Axalta Releases 4Q, Full Year 2023 Results

Axalta Coating Systems Ltd. announced its financial results for the fourth quarter and full year ended Dec. 31, 2023.

Fourth Quarter 2023 Highlights:
• Net sales increased 4.9% year-over-year to $1.3 billion.
• Net income increased $30 million year-over-year to $74 million and adjusted EBITDA increased $43 million year-over-year to $251 million.
• Adjusted EBITDA margin improved 250 basis points year-over-year.
• Cash provided by operating activities of $286 million and free cash flow of $254 million.
• Paid down $55 million of principal on term loan and refinanced 2025 senior notes extending maturity to 2031.
•  Net leverage ratio of 2.9x, lowest in company history at year-end.

Fourth Quarter 2023 Consolidated Financial Results

Fourth quarter 2023 net sales increased 4.9% year-over-year to $1.3 billion. The increase in net sales was driven by a 2.3% foreign exchange benefit, 1.7% improvement in volumes, and 0.9% price-mix growth.

Net income increased 68% year-over-year to $74 million versus $44 million in the prior-year period. The increase in net income was driven by significant earnings improvement in both segments. Net income benefited from pricing actions executed throughout the year, positive mix impacts and variable cost deflation, partially offset by higher productivity investments and higher variable labor expense.

Adjusted EBITDA improved to $251 million compared to $208 million in the fourth quarter of 2022. Adjusted EBITDA margin of 19.3% improved by 250 basis points compared to the prior-year period. Diluted earnings per share of $0.33 compared to $0.20 in the prior-year period, while adjusted diluted earnings per share improved by 13% to $0.43 compared to $0.38 in the same period last year in spite of a higher effective tax rate and interest expense.

Fourth quarter 2023 cash provided by operating activities was $286 million versus $246 million in the prior-year period with free cash flow totaling $254 million compared to $206 million in the same period last year. The year-over-year increases were driven primarily by working capital benefits.

Cash and cash equivalents at year end were $700 million and total liquidity was $1.2 billion. The net debt to trailing twelve month (LTM) Adjusted EBITDA ratio (total net leverage ratio) was 2.9x at quarter-end versus 3.8x as of Dec. 31, 2022. In the quarter, an additional $55 million of term loan principal was paid down, contributing to the $200 million of gross debt reduction for full year 2023.

Discussion of Segment Results

Performance Coatings fourth quarter 2023 net sales were $849 million, up 3.7% from the prior-year period driven by strong price-mix in both end-markets. Refinish volumes were up modestly year-over-year against a stable market environment. Industrial volumes were lower year-over-year as stable volumes in Europe were more than offset by soft macroeconomic conditions in North America, particularly in construction markets.

The Performance Coatings segment generated adjusted EBITDA of $192 million in the fourth quarter compared to $169 million in the prior-year period, with associated margins of 22.6% and 20.6%, respectively. The increases in segment adjusted EBITDA and adjusted EBITDA margin were driven by better price-mix and variable cost deflation, which more than offset higher labor expenses and lower Industrial volumes.

Mobility Coatings fourth quarter 2023 net sales were $449 million, up 7.3% from the prior-year period. Growth was driven predominantly by strong volumes with improvement in all regions. Price-mix was lower year-over-year from lower mix plus an unfavorable comparison given a one-time pricing benefit recorded in the prior-year period.

Light Vehicle volume growth exceeded global auto production, especially in China. North America Commercial Vehicle class 8 production was down 7% year-over-year.

The Mobility Coatings segment generated adjusted EBITDA of $59 million in the fourth quarter compared to $39 million in the prior-year period, with associated margins of 13.2% and 9.4%, respectively. The increases in segment adjusted EBITDA and adjusted EBITDA margin were driven by improved volumes and raw material deflation.

Fiscal Year 2023 Consolidated Financial Results

Full year 2023 net sales increased 6.1% year-over-year (5.6% excluding foreign currency translation) to $5.2 billion. Net income totaled $269 million versus $192 million in 2022. The increase in net income was driven by strong price-mix growth and variable cost deflation offset partially by higher labor expense, costs related to productivity investments plus increased interest and tax expenses.

Adjusted EBITDA improved to $951 million from $811 million in fiscal year 2022. Adjusted EBITDA margin of 18.4% improved by 180 basis points year-over-year with solid contributions from both segments. Diluted earnings per share of $1.21 compared to $0.86 in 2022, while adjusted diluted earnings per share for 2023 improved by 6% to $1.57 compared to $1.48.

Fiscal year 2023 cash provided by operating activities was $575 million versus $294 million in the prior year driven primarily by working capital benefits and improved earnings. Free cash flow totaled $447 million compared to $163 million in 2022, an increase of $284 million. On October 2, 2023, Axalta completed the acquisition of Andrè Koch AG and the results of the business are reported within Axalta's Performance Coatings segment.

“We finished the year out strong and intend to build on this momentum in 2024,” said Chris Villavarayan, Axalta’s CEO and president. “2023 was a transformative year. We took decisive action to fully offset lingering inflationary headwinds and as a result achieved record sales and adjusted EBITDA. We believe we are only just beginning to unlock the potential of this enterprise.”