10.26.18
Axalta Coating Systems Ltd. announced its financial results for the third quarter ended Sept. 30, 2018.
Third Quarter 2018 Consolidated Financial Results
Third quarter net sales of $1,139.3 million increased 4.4% year-over-year including 2.5% negative foreign currency impacts. Constant currency net sales increased 6.9% in the period, driven by volume growth of 4% including 0.4% acquisition contribution and 2.9% higher average selling prices. Third quarter net sales growth was positive in nearly all regions, including higher average prices in all regions except Asia Pacific, which saw ongoing lower average prices resulting from Light Vehicle in China.
Net loss attributable to Axalta was $13.1 million for the third quarter compared to net income of $54.9 million in Q3 2017. The decrease was primarily driven by the announced closure of the Mechelen, Belgium manufacturing facility and the associated accounting impacts coupled with ongoing Axalta Way productivity initiatives approved in Q3 2018. Third quarter Adjusted net income attributable to Axalta of $77.5 million increased 19.2% versus $65.0 million in Q3 2017.
Adjusted EBITDA of $234.7 million for the third quarter increased 12% versus $209.5 million in Q3 2017. This result was driven by strong contribution from volume growth and price and product mix benefits, which were partially offset by inflationary raw material costs and negative impacts from foreign currency as the U.S. dollar was relatively weaker compared to Q3 2017.
"Third quarter results were slightly above our expectations and previously provided guidance, and we are gratified by this result particularly given challenging elements of persistent input inflation, headwinds in certain emerging markets as well as renewed foreign exchange pressure," said Robert W. Bryant, Axalta's interim CEO. "As expected, we saw a clear return to growth in Refinish, including double-digit net sales growth in North America, which reflected fairly favorable year-over-year comparisons but also continued underlying share gains. We also witnessed strong pricing and product mix benefits in Performance Coatings overall from both end-markets. In Transportation Coatings, we saw volume growth in the quarter from our Light Vehicle end-market, including new product launches that started this year. While price and product mix does remain a headwind in Light Vehicle year to date, we continue to discuss with customers our need to cover the significant cost inflation we have absorbed this year and last. Our cost reduction efforts through our Axalta Way program are continuing and have been an important contributor to results so far in 2018 and helpful in offsetting cost inflation."
Performance Coatings Results
Performance Coatings third quarter net sales were $755 million, an increase of 8.9% year-over-year including a 2.2% negative currency impact. Constant currency net sales increased 11.1% in the period, driven by 10.5% organic sales growth with both price and volume contributing equally, while acquisitions contributed 0.6%. Refinish end-market net sales increased 11.5% to $440.7 million in Q3 2018 (increased 13.9% excluding foreign currency) with significantly positive pricing coupled with mid-single digit volume growth. Industrial end-market net sales increased 5.4% to $314.3 million (increased 7.2% excluding foreign currency), including positive pricing across all regions and modest overall organic volume growth, including strength in North America and ongoing growth in Asia Pacific, offset in part by weaker performance in EMEA and Latin America.
The Performance Coatings segment generated Adjusted EBITDA of $176.4 million in the third quarter, a year-over-year increase of 30.6%. Positive price and product mix, drop through the impact of volume growth, and small contributions from acquisitions were partially offset by higher raw material costs and modest translational impacts from foreign exchange headwinds. Third quarter segment Adjusted EBITDA margin of 23.4% was higher than 19.5% in the prior year as productivity and price capture continue to accelerate, offsetting previous raw material headwinds.
Transportation Coatings Results
Transportation Coatings net sales were $384.3 million in Q3 2018, a decrease of 3.5% year-over-year, including a 3.1% negative currency impact. Constant currency net sales decreased 0.4% in the period including a 1.5% volume increase, offset by 1.9% lower price and product mix effect.
Light Vehicle net sales decreased 3.4% to $299.2 million year-over-year (increased 0.1% excluding foreign currency), driven by moderately higher volumes, offset by lower average price and mix. Commercial Vehicle net sales decreased 4.0% to $85.1 million versus last year (decreased 2.2% excluding foreign currency), including lower volumes in EMEA and Asia Pacific and stable volume in North America and Latin America. Average price and product mix were largely flat.
Transportation Coatings generated Adjusted EBITDA of $58.3 million in Q3 2018, a decrease of 21.6% versus Q3 2017, driven by lower average price and product mix and higher raw material costs, offset partly by increased volume drop-through. Segment Adjusted EBITDA margin of 15.2% in Q3 2018 compared with 18.7% in Q3 2017.
Balance Sheet and Cash Flow Highlights
Axalta ended the quarter with cash and cash equivalents of $588.1 million. Its debt, net of cash, was $3.3 billion as of Sept. 30, 2018, which is consistent with net debt at June 30, 2018. Axalta repurchased 1.7 million shares of its common stock in the third quarter of 2018 for total consideration of $49.8 million. Share repurchases through the nine months ended Sept. 30, 2018, were 5.1 million for total consideration of $153.5 million.
Third quarter operating cash flow totaled $124.5 million versus $212.3 million in the corresponding quarter of 2017, reflecting weaker working capital results partially due to the timing of collections, raw material inflation impacts on inventory, and upfront investments with several customers in conjunction with attractive long-term contractual commitments. Free cash flow, calculated as operating cash flow fewer capital expenditures, totaled $89.6 million after capital expenditures of $34.9 million compared to $182.5 million after capital expenditures of $29.8 million in the third quarter of 2017.
"Axalta's third-quarter results met our expectations in terms of mid-single digit top line growth, solid double-digit Adjusted EBITDA growth, and strongly associated margins up 140 basis points," said Sean Lannon, Axalta's interim CFO. "While pleased with this performance and meeting expectations year-to-date, we face renewed headwinds from incremental foreign exchange translation effects, and we are monitoring higher oil prices and somewhat slower auto sales globally in key markets. We remain focused on achieving pricing offsets to the raw material and other inflation that remains a key source of cost pressure and also continue to execute on productivity measures to ensure competitiveness across all of our end-markets. Overall, including these factors, the balance of the year appears to fall moderately below the lower end of our previous guidance range, as reflected in our updated guidance."
2018 Guidance Update
Axalta is updating its previous outlook for the full year 2018 as follows:
Third Quarter 2018 Consolidated Financial Results
Third quarter net sales of $1,139.3 million increased 4.4% year-over-year including 2.5% negative foreign currency impacts. Constant currency net sales increased 6.9% in the period, driven by volume growth of 4% including 0.4% acquisition contribution and 2.9% higher average selling prices. Third quarter net sales growth was positive in nearly all regions, including higher average prices in all regions except Asia Pacific, which saw ongoing lower average prices resulting from Light Vehicle in China.
Net loss attributable to Axalta was $13.1 million for the third quarter compared to net income of $54.9 million in Q3 2017. The decrease was primarily driven by the announced closure of the Mechelen, Belgium manufacturing facility and the associated accounting impacts coupled with ongoing Axalta Way productivity initiatives approved in Q3 2018. Third quarter Adjusted net income attributable to Axalta of $77.5 million increased 19.2% versus $65.0 million in Q3 2017.
Adjusted EBITDA of $234.7 million for the third quarter increased 12% versus $209.5 million in Q3 2017. This result was driven by strong contribution from volume growth and price and product mix benefits, which were partially offset by inflationary raw material costs and negative impacts from foreign currency as the U.S. dollar was relatively weaker compared to Q3 2017.
"Third quarter results were slightly above our expectations and previously provided guidance, and we are gratified by this result particularly given challenging elements of persistent input inflation, headwinds in certain emerging markets as well as renewed foreign exchange pressure," said Robert W. Bryant, Axalta's interim CEO. "As expected, we saw a clear return to growth in Refinish, including double-digit net sales growth in North America, which reflected fairly favorable year-over-year comparisons but also continued underlying share gains. We also witnessed strong pricing and product mix benefits in Performance Coatings overall from both end-markets. In Transportation Coatings, we saw volume growth in the quarter from our Light Vehicle end-market, including new product launches that started this year. While price and product mix does remain a headwind in Light Vehicle year to date, we continue to discuss with customers our need to cover the significant cost inflation we have absorbed this year and last. Our cost reduction efforts through our Axalta Way program are continuing and have been an important contributor to results so far in 2018 and helpful in offsetting cost inflation."
Performance Coatings Results
Performance Coatings third quarter net sales were $755 million, an increase of 8.9% year-over-year including a 2.2% negative currency impact. Constant currency net sales increased 11.1% in the period, driven by 10.5% organic sales growth with both price and volume contributing equally, while acquisitions contributed 0.6%. Refinish end-market net sales increased 11.5% to $440.7 million in Q3 2018 (increased 13.9% excluding foreign currency) with significantly positive pricing coupled with mid-single digit volume growth. Industrial end-market net sales increased 5.4% to $314.3 million (increased 7.2% excluding foreign currency), including positive pricing across all regions and modest overall organic volume growth, including strength in North America and ongoing growth in Asia Pacific, offset in part by weaker performance in EMEA and Latin America.
The Performance Coatings segment generated Adjusted EBITDA of $176.4 million in the third quarter, a year-over-year increase of 30.6%. Positive price and product mix, drop through the impact of volume growth, and small contributions from acquisitions were partially offset by higher raw material costs and modest translational impacts from foreign exchange headwinds. Third quarter segment Adjusted EBITDA margin of 23.4% was higher than 19.5% in the prior year as productivity and price capture continue to accelerate, offsetting previous raw material headwinds.
Transportation Coatings Results
Transportation Coatings net sales were $384.3 million in Q3 2018, a decrease of 3.5% year-over-year, including a 3.1% negative currency impact. Constant currency net sales decreased 0.4% in the period including a 1.5% volume increase, offset by 1.9% lower price and product mix effect.
Light Vehicle net sales decreased 3.4% to $299.2 million year-over-year (increased 0.1% excluding foreign currency), driven by moderately higher volumes, offset by lower average price and mix. Commercial Vehicle net sales decreased 4.0% to $85.1 million versus last year (decreased 2.2% excluding foreign currency), including lower volumes in EMEA and Asia Pacific and stable volume in North America and Latin America. Average price and product mix were largely flat.
Transportation Coatings generated Adjusted EBITDA of $58.3 million in Q3 2018, a decrease of 21.6% versus Q3 2017, driven by lower average price and product mix and higher raw material costs, offset partly by increased volume drop-through. Segment Adjusted EBITDA margin of 15.2% in Q3 2018 compared with 18.7% in Q3 2017.
Balance Sheet and Cash Flow Highlights
Axalta ended the quarter with cash and cash equivalents of $588.1 million. Its debt, net of cash, was $3.3 billion as of Sept. 30, 2018, which is consistent with net debt at June 30, 2018. Axalta repurchased 1.7 million shares of its common stock in the third quarter of 2018 for total consideration of $49.8 million. Share repurchases through the nine months ended Sept. 30, 2018, were 5.1 million for total consideration of $153.5 million.
Third quarter operating cash flow totaled $124.5 million versus $212.3 million in the corresponding quarter of 2017, reflecting weaker working capital results partially due to the timing of collections, raw material inflation impacts on inventory, and upfront investments with several customers in conjunction with attractive long-term contractual commitments. Free cash flow, calculated as operating cash flow fewer capital expenditures, totaled $89.6 million after capital expenditures of $34.9 million compared to $182.5 million after capital expenditures of $29.8 million in the third quarter of 2017.
"Axalta's third-quarter results met our expectations in terms of mid-single digit top line growth, solid double-digit Adjusted EBITDA growth, and strongly associated margins up 140 basis points," said Sean Lannon, Axalta's interim CFO. "While pleased with this performance and meeting expectations year-to-date, we face renewed headwinds from incremental foreign exchange translation effects, and we are monitoring higher oil prices and somewhat slower auto sales globally in key markets. We remain focused on achieving pricing offsets to the raw material and other inflation that remains a key source of cost pressure and also continue to execute on productivity measures to ensure competitiveness across all of our end-markets. Overall, including these factors, the balance of the year appears to fall moderately below the lower end of our previous guidance range, as reflected in our updated guidance."
2018 Guidance Update
Axalta is updating its previous outlook for the full year 2018 as follows:
- Net sales growth of ~8% as-reported; ~7% ex-FX, including acquisition contribution of ~3%;
- Adjusted EBITDA of $935-950 million;
- Interest expense of ~$165 million;
- Income tax rate, as adjusted, of 18-20%;
- Free cash flow range of $330-350 million;
- Capital expenditures of ~$160 million;
- Depreciation and amortization of ~$370 million;
- Diluted shares outstanding of ~244 million
