Axalta ting Systems .(AXTA) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net sales were approximately $1.3 billion, down 2% year-over-year, primarily due to macro headwinds in North America [12][19] - Adjusted EBITDA reached a record $294 million with a margin of 22.8%, marking 12 consecutive quarters of adjusted EBITDA and margin growth year-over-year [6][7] - Adjusted diluted EPS was $0.67, up 6% compared to the previous year, reflecting robust earnings power [8][12] - Operating cash flow was $137 million, and free cash flow totaled $89 million [12] Business Line Data and Key Metrics Changes - Performance Coatings segment net sales declined 6% year-over-year to $828 million, driven by trends in North America [14] - Mobility Coatings third quarter net sales were $460 million, an increase of 4% from the prior year, with light vehicle net sales increasing 7% [15][16] - Adjusted EBITDA for Mobility increased 20% year-over-year to $83 million, with an adjusted EBITDA margin expanding to 18% [16] Market Data and Key Metrics Changes - Global auto production forecast for 2025 is approximately 91 million builds, a 2% increase versus 2024 [6] - The broader macro environment remains challenged, especially in North America, while industry trends in Europe are more stable [5][6] Company Strategy and Development Direction - The company aims to achieve its A-plan target, with a focus on enhancing profitability and maintaining an adjusted EBITDA margin above 21% [8][10] - The strategy includes executing share repurchases and maintaining a disciplined capital allocation approach [17][22] - The company is positioned for growth in the Refinish business as claims stabilize and destocking headwinds abate [20][22] Management's Comments on Operating Environment and Future Outlook - Management noted that while the external environment in North America and Europe did not improve as expected, they remain focused on execution and operational excellence [19][20] - The company anticipates a significant increase in free cash flow in the fourth quarter, projecting around $450 million for the year [19] - Management expressed confidence in achieving record adjusted EBITDA and adjusted diluted EPS for the full year 2025 despite softer demand [19][20] Other Important Information - The company executed $100 million in share repurchases during the quarter, reducing shares outstanding by over 3% since 2023 [7][17] - Capital expenditures increased by approximately 50% compared to the third quarter of last year [17] Q&A Session Summary Question: How would you disaggregate the 7% decline in auto Refinish volume? - Management indicated that the market is down mid to high single digits, with destocking also around that mid single digits number, but they have achieved significant new bodyshop wins [24][25] Question: Can you provide context on ongoing cost progress and expectations for 2026? - Management highlighted that they have executed over 500 basis points in cost actions and expect to continue driving costs down while focusing on growth [30][35] Question: What are your expectations for the Industrial and commercial vehicle markets in 2026? - Management expects the commercial vehicle market to remain muted, with a focus on pivoting towards commercial transportation solutions [39][40] Question: Can you discuss the potential for a dividend and M&A activity? - Management noted that while discussions about dividends are ongoing, they see significant value in share repurchases at this time [44][46] Question: What are the underlying drivers in the Refinish business? - Management reported that accident rates are stable, but insurance premiums have increased significantly, impacting claims [50][52] Question: How are you managing raw material costs and tariffs? - Management indicated that they are managing through approximately $20 million in incremental costs due to tariffs, but expect a stable raw material environment moving forward [72][74] Question: What is the outlook for Refinish revenue and volume in 2026? - Management expects Refinish volumes to turn positive in Q2 2026, driven by bodyshop wins and the abatement of destocking [76][78]