08.02.23
Axalta Coating Systems Ltd. announced its financial results for the second quarter ended June 30, 2023.
Second quarter net sales increased 4.8% year-over-year to $1,293.9 million, driven by 6.8% higher average price mix and a 1.6% benefit resulting from the absence of the commercial agreement restructuring charge incurred in Q2 2022. Volumes decreased by 3.7% as market demand in Mobility Coatings and Refinish were more than offset by temporary operational delays impacting Axalta’s ability to meet customer demand from an ERP implementation in North America.
Despite notable stabilization in June, warehouse management and slower shipping activities in the quarter resulted in an estimated negative 2%-3% year-over-year net sales impact and drove an elevated quarter-end sales backlog, most notably in Refinish.
Mobility Coatings net sales were $437.9 million in Q2 2023, an increase of 15.5% year-over-year. Volume growth of 12.8% was driven by improved Light Vehicle and Commercial Vehicle production rates as well as customer wins. Price-mix increased 2.7% with positive contributions from both end-markets.
Performance Coatings second quarter net sales were flat year-over-year at $856 million led by 8.5% better price-mix and a 2.4% benefit from the absence of the commercial agreement restructuring charge from Q2 2022. Volumes declined by 11.1% predominantly related to the sales impact of the ERP implementation and from a weaker Industrial market environment.
Income from operations for Q2 2023 totaled $137.6 million versus $103.6 million in Q2 2022. Adjusted EBIT improved to $154.5 million from $150.6 million in Q2 2022 as price-cost trends were positive across all end-markets given the combined benefit of strong year-over-year pricing and variable cost deflation. Income from operations in the quarter was impacted negatively by higher year-over-year compensation expense and approximately $15 million of costs associated with consulting spend and the ERP implementation.
“The quarter reflected strong underlying earnings and profitability improvement, particularly in Mobility Coatings where momentum is building,” said Chris Villavarayan, Axalta’s CEO and president. “I am particularly proud of how our teams rebounded from a broad and complex ERP implementation in May and delivered a solid quarter, including a sales performance for North America in June that was one of the strongest in our history. This launch was a crucial step towards achieving the margin improvement trajectory we want for Axalta.”
Axalta ended the second quarter with cash and cash equivalents of $517.6 million and total liquidity over $1 billion. Net debt to trailing twelve month adjusted EBITDA ratio (total net leverage ratio) was 3.6x at quarter-end versus 3.7x as of March 31, 2023 and the second quarter ended with an adjusted EBITDA to interest expense coverage ratio of 4.9x. Axalta voluntarily paid down an additional $75 million of principal on its term loan in the period, contributing to $150 million of combined structural debt pay downs over the past two quarters. Free cash flow totaled $99.0 million compared to a use of $13.5 million in Q2 2022.
“Our cash conversion this quarter was a great achievement and reflects the team’s focus to reverse elevated working capital balances from year-end,” said Sean Lannon, Axalta's CFO. “As a result of better earnings and cash generation, our total net leverage ratio continued to improve; we expect to end the year close to 3.0x based on the current fiscal year outlook. Debt reduction is expected to remain our highest priority use of cash given attractive returns in the current interest rate environment, with opportunistic bolt-on M&A possible in the second half. We are actively exploring additional opportunities to reduce interest expense given improvements in capital markets activities.”
Second quarter net sales increased 4.8% year-over-year to $1,293.9 million, driven by 6.8% higher average price mix and a 1.6% benefit resulting from the absence of the commercial agreement restructuring charge incurred in Q2 2022. Volumes decreased by 3.7% as market demand in Mobility Coatings and Refinish were more than offset by temporary operational delays impacting Axalta’s ability to meet customer demand from an ERP implementation in North America.
Despite notable stabilization in June, warehouse management and slower shipping activities in the quarter resulted in an estimated negative 2%-3% year-over-year net sales impact and drove an elevated quarter-end sales backlog, most notably in Refinish.
Mobility Coatings net sales were $437.9 million in Q2 2023, an increase of 15.5% year-over-year. Volume growth of 12.8% was driven by improved Light Vehicle and Commercial Vehicle production rates as well as customer wins. Price-mix increased 2.7% with positive contributions from both end-markets.
Performance Coatings second quarter net sales were flat year-over-year at $856 million led by 8.5% better price-mix and a 2.4% benefit from the absence of the commercial agreement restructuring charge from Q2 2022. Volumes declined by 11.1% predominantly related to the sales impact of the ERP implementation and from a weaker Industrial market environment.
Income from operations for Q2 2023 totaled $137.6 million versus $103.6 million in Q2 2022. Adjusted EBIT improved to $154.5 million from $150.6 million in Q2 2022 as price-cost trends were positive across all end-markets given the combined benefit of strong year-over-year pricing and variable cost deflation. Income from operations in the quarter was impacted negatively by higher year-over-year compensation expense and approximately $15 million of costs associated with consulting spend and the ERP implementation.
“The quarter reflected strong underlying earnings and profitability improvement, particularly in Mobility Coatings where momentum is building,” said Chris Villavarayan, Axalta’s CEO and president. “I am particularly proud of how our teams rebounded from a broad and complex ERP implementation in May and delivered a solid quarter, including a sales performance for North America in June that was one of the strongest in our history. This launch was a crucial step towards achieving the margin improvement trajectory we want for Axalta.”
Axalta ended the second quarter with cash and cash equivalents of $517.6 million and total liquidity over $1 billion. Net debt to trailing twelve month adjusted EBITDA ratio (total net leverage ratio) was 3.6x at quarter-end versus 3.7x as of March 31, 2023 and the second quarter ended with an adjusted EBITDA to interest expense coverage ratio of 4.9x. Axalta voluntarily paid down an additional $75 million of principal on its term loan in the period, contributing to $150 million of combined structural debt pay downs over the past two quarters. Free cash flow totaled $99.0 million compared to a use of $13.5 million in Q2 2022.
“Our cash conversion this quarter was a great achievement and reflects the team’s focus to reverse elevated working capital balances from year-end,” said Sean Lannon, Axalta's CFO. “As a result of better earnings and cash generation, our total net leverage ratio continued to improve; we expect to end the year close to 3.0x based on the current fiscal year outlook. Debt reduction is expected to remain our highest priority use of cash given attractive returns in the current interest rate environment, with opportunistic bolt-on M&A possible in the second half. We are actively exploring additional opportunities to reduce interest expense given improvements in capital markets activities.”
