02.09.17
Axalta Coating Systems Ltd. has announced its financial results for the fourth quarter and full year ended December 31, 2016.
“Axalta’s 2016 financial period ended on a strong note, with fourth quarter net sales and operating performance slightly exceeding the expectations set in October, driven by volume and favorable product mix. For the full year, we also met our key objectives in terms of financial and operating performance, despite a somewhat greater foreign currency headwind,” said Charles W. Shaver, Axalta’s Chairman and Chief Executive Officer. “We are proud of the progress we made this year, including achieving positive growth in a tough global economy, successfully executing on our M&A strategy, meeting our leverage target ahead of plan, and improving productivity through our Axalta Way initiatives. Key milestones were also met in new product technology introduction, refinancing our capital structure, and progressing our product globalization and commercial excellence objectives. We look forward to ongoing momentum in each of these areas in 2017.”
Fourth Quarter 2016 Consolidated Financial Results
Net sales of $1,029.4 million for the fourth quarter benefited from both volume and pricing growth, offset by a 3.0% negative impact from foreign currency translation. Constant currency net sales increased 5.6% compared to the year-ago quarter, driven by 2.2% higher average selling prices and 3.4% volume growth. Acquisitions contributed 3.1% of the volume growth in the quarter. Net sales growth in the quarter was led by Asia Pacific and North America, and Axalta posted positive overall volume growth in all regions except Latin America, which remains challenged in both segments.
We reported a net loss attributable to Axalta of $36.5 million for the fourth quarter of 2016 compared with net income attributable to Axalta of $38.6 million in Q4 2015. The net loss in Q4 2016 was primarily driven by severance charges related to planned productivity initiatives, the write-down of long-lived assets in Venezuela, and charges related to the refinancing of our Term Loans during Q4. Adjusted net income attributable to Axalta of $68.6 million for the fourth quarter of 2016 increased 18.3% compared to $58.0 million in Q4 2015.
Adjusted EBITDA of $226.5 million for the fourth quarter increased 6.4% compared to $212.8 million in Q4 2015. This result benefited from lower variable costs, acquisitions, improved average pricing as well as incremental 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 $608.8 million in Q4 2016, an increase of 3.4% year-over-year including a 4.3% unfavorable foreign currency translation impact. Constant currency net sales increased 7.7%, driven by a 2.5% increase in volumes and higher average selling prices of 5.2% in the period. Acquisitions added 4.3% to volume growth in the quarter. Refinish end-market net sales increased 0.1% to $422.4 million in Q4 2016 (increased 4.9% excluding foreign currency translation), while our Industrial end-market increased 11.8% to $186.4 million (increased 14.8% excluding foreign currency translation).
The Performance Coatings segment generated Adjusted EBITDA of $138.5 million in the fourth quarter, a 5.8% year-over-year increase. Contribution from acquisitions, positive pricing, coupled with variable cost savings, were partially offset by negative foreign currency translation and incremental operating expense to support growth initiatives. Fourth quarter segment Adjusted EBITDA margin of 22.7% reflected a 50 basis point increase compared to Q4 2015.
Transportation Coatings Results
Transportation Coatings net sales were $420.6 million in Q4 2016, an increase of 1.3% year-over-year including a 1.4% unfavorable foreign currency translation impact. Constant currency net sales increased 2.7% versus Q4 2015, driven largely by 4.7% volume growth, partially offset by a 2.0% negative price impact. Acquisitions added 1.5% to volume growth in the period.
Light Vehicle net sales increased 5.0% to $342.8 million year-over-year (increased 6.6% excluding foreign currency translation), driven principally by growth in Asia Pacific and North America versus last year, offset by modest decline in EMEA. Latin America saw the first positive revenue growth in several years, driven largely by Mexico with stable South America results versus prior periods. Commercial Vehicle net sales decreased 12.2% to $77.8 million versus last year (decreased 11.5% excluding foreign currency translation), driven by lower heavy truck production and ongoing slower volumes from other non-truck customers.
Transportation Coatings generated Adjusted EBITDA of $88.0 million in Q4 2016, an increase of 7.4% versus Q4 2015, with positive volume and variable cost contributions partially offset by somewhat lower average pricing, and ongoing operating expense increases to support planned growth. Segment Adjusted EBITDA margin of 20.9% in Q4 represented a 120 basis point increase from 19.7% in the prior year quarter.
Balance Sheet and Cash Flow Highlights
We ended the quarter with cash and cash equivalents of $535.4 million. Our debt, net of cash, was $2,728.5 million as of December 31, 2016, compared to $2,956.5 million at December 31, 2015. During the quarter we completed an amendment of our USD and Euro Term Loans which included a shift of the USD/Euro mix, repricing and extension of maturities. The amendment will reduce our interest payments by approximately $8 million annually. We also prepaid $150 million of our USD Term Loan in October for an additional annual interest savings of $5.6 million.
Fourth quarter operating cash flow was $228.0 million versus $237.1 million in the corresponding quarter of 2015, reflecting another strong seasonal operating result derived largely from strong operations and working capital performance. Free cash flow, calculated as operating cash flow less capital expenditures, totaled $187.1 million after capital expenditures of $40.9 million. For the full year 2016, free cash flow was $423.1 million, a significant increase from $271.7 million reported in 2015.
“We are very pleased that in the fourth quarter we were able to demonstrate strong operating and financial performance, including solid revenue growth as well as record Adjusted EBITDA margins. We also completed additional refinancing to further optimize our capital structure, and ended the year with very strong cash flow,” said Robert W. Bryant, Axalta’s Executive Vice President and Chief Financial Officer. “As we noted in December and affirm today, we continue to expect 2017 to show incremental progress across the organization, including ongoing above-market growth in net sales, modest incremental margin expansion, continued benefit from our acquisition strategy, and improvement in free cash flow and associated metrics.”
Adoption of New Share-based Compensation Expense Accounting Standard
During the three months ended December 31, 2016, Axalta early adopted ASU 2016-09, which addresses, among other items, the accounting for income taxes, calculations on diluted weighted average shares outstanding, and cash flow presentation relating to share-based compensation. The early adoption increased net income attributable to Axalta by $2.6 million and $13.4 million for both the three months and full year ended December 31, 2016, respectively. The impact of adoption increased Axalta's dilutive shares by 1.3 million shares and 1.7 million shares for the fourth quarter and year ended December 31, 2016, respectively. Axalta will provide more detailed information regarding the impact of the early adoption in its annual report on Form 10-K for the year ended December 31, 2016.
2017 Guidance Update
We are updating our outlook for the full year 2017 as follows:
• Net sales growth of 1-3% as-reported; 4-6% ex-FX, including acquisition contribution of 2-3%
• Adjusted EBITDA of $930-980 million
• Interest expense of ~$150 million
• Income tax rate, as adjusted, of 22-24%
• Free cash flow of $440-480 million
• Capital expenditures of ~$160 million
• Depreciation and amortization of ~$335 million
• Diluted shares outstanding of 246-249 million
Conference Call Information
As previously announced, Axalta will hold a conference call to discuss its fourth quarter and full year 2016 financial results on Wednesday, February 8th, 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://axalta.com/investorcall. For those unable to participate in the conference call, a replay will be available through February 11, 2017. 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 13654004.
“Axalta’s 2016 financial period ended on a strong note, with fourth quarter net sales and operating performance slightly exceeding the expectations set in October, driven by volume and favorable product mix. For the full year, we also met our key objectives in terms of financial and operating performance, despite a somewhat greater foreign currency headwind,” said Charles W. Shaver, Axalta’s Chairman and Chief Executive Officer. “We are proud of the progress we made this year, including achieving positive growth in a tough global economy, successfully executing on our M&A strategy, meeting our leverage target ahead of plan, and improving productivity through our Axalta Way initiatives. Key milestones were also met in new product technology introduction, refinancing our capital structure, and progressing our product globalization and commercial excellence objectives. We look forward to ongoing momentum in each of these areas in 2017.”
Fourth Quarter 2016 Consolidated Financial Results
Net sales of $1,029.4 million for the fourth quarter benefited from both volume and pricing growth, offset by a 3.0% negative impact from foreign currency translation. Constant currency net sales increased 5.6% compared to the year-ago quarter, driven by 2.2% higher average selling prices and 3.4% volume growth. Acquisitions contributed 3.1% of the volume growth in the quarter. Net sales growth in the quarter was led by Asia Pacific and North America, and Axalta posted positive overall volume growth in all regions except Latin America, which remains challenged in both segments.
We reported a net loss attributable to Axalta of $36.5 million for the fourth quarter of 2016 compared with net income attributable to Axalta of $38.6 million in Q4 2015. The net loss in Q4 2016 was primarily driven by severance charges related to planned productivity initiatives, the write-down of long-lived assets in Venezuela, and charges related to the refinancing of our Term Loans during Q4. Adjusted net income attributable to Axalta of $68.6 million for the fourth quarter of 2016 increased 18.3% compared to $58.0 million in Q4 2015.
Adjusted EBITDA of $226.5 million for the fourth quarter increased 6.4% compared to $212.8 million in Q4 2015. This result benefited from lower variable costs, acquisitions, improved average pricing as well as incremental 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 $608.8 million in Q4 2016, an increase of 3.4% year-over-year including a 4.3% unfavorable foreign currency translation impact. Constant currency net sales increased 7.7%, driven by a 2.5% increase in volumes and higher average selling prices of 5.2% in the period. Acquisitions added 4.3% to volume growth in the quarter. Refinish end-market net sales increased 0.1% to $422.4 million in Q4 2016 (increased 4.9% excluding foreign currency translation), while our Industrial end-market increased 11.8% to $186.4 million (increased 14.8% excluding foreign currency translation).
The Performance Coatings segment generated Adjusted EBITDA of $138.5 million in the fourth quarter, a 5.8% year-over-year increase. Contribution from acquisitions, positive pricing, coupled with variable cost savings, were partially offset by negative foreign currency translation and incremental operating expense to support growth initiatives. Fourth quarter segment Adjusted EBITDA margin of 22.7% reflected a 50 basis point increase compared to Q4 2015.
Transportation Coatings Results
Transportation Coatings net sales were $420.6 million in Q4 2016, an increase of 1.3% year-over-year including a 1.4% unfavorable foreign currency translation impact. Constant currency net sales increased 2.7% versus Q4 2015, driven largely by 4.7% volume growth, partially offset by a 2.0% negative price impact. Acquisitions added 1.5% to volume growth in the period.
Light Vehicle net sales increased 5.0% to $342.8 million year-over-year (increased 6.6% excluding foreign currency translation), driven principally by growth in Asia Pacific and North America versus last year, offset by modest decline in EMEA. Latin America saw the first positive revenue growth in several years, driven largely by Mexico with stable South America results versus prior periods. Commercial Vehicle net sales decreased 12.2% to $77.8 million versus last year (decreased 11.5% excluding foreign currency translation), driven by lower heavy truck production and ongoing slower volumes from other non-truck customers.
Transportation Coatings generated Adjusted EBITDA of $88.0 million in Q4 2016, an increase of 7.4% versus Q4 2015, with positive volume and variable cost contributions partially offset by somewhat lower average pricing, and ongoing operating expense increases to support planned growth. Segment Adjusted EBITDA margin of 20.9% in Q4 represented a 120 basis point increase from 19.7% in the prior year quarter.
Balance Sheet and Cash Flow Highlights
We ended the quarter with cash and cash equivalents of $535.4 million. Our debt, net of cash, was $2,728.5 million as of December 31, 2016, compared to $2,956.5 million at December 31, 2015. During the quarter we completed an amendment of our USD and Euro Term Loans which included a shift of the USD/Euro mix, repricing and extension of maturities. The amendment will reduce our interest payments by approximately $8 million annually. We also prepaid $150 million of our USD Term Loan in October for an additional annual interest savings of $5.6 million.
Fourth quarter operating cash flow was $228.0 million versus $237.1 million in the corresponding quarter of 2015, reflecting another strong seasonal operating result derived largely from strong operations and working capital performance. Free cash flow, calculated as operating cash flow less capital expenditures, totaled $187.1 million after capital expenditures of $40.9 million. For the full year 2016, free cash flow was $423.1 million, a significant increase from $271.7 million reported in 2015.
“We are very pleased that in the fourth quarter we were able to demonstrate strong operating and financial performance, including solid revenue growth as well as record Adjusted EBITDA margins. We also completed additional refinancing to further optimize our capital structure, and ended the year with very strong cash flow,” said Robert W. Bryant, Axalta’s Executive Vice President and Chief Financial Officer. “As we noted in December and affirm today, we continue to expect 2017 to show incremental progress across the organization, including ongoing above-market growth in net sales, modest incremental margin expansion, continued benefit from our acquisition strategy, and improvement in free cash flow and associated metrics.”
Adoption of New Share-based Compensation Expense Accounting Standard
During the three months ended December 31, 2016, Axalta early adopted ASU 2016-09, which addresses, among other items, the accounting for income taxes, calculations on diluted weighted average shares outstanding, and cash flow presentation relating to share-based compensation. The early adoption increased net income attributable to Axalta by $2.6 million and $13.4 million for both the three months and full year ended December 31, 2016, respectively. The impact of adoption increased Axalta's dilutive shares by 1.3 million shares and 1.7 million shares for the fourth quarter and year ended December 31, 2016, respectively. Axalta will provide more detailed information regarding the impact of the early adoption in its annual report on Form 10-K for the year ended December 31, 2016.
2017 Guidance Update
We are updating our outlook for the full year 2017 as follows:
• Net sales growth of 1-3% as-reported; 4-6% ex-FX, including acquisition contribution of 2-3%
• Adjusted EBITDA of $930-980 million
• Interest expense of ~$150 million
• Income tax rate, as adjusted, of 22-24%
• Free cash flow of $440-480 million
• Capital expenditures of ~$160 million
• Depreciation and amortization of ~$335 million
• Diluted shares outstanding of 246-249 million
Conference Call Information
As previously announced, Axalta will hold a conference call to discuss its fourth quarter and full year 2016 financial results on Wednesday, February 8th, 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://axalta.com/investorcall. For those unable to participate in the conference call, a replay will be available through February 11, 2017. 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 13654004.
