Core Viewpoint - Artisan Partners' "Artisan Select Equity Fund" underperformed the S&P 500 Index in Q2 2025, with returns of 6.77%, 6.76%, and 6.80% for its Investor, Advisor, and Institutional Classes respectively, compared to the S&P 500's 10.94% return [1] Group 1: Axalta Coating Systems Ltd. Overview - Axalta Coating Systems Ltd. (NYSE:AXTA) is a manufacturer and distributor of coatings systems, with a market capitalization of $6.084 billion [2] - As of September 26, 2025, Axalta's stock closed at $28.09 per share, experiencing a one-month return of -10.14% and a 52-week decline of 22.38% [2] Group 2: Financial Performance and Market Conditions - In Q2 2025, Axalta's net sales totaled $1.3 billion, reflecting a year-over-year decrease of approximately 3% [4] - The company reported a 10% decline in shares, with Q1 earnings deemed satisfactory despite a 2% overall sales decline [3] - The performance coatings division faced challenges due to market weakness, with increased insurance premiums and repair costs impacting consumer behavior [3] - Industrial sales were weak due to sluggish industrial activity, and the mobility business saw a slight revenue decline linked to OEM vehicle production drops [3] Group 3: Investment Perspective - Despite the weak top-line performance, Axalta managed to grow profits through variable cost reductions and effective expense management [3] - Axalta trades at a modest earnings multiple of 11X, compared to the S&P 500 Index's multiple of over 20X, indicating potential undervaluation [3] - The company is not among the top 30 most popular stocks among hedge funds, with 44 hedge fund portfolios holding its stock at the end of Q2, unchanged from the previous quarter [4]

Core Insights - Axalta Coating Systems has honored Dr. Delson Trindade with the title of Axalta Fellow, the highest recognition for scientists and engineers within the company, due to his significant contributions in scientific accomplishments, technical leadership, and commercial impact throughout his career [1][3]. Company Achievements - Dr. Trindade has nearly 40 years of experience in coating technologies, showcasing exceptional expertise and leadership that have been vital across all of Axalta's business sectors [3]. - He has played a key role in expanding Axalta's technical capabilities and enhancing customer engagement through various initiatives, including co-inventing the multi-layer "3-Wet" coating processes for the automotive industry and advancing silanated clearcoat platforms [4]. Technical Contributions - Dr. Trindade has contributed to the development of a formulation toolbox for the electrification sector and has been involved in over 100 patent filings, highlighting his innovative impact on the industry [4]. - His work emphasizes Axalta's commitment to innovation, sustainability, and market leadership, as he is an integral member of the Fellows Forum, which promotes scientific excellence within the company [5]. Professional Background - Dr. Trindade's career with Axalta began in Brazil, and he has worked in various countries including Germany, Argentina, and the U.S., currently based in Philadelphia at the Global Headquarters and Innovation Center [6]. - He holds a doctorate in Physical Chemistry from the University of São Paulo and an MBA in Technology & Innovation from Harvard University and the University of São Paulo [6]. Company Overview - Axalta is a global leader in the coatings industry, providing innovative and sustainable coating solutions across various applications, including light vehicles, commercial vehicles, and industrial uses [7]. - With over 150 years of experience, Axalta serves more than 100,000 customers in over 140 countries, focusing on preventing corrosion, increasing productivity, and enhancing durability through its products [7].

Core Insights - Axalta Coating Systems Ltd. has reported two quarterly results since February, which were below expectations [1] - The focus is on value investing, particularly in sectors such as chemicals, homebuilders, building materials, industrials, and metals & mining [1] - The investment strategy emphasizes acquiring stocks that are undervalued and have near-term catalysts, with a typical investment horizon of one quarter to two years [1] Company Performance - The recent quarterly results of Axalta were disappointing compared to prior expectations [1] - The company operates in the coatings industry, which is influenced by various sectors including construction and manufacturing [1] Investment Strategy - The investment approach is centered on fundamental research and identifying stocks that are available at a low price [1] - The analyst has over three years of active investing experience, including roles as a buy-side analyst [1]

Core Insights - Axalta Coating Systems Ltd. (NYSE: AXTA) reported quarterly results that were below expectations since the last analysis in February [1] Company Performance - The recent quarterly results of Axalta were not as strong as anticipated, indicating potential challenges in performance [1] Investment Focus - The company is viewed through a value-focused investment lens, emphasizing fundamental research in sectors such as chemicals, homebuilders, building materials, industrials, and metals & mining [1] - The investment strategy prioritizes stocks that are undervalued and have near-term catalysts, with an investment horizon ranging from one quarter to two years [1]

Core Thesis - Axalta Coating Systems Ltd. is experiencing a significant decline in share price, down 28% from recent highs, despite strong earnings growth in the coatings sector [2] - The company's share was trading at $32.38 as of September 8th, with trailing and forward P/E ratios of 15.87 and 11.52 respectively [1] Financial Performance - Axalta's refinish business, which accounts for approximately 60% of EBITDA, is facing volume weakness, raising concerns about a potential secular decline [2] - However, evidence suggests that accident frequency remains stable, with liability claims down only low-single digits, indicating that volume improvements may occur in the second half of 2025 [3] Market Position and Competitive Advantage - Axalta holds a 25% global share in the refinish market and 40% share in the premium segment, supported by industry-leading technology and high switching costs [3] - Despite temporary headwinds, growth drivers such as price/mix improvements and share gains in mainstream and economy segments remain intact [3] Future Outlook - EBITDA growth is projected to be in the high single digits from 2026 as cyclical pressures ease and operational efficiencies improve [4] - A re-rating to historical valuation levels could imply a share price of $41, representing approximately 38% upside based on consensus 2026 numbers [4] - Potential M&A activity, particularly related to BASF's coatings sale process, could further enhance Axalta's valuation and market interest [4] Investment Sentiment - The bullish thesis on Axalta emphasizes valuation upside and M&A catalysts, suggesting that despite recent challenges, the company presents an asymmetric risk/reward profile [5]

Core Insights - The "2025 Global Industrial Paint Brand Top 30" list was published by Coatings World, ranking brands based on their industrial paint sales revenue for the fiscal year 2024, with a minimum entry threshold of $260 million [1][10] - The total sales revenue of the listed companies reached $53.9394 billion, accounting for 51.60% of the global industrial paint market [1][10] - The top ten brands generated a total sales revenue of $44.068 billion, a decrease of $2.989 billion from the previous year, representing 42.17% of the global market share, down 1.89 percentage points [1][15] Market Overview - The global industrial paint market is valued at approximately $104.5 billion in 2024, showing a decline compared to the previous year [3] - The market remains fragmented, with a CR10 of less than 43%, indicating no monopoly [17] - High concentration exists in specific segments such as automotive, marine, and aerospace coatings, with the top 10 brands holding 89% and 92% of the respective markets [17] Brand Performance - PPG Industries leads the ranking with sales of $10.9 billion, followed by Sherwin-Williams at $8.05 billion and AkzoNobel at $6.731 billion [12][14] - Other notable brands include Axalta, BASF, Nippon Paint, Kansai, Jotun, and Hempel, with revenues ranging from $5.276 billion to $2.623 billion [14][24] - Chinese brands such as Xiangjiang Paint, Dewey, and Megachem have made significant strides, with Xiangjiang Paint maintaining its position as the top Chinese brand at $530.7 million [21][22][23] Regional Distribution - The majority of top brands are located in developed countries, with the U.S. having six brands, Japan five, and Germany four [18] - China's industrial paint sector is robust, with a total revenue of approximately 408.903 billion yuan ($56.4 billion) in 2024, with industrial paint accounting for over 70% [20] Financial Highlights - PPG's industrial paint revenue decreased by 5.7% to $6.687 billion, while Sherwin-Williams' industrial paint revenue grew by 0.63% to approximately $8.0503 billion [3][4] - AkzoNobel's industrial paint revenue fell by 2% to $2.036 billion, while other brands like Kansai and Jotun reported growth in their industrial paint segments [4][6][7] - Megachem reported a remarkable growth of 87.56% in revenue, reaching $2.139 billion, driven by strong demand in the container paint market [23]

Core Insights - Axalta Coating Systems reported revenue of $1.31 billion for the quarter ended June 2025, a decrease of 3.4% year-over-year, with EPS at $0.64, up from $0.57 in the same quarter last year [1] - The revenue fell short of the Zacks Consensus Estimate of $1.32 billion, resulting in a surprise of -1.33%, while the EPS exceeded the consensus estimate of $0.61 by 4.92% [1] Financial Performance - Total sales in Performance Coatings were $836 million, below the average estimate of $872.1 million, reflecting a year-over-year decline of 5.8% [4] - Total sales in Mobility Coatings reached $469 million, slightly above the average estimate of $463.08 million, marking a year-over-year increase of 1.1% [4] - Sales in Mobility Coatings for commercial vehicles were $107 million, compared to an estimate of $100.02 million, showing a decline of 2.7% year-over-year [4] - Sales in Performance Coatings for industrial applications were $322 million, below the average estimate of $327.45 million, representing a year-over-year decrease of 5.6% [4] - Sales in Mobility Coatings for light vehicles were $362 million, slightly below the estimate of $363.06 million, with a year-over-year increase of 2.3% [4] - Sales in Performance Coatings for refinish applications were $514 million, below the average estimate of $544.4 million, reflecting a year-over-year decline of 5.9% [4] - Adjusted EBIT for Mobility Coatings was $92 million, exceeding the estimate of $74.79 million [4] - Adjusted EBIT for Performance Coatings was $200 million, below the average estimate of $209.59 million [4] Market Performance - Axalta Coating Systems' shares have returned -5.9% over the past month, contrasting with the Zacks S&P 500 composite's increase of 3.4% [3] - The stock currently holds a Zacks Rank 4 (Sell), indicating potential underperformance relative to the broader market in the near term [3]

PART I FINANCIAL INFORMATION This section presents Axalta's unaudited condensed consolidated financial statements and management's discussion and analysis [ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)](index=3&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS%20(UNAUDITED)) This section presents Axalta's unaudited condensed consolidated financial statements and notes for Q2 and YTD 2025 [Condensed Consolidated Statements of Operations](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Net sales decreased for Q2 and YTD 2025, while YTD net income attributable to common shareholders significantly increased | Metric | Three Months Ended June 30, 2025 (in millions) | Three Months Ended June 30, 2024 (in millions) | Six Months Ended June 30, 2025 (in millions) | Six Months Ended June 30, 2024 (in millions) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Net sales | $1,305 | $1,351 | $2,567 | $2,645 | | Income from operations | $193 | $205 | $369 | $326 | | Net income | $110 | $113 | $209 | $152 | | Net income attributable to common shareholders | $109 | $112 | $208 | $153 | | Basic net income per share | $0.50 | $0.51 | $0.96 | $0.70 | | Diluted net income per share | $0.50 | $0.51 | $0.95 | $0.69 | [Condensed Consolidated Statements of Comprehensive Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Comprehensive income significantly increased for Q2 and YTD 2025, driven by favorable currency translation adjustments | Metric | Three Months Ended June 30, 2025 (in millions) | Three Months Ended June 30, 2024 (in millions) | Six Months Ended June 30, 2025 (in millions) | Six Months Ended June 30, 2024 (in millions) | | :------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Net income | $110 | $113 | $209 | $152 | | Foreign currency translation adjustments | $128 | $(29) | $190 | $(73) | | Other comprehensive income (loss), net of tax | $136 | $(29) | $200 | $(73) | | Comprehensive income | $246 | $84 | $409 | $79 | [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets and equity increased as of June 30, 2025, driven by receivables, inventories, and goodwill | Metric | June 30, 2025 (in millions) | December 31, 2024 (in millions) | | :-------------------------------- | :-------------------------- | :------------------------------ | | Cash and cash equivalents | $625 | $593 | | Accounts and notes receivable, net | $1,348 | $1,248 | | Inventories | $831 | $734 | | Total current assets | $2,987 | $2,723 | | Property, plant and equipment, net | $1,255 | $1,181 | | Goodwill | $1,775 | $1,640 | | Total assets | $7,781 | $7,249 | | Accounts payable | $764 | $659 | | Total current liabilities | $1,406 | $1,354 | | Total liabilities | $5,470 | $5,293 | | Total shareholders' equity | $2,311 | $1,956 | [Condensed Consolidated Statements of Changes in Shareholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) Shareholders' equity increased from December 2024 to June 2025, from net income and currency translation | Metric | December 31, 2024 (in millions) | March 31, 2025 (in millions) | June 30, 2025 (in millions) | | :-------------------------------- | :------------------------------ | :--------------------------- | :-------------------------- | | Balance at period start | $1,956 | $2,122 | $2,122 | | Net income | $99 (Q1) | $109 (Q2) | $208 (YTD) | | Foreign currency translation | $61 (Q1) | $136 (Q2) | $197 (YTD) | | Total comprehensive income | $163 (Q1) | $246 (Q2) | $409 (YTD) | | Common stock purchases | — | $(65) | $(65) | | Balance at period end | $2,122 | $2,311 | $2,311 | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow increased for YTD 2025; investing and financing used more cash for acquisitions and buybacks | Cash Flow Activity | Six Months Ended June 30, 2025 (in millions) | Six Months Ended June 30, 2024 (in millions) | | :-------------------------------- | :------------------------------------------- | :------------------------------------------- | | Net cash provided by operating activities | $168 | $148 | | Net cash used for investing activities | $(83) | $(36) | | Net cash used for financing activities | $(78) | $48 | | Effect of exchange rate changes on cash | $25 | $(20) | | Net increase in cash | $32 | $140 | | Cash at end of period | $628 | $843 | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes provide detailed explanations for the financial statements, covering policies, revenue, assets, liabilities, and segment information [(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=9&type=section&id=(1)%20BASIS%20OF%20PRESENTATION%20AND%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) Interim financial statements are unaudited, with ASU 2023-07 adopted and future ASUs under evaluation for impact - Adopted ASU 2023-07, Segment Reporting, in January 2024, expanding disclosures without impacting financial position, results, or cash flows[23](index=23&type=chunk) - ASU 2023-09, Income Taxes, effective for fiscal years beginning after December 15, 2024, will enhance income tax disclosures[24](index=24&type=chunk) - ASU 2024-03, Expense Disaggregation Disclosures, effective for fiscal years beginning after December 15, 2026, is being evaluated for impact on financial statements[25](index=25&type=chunk) [(2) REVENUE](index=9&type=section&id=(2)%20REVENUE) Contract assets and Business Incentive Plan (BIP) carrying values increased as of June 30, 2025 | Metric | June 30, 2025 (in millions) | December 31, 2024 (in millions) | | :-------------------- | :-------------------------- | :------------------------------ | | Contract asset balances | $45 | $36 | | BIPs carrying value | $193 | $169 | - BIPs amortization (net of clawbacks) reduced net sales by **$16 million** for Q2 2025 and **$31 million** for YTD 2025[27](index=27&type=chunk) [(3) GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS](index=10&type=section&id=(3)%20GOODWILL%20AND%20IDENTIFIABLE%20INTANGIBLE%20ASSETS) Goodwill and identifiable intangible assets increased, primarily due to foreign currency translation and acquisitions | Metric | December 31, 2024 (in millions) | June 30, 2025 (in millions) | | :-------------------------- | :------------------------------ | :-------------------------- | | Goodwill | $1,640 | $1,775 | | Identifiable intangibles, net | $1,149 | $1,167 | - Goodwill increased by **$132 million** due to foreign currency translation and **$2 million** from acquisitions in Performance Coatings[30](index=30&type=chunk) Estimated Amortization Expense | Year | Estimated Amortization Expense (in millions) | | :---------------- | :----------------------------------------- | | Remainder of 2025 | $50 | | 2026 | $100 | | 2027 | $99 | | 2028 | $85 | | 2029 | $80 | | 2030 | $80 | [(4) RESTRUCTURING](index=11&type=section&id=(4)%20RESTRUCTURING) The 2024 Transformation Initiative targets workforce reduction and is expected to incur approximately $82 million in pre-tax charges - 2024 Transformation Initiative targets workforce reduction of over **500 employees** globally[33](index=33&type=chunk) - Expected total pre-tax charges of approximately **$82 million**, with **$76 million** for severance and **$6 million** for accelerated depreciation[33](index=33&type=chunk) - Total cash expenditures related to the initiative are expected to be approximately **$105-115 million**, including **$30-40 million** for capital expenditures[33](index=33&type=chunk) | Metric | December 31, 20

Financial Data and Key Metrics Changes - Net sales for Q2 2025 were reported at $1,300 million, a decrease of approximately 3% year over year, primarily due to lower volumes in Performance Coatings [19][21] - Adjusted EBITDA reached a record $292 million, slightly up from the previous year, with an adjusted EBITDA margin expanding by 90 basis points to 22.4% [20][21] - Cash flow from operations increased by 25% year over year, totaling $142 million, while free cash flow was reported at $101 million [10][21] Business Line Data and Key Metrics Changes - Performance Coatings net sales declined 6% year over year to $836 million, driven by lower volumes and unfavorable price mix, particularly in North America [21][22] - Refinish net sales decreased 6% to $514 million, with organic sales down in high single digits due to industry softness and distributor inventory corrections [22] - Mobility Coatings reported net sales of $469 million, a 1% increase from the prior year, with organic sales contributing approximately 2% growth [24][25] Market Data and Key Metrics Changes - The Refinish market in North America faced challenges, with claims reported through Q1 significantly lower, leading to a decline in volumes despite stable collision rates [11][12] - Inflationary pressures are beginning to moderate, particularly in repair expenses and insurance premiums, which may positively impact future claims [13] - The commercial vehicle market is expected to decline by 25% to 30%, while Axalta anticipates a 1% to 2% increase in its commercial vehicle sales due to strong performance in the commercial transportation solutions business [70] Company Strategy and Development Direction - The company remains focused on its A Plan strategy, emphasizing operational excellence and cost management, which has driven approximately $40 million in cost savings [15][17] - Axalta is committed to innovation, with plans to launch new products and expand into underrepresented geographies, particularly in the Mobility segment [33][36] - The company aims to strengthen its leadership in the Refinish market and expand into adjacencies through strategic bolt-on M&A [35][36] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the stabilization of the Refinish market, anticipating improvements in consumer confidence and repair environments by 2026 [14][46] - The company expects net sales to decline in Q3 but anticipates a record Q3 performance due to stabilization in the marketplace [46][30] - For the full year, adjusted EBITDA is projected to be between $1,140 million and $1,165 million, reflecting disciplined execution and pricing resilience [30][31] Other Important Information - Axalta executed $65 million in share repurchases during the quarter and plans to maintain this pace throughout the year [10][26] - The company has improved its safety record by 55% year over year, reinforcing its commitment to achieving zero incidents [15][16] - Total net leverage ratio remains at 2.5 times, consistent with A Plan targets, providing flexibility for capital deployment [28] Q&A Session Summary Question: Assessment of the Refinish market and future outlook - Management noted that while accidents are down 1% to 2%, claims are lower due to rising repair costs and insurance premiums, but they expect stabilization in the market by 2026 [41][42][46] Question: Update on cost improvement and margin expectations - Management highlighted that they are ahead of plan in cost management and operational excellence, with significant opportunities for further margin improvement [49][50][53] Question: Organic net sales performance relative to industry - Mobility segment performed well, with growth in three out of four markets, while Refinish faced challenges but continued to outperform in Europe and other regions [58][61] Question: Guidance for Q4 and visibility on Refinish - Management expressed confidence in sequential stability for Refinish and anticipates a positive inflection in Q4, supported by new business wins and market stabilization [100][98] Question: Pricing dynamics in Performance Coatings - Management explained that the decline in price mix was due to a shift towards mainstream and economy segments, which have lower price points but are strategically important for growth [104][105]

Financial Data and Key Metrics Changes - Axalta reported net sales of just over $1.3 billion, in line with guidance, with adjusted EBITDA reaching $292 million and margins exceeding 22%, marking the fifth consecutive quarter of adjusted EBITDA margins at or above the 21% target [7][17][28] - Adjusted diluted earnings per share increased by 5% to $0.64, driven by lower interest expenses and reduced shares outstanding due to share repurchases [19][28] - Cash flow from operations increased by 25% year over year, resulting in free cash flow of $101 million [8][19] Business Line Data and Key Metrics Changes - Performance Coatings net sales declined by 6% year over year to $836 million, primarily due to lower volumes and unfavorable price mix in North America [20] - Refinish net sales decreased by 6% to $514 million, with organic sales down in high single digits due to industry softness and distributor inventory corrections [20][21] - Mobility Coatings reported net sales of $469 million, a 1% increase from the prior year, with organic sales contributing approximately 2% growth [23] Market Data and Key Metrics Changes - The Refinish market in North America faced challenges, with collision claims reported through Q1 significantly lower, despite collision frequency remaining stable [9][10] - Inflationary pressures are beginning to moderate, particularly in repair expenses and insurance premiums, which may lead to an improved repair environment [12] - The company continues to gain market share, adding 1,600 net new body shops year to date, building on over 2,800 wins in 2024 [11][32] Company Strategy and Development Direction - Axalta remains focused on its A Plan strategy, emphasizing operational excellence and cost management, which has driven approximately $40 million in cost savings [14][29] - The company is committed to achieving zero incidents in safety, improving its safety record by 55% year over year [14] - Axalta plans to expand its digital platform, Nimbus, to 40,000 body shops by 2026, enhancing customer engagement and operational efficiency [32] Management's Comments on Operating Environment and Future Outlook - Management anticipates that the softer demand environment will persist longer than previously expected, with net sales projected to decline in the low single digits for Q3 [26][28] - The company expects adjusted EBITDA margins to remain around 22% or above for the full year, reflecting disciplined execution and pricing resilience [28] - Management remains optimistic about the long-term growth trajectory, particularly in the Refinish and Mobility segments, despite current market challenges [30][34] Other Important Information - Axalta executed $65 million in share repurchases during the quarter and plans to maintain this pace throughout the year [8][25] - The company has streamlined operations by closing three manufacturing plants in the last year, positioning itself for growth when industry volumes rebound [14][34] Q&A Session Summary Question: Assessment of the Refinish market challenges - Management noted that while accidents are down 1% to 2%, claims are lower due to rising insurance costs and repair expenses, but they expect stabilization in the market by 2026 [39][41][44] Question: Update on cost improvement and margin story - Management expressed optimism about ongoing cost improvements and operational excellence, indicating that there is still significant potential for margin growth [46][49][52] Question: Organic net sales performance relative to industry - Axalta's organic sales were down about 3%, with Mobility performing well, while Refinish faced challenges primarily in North America [56][59] Question: Impact of auto sales pull forward on production - Management indicated that while North America faced some customer shutdowns, growth continued in China and Latin America, with expectations for consistent volumes moving forward [64][66] Question: Incremental revenue from new body shop wins - Management highlighted that they have added 1,600 new body shops year to date, with a strong focus on mainstream and economy segments, which aligns with their growth strategy [70][72] Question: Concerns about Refinish top-line performance - Management reassured that the current performance is temporary, with ongoing wins in Refinish and expectations for market improvement [75][76] Question: Future growth opportunities and portfolio adjustments - Management plans to provide a new A Plan by early next year, outlining growth opportunities and potential portfolio adjustments [84][85]