Axalta Coating Systems Ltd. (AXTA) Earnings & Analysis

Latest quarter

Axalta reported third-quarter revenue of $1.3 billion, up 1.79% from a year earlier but 1.40% below the consensus. Adjusted earnings per share were $0.63, below the consensus estimate of $0.71.

CFO Carl Anderson said commercial vehicle growth, currency movements, refinish acquisitions and price mix contributed to the sales increase. He said Performance Coatings sales fell 1% to $818 million, as lower European refinish volumes more than offset price mix and acquisitions. Mobility Coatings sales rose 7% to $493 million, supported by commercial vehicle volume growth across all four regions.

Axalta’s diluted earnings per share fell to $0.44 from $0.51 a year earlier. Gross margin declined to 33.1% from 34.9%, while operating margin fell to 12.6% from 15.8%. The company attributed higher cost of sales primarily to raw material and freight costs associated with the Middle East conflict, and said merger-related costs increased other operating charges.

Axalta reported free cash flow of $89.0 million, compared with $87.0 million a year earlier.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Chris Villavarayan told analysts that European refinish sales were below Axalta’s expectations, although the business had grown in the year to date. Asked about the shortfall, he said indirect distributors assessed their inventories amid the economic and political environment and decided to “take a pause on filling inventory levels for Q4.” He described the issue as inventory timing and said Axalta had expected growth rather than stability.

CFO Carl Anderson said lower European refinish volumes and higher freight rates were the principal reasons adjusted EBITDA declined. “Overall, freight costs were up over 15% year-on-year,” he said. In response to a pricing question, Anderson said Axalta had achieved about 3% pure price in the third quarter and was looking at additional surcharges, including diesel surcharges in many businesses.

Anderson said Performance Coatings margins were also affected by investment to accelerate the conversion of recently won multi-shop operator business. He expected the pace of body shop conversions to increase in the fourth quarter, with near-term margin pressure as Axalta invests. Villavarayan said Axalta had won approximately 2,600 net new body shops through September.

On vehicle demand, Villavarayan said light vehicle performance in Asia and Latin America offset lower activity in North America and Europe. Anderson said commercial vehicle sales rose 24% in the quarter, supported by volume growth across all four regions. For the fourth quarter, he expected commercial vehicle sales to rise year over year, while light vehicle sales would be down to roughly flat.

Anderson said Axalta had secured regulatory clearance in two-thirds of the jurisdictions required for its proposed merger with AkzoNobel, with divestitures underway. He said the company continued to expect the transaction to close in early 2027.

Guidance

Anderson said Axalta now expects fourth-quarter net sales to be approximately flat year over year, versus its previous expectation of 3% growth. He cited lower-than-planned third-quarter results and a more measured view of fourth-quarter demand.

For the fourth quarter, Axalta now expects adjusted EBITDA of $254 million to $264 million and adjusted diluted earnings per share of approximately $0.55. For the full year, it now anticipates adjusted EBITDA of $1.1 billion to $1,110 million, adjusted diluted earnings per share of approximately $2.45 and free cash flow of approximately $450 million. Anderson attributed the cash-flow outlook to lower EBITDA and higher merger-related costs.