05.01.18
Axalta Coating Systems Ltd. announced its financial results for the first quarter ended March 31, 2018.
First Quarter 2018 Consolidated Financial Results
First quarter net sales of $1,165.8 million increased 15.7 percent year-over-year, driven by volume growth of 8.6 percent primarily from acquisition contribution, 0.8 percent higher average selling prices and a 6.3 percent foreign currency benefit. First quarter net sales growth was positive in all regions and average prices increased in all regions except Asia Pacific.
Net income attributable to Axalta was $69.9 million for the first quarter compared with net income attributable to Axalta of $64.1 million in Q1 2017. First quarter adjusted net income attributable to Axalta of $65.4 million increased 3.6 percent versus $63.1 million in Q1 2017.
Adjusted EBITDA of $220.0 million for the first quarter increased 8.3 percent versus $203.1 million in Q1 2017. This result was driven by contribution from acquisitions, benefits from foreign currency translation, positive price and product mix, and slightly lower net operating costs. These factors were partially offset by higher raw material costs.
“We are pleased to report financial results for the first quarter that are solidly on plan with our full year objectives, including strong top and bottom line performance across both segments globally,” said Charles W. Shaver, Axalta’s chairman and CEO. “In spite of persistent raw material cost inflation, Axalta's execution on our initiatives including targeted cost reduction, focus on customer service and commitment to innovation remains firm, giving us confidence in our outlook for the remainder of 2018.”
Performance Coatings Results
Performance Coatings first quarter net sales were $728.7 million, an increase of 24.3 percent year-over-year driven by acquisition contribution of 14.4 percent and a 7.3 percent foreign currency benefit. Refinish end-market net sales increased 6.2 percent to $412.6 million in Q1 2018 (decreased 1.2 percent excluding foreign currency) with positive pricing offset by lower volume primarily due to seasonal timing differences from the prior year, while Industrial end-market net sales increased 59.8 percent to $316.1 million (increased 52.6 percent excluding foreign currency) including acquisition contribution, positive pricing and strong high single digit organic growth.
The Performance Coatings segment generated Adjusted EBITDA of $143.2 million in the first quarter, a year-over-year increase of 22.5 percent. Contribution from acquisitions, positive price and product mix, foreign currency benefits and reduced operating costs were offset in part by lower organic volume growth and higher raw material costs. First quarter segment Adjusted EBITDA margin of 19.7 percent was largely consistent with 19.9 percent in the prior year.
Transportation Coatings Results
Transportation Coatings net sales were $437.1 million in Q1 2018, an increase of 3.7 percent year-over-year including a five percent foreign currency benefit and volume growth of 1.3 percent offset by 2.6 percent lower price and product mix.
Light Vehicle net sales increased 2.8 percent to $349.5 million year-over-year (decreased 2.3 percent excluding foreign currency), driven by lower average prices reflecting price concessions made with select customers in 2017 and adverse mix changes, which offset slightly higher volume primarily in North America. Commercial Vehicle net sales increased 7.6 percent to $87.6 million versus last year (increased 2.9 percent excluding foreign currency), driven by strong volume growth in nearly all regions resulting from ongoing strength in truck and other vehicle demand.
Transportation Coatings generated Adjusted EBITDA of $76.8 million in Q1 2018, a decrease of 10.9 percent versus Q1 2017, driven by impacts of lower average price and product mix as well as higher raw material cost, offset partly by increased volume and a moderate foreign currency benefit. Segment Adjusted EBITDA margin of 17.6 percent in Q1 2018 compared with 20.5 percent in Q1 2017.
Balance Sheet and Cash Flow Highlights
Axalta ended the quarter with cash and cash equivalents of $600.4 million. The company’s debt, net of cash, was $3.4 billion as of March 31, 2018, compared to $3.1 billion at December 31, 2017. Cash use in the quarter included normal seasonal working capital outflows as well as $105.1 million of capital to fund acquisitions in the quarter including a payment for an incremental interest in a 2016 joint venture acquisition. Axalta made marginal open market purchases of its common stock in the first quarter of 2018 and has purchased $25 million worth of shares through April year-to-date.
First quarter operating cash flow was a use of $21 million versus a use of $4.7 million in the corresponding quarter of 2017, reflecting largely normal seasonal operating cash flows but including higher severance related costs and year-over-year differences in interest payment schedules. Free cash flow, calculated as operating cash flow less capital expenditures, totaled a use of $60.5 million after capital expenditures of $39.5 million compared to a use of $37 million in the first quarter of 2017.
During April 2018, Axalta amended the credit agreement governing its USD Term Loans (June 2024 maturity), which included repricing and upsizing to repay the existing Euro Term Loans (February 2023 maturity). Concurrent with the amendment, Axalta entered into cross currency swaps to convert $475 million of the USD Term Loans to Euro indebtedness at a fixed rate of 1.95 percent. The amendment and swap transactions are expected to reduce Axalta’s cash interest expense by approximately $10 million annually.
“We are pleased with Axalta's first quarter results, with execution on plan for our guided ranges and demand stable across the businesses,” said Robert W. Bryant, Axalta’s EVP and CFO. “Our focus for the remainder of the year continues to be on offsetting raw material inflation with price increases, by achieving ongoing productivity savings, and by executing our growth initiatives across our global markets. We remain committed to efficient capital allocation and shareholder value creation and are optimistic based on identified opportunities and current execution.”
2018 Guidance Update
Axalta is updating its previous outlook for the full year 2018 as follows:
First Quarter 2018 Consolidated Financial Results
First quarter net sales of $1,165.8 million increased 15.7 percent year-over-year, driven by volume growth of 8.6 percent primarily from acquisition contribution, 0.8 percent higher average selling prices and a 6.3 percent foreign currency benefit. First quarter net sales growth was positive in all regions and average prices increased in all regions except Asia Pacific.
Net income attributable to Axalta was $69.9 million for the first quarter compared with net income attributable to Axalta of $64.1 million in Q1 2017. First quarter adjusted net income attributable to Axalta of $65.4 million increased 3.6 percent versus $63.1 million in Q1 2017.
Adjusted EBITDA of $220.0 million for the first quarter increased 8.3 percent versus $203.1 million in Q1 2017. This result was driven by contribution from acquisitions, benefits from foreign currency translation, positive price and product mix, and slightly lower net operating costs. These factors were partially offset by higher raw material costs.
“We are pleased to report financial results for the first quarter that are solidly on plan with our full year objectives, including strong top and bottom line performance across both segments globally,” said Charles W. Shaver, Axalta’s chairman and CEO. “In spite of persistent raw material cost inflation, Axalta's execution on our initiatives including targeted cost reduction, focus on customer service and commitment to innovation remains firm, giving us confidence in our outlook for the remainder of 2018.”
Performance Coatings Results
Performance Coatings first quarter net sales were $728.7 million, an increase of 24.3 percent year-over-year driven by acquisition contribution of 14.4 percent and a 7.3 percent foreign currency benefit. Refinish end-market net sales increased 6.2 percent to $412.6 million in Q1 2018 (decreased 1.2 percent excluding foreign currency) with positive pricing offset by lower volume primarily due to seasonal timing differences from the prior year, while Industrial end-market net sales increased 59.8 percent to $316.1 million (increased 52.6 percent excluding foreign currency) including acquisition contribution, positive pricing and strong high single digit organic growth.
The Performance Coatings segment generated Adjusted EBITDA of $143.2 million in the first quarter, a year-over-year increase of 22.5 percent. Contribution from acquisitions, positive price and product mix, foreign currency benefits and reduced operating costs were offset in part by lower organic volume growth and higher raw material costs. First quarter segment Adjusted EBITDA margin of 19.7 percent was largely consistent with 19.9 percent in the prior year.
Transportation Coatings Results
Transportation Coatings net sales were $437.1 million in Q1 2018, an increase of 3.7 percent year-over-year including a five percent foreign currency benefit and volume growth of 1.3 percent offset by 2.6 percent lower price and product mix.
Light Vehicle net sales increased 2.8 percent to $349.5 million year-over-year (decreased 2.3 percent excluding foreign currency), driven by lower average prices reflecting price concessions made with select customers in 2017 and adverse mix changes, which offset slightly higher volume primarily in North America. Commercial Vehicle net sales increased 7.6 percent to $87.6 million versus last year (increased 2.9 percent excluding foreign currency), driven by strong volume growth in nearly all regions resulting from ongoing strength in truck and other vehicle demand.
Transportation Coatings generated Adjusted EBITDA of $76.8 million in Q1 2018, a decrease of 10.9 percent versus Q1 2017, driven by impacts of lower average price and product mix as well as higher raw material cost, offset partly by increased volume and a moderate foreign currency benefit. Segment Adjusted EBITDA margin of 17.6 percent in Q1 2018 compared with 20.5 percent in Q1 2017.
Balance Sheet and Cash Flow Highlights
Axalta ended the quarter with cash and cash equivalents of $600.4 million. The company’s debt, net of cash, was $3.4 billion as of March 31, 2018, compared to $3.1 billion at December 31, 2017. Cash use in the quarter included normal seasonal working capital outflows as well as $105.1 million of capital to fund acquisitions in the quarter including a payment for an incremental interest in a 2016 joint venture acquisition. Axalta made marginal open market purchases of its common stock in the first quarter of 2018 and has purchased $25 million worth of shares through April year-to-date.
First quarter operating cash flow was a use of $21 million versus a use of $4.7 million in the corresponding quarter of 2017, reflecting largely normal seasonal operating cash flows but including higher severance related costs and year-over-year differences in interest payment schedules. Free cash flow, calculated as operating cash flow less capital expenditures, totaled a use of $60.5 million after capital expenditures of $39.5 million compared to a use of $37 million in the first quarter of 2017.
During April 2018, Axalta amended the credit agreement governing its USD Term Loans (June 2024 maturity), which included repricing and upsizing to repay the existing Euro Term Loans (February 2023 maturity). Concurrent with the amendment, Axalta entered into cross currency swaps to convert $475 million of the USD Term Loans to Euro indebtedness at a fixed rate of 1.95 percent. The amendment and swap transactions are expected to reduce Axalta’s cash interest expense by approximately $10 million annually.
“We are pleased with Axalta's first quarter results, with execution on plan for our guided ranges and demand stable across the businesses,” said Robert W. Bryant, Axalta’s EVP and CFO. “Our focus for the remainder of the year continues to be on offsetting raw material inflation with price increases, by achieving ongoing productivity savings, and by executing our growth initiatives across our global markets. We remain committed to efficient capital allocation and shareholder value creation and are optimistic based on identified opportunities and current execution.”
2018 Guidance Update
Axalta is updating its previous outlook for the full year 2018 as follows:
- Net sales growth of 9-10 percent as-reported; 6-7 percent ex-FX, including acquisition contribution of three percent;
- Adjusted EBITDA of $950-980 million;
- Interest expense of ~165 million;
- Income tax rate, as adjusted, of 19-21 percent;
- Free cash flow of $420-460 million;
- Capital expenditures of ~$160 million;
- Depreciation and amortization of ~$370 million;
- Diluted shares outstanding of ~247 million
