Net income attributable to Axalta was $74.9 million for the second quarter compared with a net loss attributable to Axalta of $20.8 million in Q2 2017. The increase was primarily driven by the absence of the Venezuela deconsolidation and lower refinancing charges in 2018 versus 2017. Second quarter adjusted net income attributable to Axalta of $87.1 million increased 15.5 percent versus $75.4 million in Q2 2017.
Adjusted EBITDA of $247.6 million for the second quarter increased 9.0 percent versus $227.2 million in Q2 2017. This result was driven by contribution from positive price and product mix, acquisitions, modest benefit from foreign currency translation, and slightly lower net operating costs. These factors were partially offset by higher raw material costs against a challenging prior year comparison that was still fairly inflation neutral.
"Second quarter results demonstrated performance meeting Axalta's expectations, which came despite several one-time impacts including Light Vehicle production interruptions caused by non-paint supplier issues, a general strike in Brazil and costs associated with Axalta's footprint realignment in Europe," Chairman and CEO Charles W. Shaver said. "Importantly, results also provided evidence of continued price recapture in key areas of the business. The second quarter benefited from fundamental global demand stability underlying our end-markets. Still, moderating GDP forecasts and modest reductions in Light Vehicle build expectations in several regions could be more significant factors in the second half of 2018. Also, the ongoing impact of cost inflation persisted in the second quarter, and we are working actively to adjust for this with structural cost reduction, as well as working with our customers to enable price pass through, which is required to support ongoing customer service and innovation."
Performance Coatings Results
Performance Coatings second quarter net sales were $784.5 million, an increase of 18.3 percent year-over-year driven by 6.2 percent organic sales growth, acquisition contribution of 9.2 percent and a 2.9 percent foreign currency benefit. Refinish end-market net sales increased 6.1 percent to $447.1 million in Q2 2018 (increased 3.4 percent excluding foreign currency) with significantly positive pricing offset by slightly lower volume, while Industrial end-market net sales increased 39.6 percent to $337.4 million (increased 36.3 percent excluding foreign currency) including acquisition contribution, positive pricing, and double-digit organic volume growth.
The Performance Coatings segment generated Adjusted EBITDA of $176.5 million in the second quarter, a year-over-year increase of 20.2 percent. Positive price and product mix, the contribution from acquisitions, and modest foreign currency benefits were offset partly by higher raw material costs and slightly higher expenses to support sales growth in Refinish. Second quarter segment Adjusted EBITDA margin of 22.5 percent was slightly higher than 22.1 percent in the prior year.
Transportation Coatings Results
Transportation Coatings net sales were $422.0 million in Q2 2018, a decrease of 0.8 percent year-over-year including a 1.6 percent foreign currency benefit and flat volume, offset by 2.6 percent lower price and product mix.
Light Vehicle net sales decreased 1.5 percent to $329.4 million year-over-year (decreased 3.1 percent excluding foreign currency), driven by lower average prices due to concessions made with select customers largely in 2017 and adverse product mix changes on flat volume. Commercial Vehicle net sales increased 1.4 percent to $92.6 million versus last year (increased 0.2 percent excluding foreign currency), driven by continued strong overall volumes in all regions except Europe and largely flat average price and product mix.
Transportation Coatings generated Adjusted EBITDA of $71.1 million in Q2 2018, a decrease of 11.6 percent versus Q2 2017, driven by impacts of higher raw material cost as well as lower average price and product mix, offset partly by lower operating costs. Segment Adjusted EBITDA margin of 16.8 percent in Q2 2018 compared with 18.9 percent in Q2 2017.
Balance Sheet and Cash Flow Highlights
Axalta ended the quarter with cash and cash equivalents of $551.1 million. Our debt, net of cash, was $3.3 billion as of June 30, 2018, compared to $3.4 billion at March 31, 2018. Axalta repurchased 3.3 million shares of its common stock in the second quarter of 2018 for total consideration of $100.5 million.
Second quarter operating cash flow totaled $142.0 million versus $98.8 million in the corresponding quarter of 2017, reflecting stronger operating results. Free cash flow, calculated as operating cash flow less capital expenditures, totaled $106.9 million after capital expenditures of $35.1 million compared to $73.7 million after capital expenditures of $25.1 million in the second quarter of 2017.
"Axalta's second quarter results were strong, witnessed in double-digit growth in net sales and high single-digit growth in Adjusted EBITDA year-over-year," said Robert W. Bryant, Axalta's Executive Vice President and Chief Financial Officer. "That said, we remain highly focused on a combination of passing through price increases as needed to offset substantial cost inflation across our businesses, while also executing ongoing productivity savings in order to enhance near-term corporate margin stability. Our initiatives thus far in 2018 are bearing fruit, but we are doubling down on certain cost measures needed to offset increased cost inflation pressures including raw materials, transportation, logistics, and packaging. Our updated guidance reflects somewhat reduced tailwinds from foreign exchange. Additionally, we note the potential impact within our existing guidance range from possibly higher overall cost inflation and modestly lower Light Vehicle build rates, as well as uncertain price recapture assumptions, in Transportation Coatings. We have also incorporated the effect of greater share repurchases undertaken versus prior periods."
2018 Guidance Update
Axalta is updating its previous outlook for the full year 2018 as follows:
- Net sales growth of 8-9 percent as-reported; 6-7 percent ex-FX, including acquisition contribution of three percent;
- Adjusted EBITDA range of $950-980 million;
- Interest expense of ~$165 million;
- Income tax rate, as adjusted, of 19-21 percent;
- Free cash flow range of $420-460 million;
- Capital expenditures of ~$160 million;
- Depreciation and amortization of ~$370 million;
- Diluted shares outstanding of ~244 million