in Q3 2015. The net loss in Q3 2016 was primarily driven by an $81.9 million loss on the extinguishment of our indebtedness and refinancing charges coupled with severance charges. Adjusted net income attributable to Axalta of $77.5 million for the third quarter of 2016 increased from $64.2 million in Q3 2015.
Adjusted EBITDA of $233.2 million for the third quarter increased compared to $216.9 million in Q3 2015. This result benefitted from strong volume and acquisition growth in Asia Pacific and EMEA, pricing contributions and lower variable costs as well as savings from our operating enhancement initiatives. These factors were somewhat offset by negative foreign currency translation and operational expenditures to support planned growth.
Performance Coatings Results
Performance Coatings net sales were $619.3 million in Q3 2016, an increase of 3.1% year-over-year including a 2.7% unfavorable foreign currency translation impact. Constant currency net sales increased 5.8%, driven by a 2.9% increase in volumes and higher average selling prices of 2.9% in the period. Acquisitions added 3.4% to volume growth in the quarter. Refinish end-market net sales increased 1.8% to $434.5 million in Q3 2016 (increased 4.9% excluding foreign currency translation), while our Industrial end-market increased 6.4% to $184.8 million (increased 8.2% excluding foreign currency translation).
The Performance Coatings segment generated Adjusted EBITDA of $148.5 million in the third quarter, a 6.8% year-over-year increase. Positive pricing contributions, coupled with variable cost savings, were partially offset by negative foreign currency translation and incremental operating expense to support growth initiatives. Segment Adjusted EBITDA margin of 24.0% in Q3 2016 reflected a 90 basis point increase compared to the corresponding prior year quarter.
Transportation Coatings Results
The Transportation Coatings segment produced net sales of $404.1 million in the third quarter, an increase of 1.1% versus third quarter 2015, largely driven by volume and price increases partially offset by negative currency translation. Constant currency net sales increased by 2.3%, including a 1.8% increase in volume and a 0.5% positive contribution from price. Acquisitions added 1.3% to volume growth in the period. Unfavorable foreign currency translation impacted net sales by 1.2% in the quarter. Transportation Coatings Q3 2016 net sales included a rebound in Light Vehicle growth compared to Q3 2015, particularly in the Asia Pacific region, offset by ongoing weakness in Commercial Vehicle particularly in North and South America. Light Vehicle net sales increased 5.7% to $321.1 million year-over-year (increased 6.7% excluding foreign currency translation), driven principally by the improvement in Asia Pacific versus last year, slight growth in North America and modest declines in EMEA. Commercial Vehicle net sales decreased 13.5% to $83.0 million versus last year (decreased 11.9% excluding foreign currency translation), driven by a combination of continued slower heavy truck production and ongoing slower volumes from our other non-truck product customers.
The Transportation Coatings segment generated Adjusted EBITDA of $84.7 million in Q3 2016, an increase of 8.7% compared to the third quarter of 2015, with positive volume, price and variable cost contributions partially offset by unfavorable foreign currency translation and ongoing operating expense increases to support planned growth. Segment Adjusted EBITDA margin of 21.0% in Q3 2016 represented a 150 basis point increase from 19.5% in the prior year quarter.
Balance Sheet and Cash Flow Highlights
We ended the quarter with cash and cash equivalents of $528.3 million. Our debt, net of cash, was $2,954.0 million as of September 30, 2016, compared to $3,141.9 million as of September 30, 2015. During the quarter we completed two refinancing transactions totaling $500 million and €785 million with a weighted average coupon of 4.29%. The transactions reduced annual pre-tax cash interest by approximately $20.6 million, extended maturities from 2021 to 2024 and 2025, and replaced €450 million of secured debt with unsecured debt. We also extended the maturity of our Revolving Credit Facility from 2018 to 2021 and improved pricing and certain terms of the facility. Subsequent to quarter end, we continued our debt reduction efforts by prepaying $150 million of our USD term loan, which will generate additional annual pre-tax interest savings of $5.6 million.
Third quarter operating cash flow was $144.5 million versus $158.8 million in the corresponding quarter of 2015, reflecting slightly higher working capital use. Free cash flow, calculated as operating cash flow less capital expenditures, totaled $114.0 million based on capital expenditures of $30.5 million.
“We are very pleased that in the third quarter we were able to substantially lower our interest expense through the refinancings while also extending and improving other terms in our debt agreements. In addition, we also saw continued strong free cash flow in the quarter,” said Robert W. Bryant, Axalta’s Executive Vice President and Chief Financial Officer. “Axalta also opened its new European headquarters in Switzerland in July which was done to achieve key operational and financial benefits, while also yielding a more favorable after-tax profit for the balance of 2016 and beyond.”
2016 Guidance Update
We are updating our outlook for the full year 2016 as follows:
- Flat net sales; lower end of 4-6% guidance on a constant currency basis, including acquisition contribution
- Adjusted EBITDA at the lower end of our $900-940 million guidance range, including acquisition contribution
- Interest expense of about $180 million
- Income tax rate, as adjusted, of 24-26%
- Diluted shares of 242-245 million
- Working capital as a percentage of net sales of 11-13%
- Capital expenditures of ~$150 million
- Depreciation and amortization of ~$320 million
As previously announced, Axalta will hold a conference call to discuss its third quarter 2016 financial results on Thursday, October 27th, at 8:00 a.m. EDT. The U.S. dial-in phone number for the conference call is (877) 407-0784 and the international dial-in number is +1 (201) 689-8560. A live webcast of the conference call will also be available online at http://ir.axaltacs.com. For those unable to participate in the conference call, a replay will be available through November 3, 2016. The U.S. replay dial-in phone number is (844) 512-2921 and the international replay dial-in number is +1 (412) 317-6671. The replay passcode is 13648024.