Axalta Coating Systems Ltd. (NYSE: AXTA), Releases 1st Quarter 2K19 Results

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Axalta Coating Systems Ltd. (NYSE: AXTA) (“Axalta”), a leading global coatings company, declared its financial results for the 1st quarter finished March 31, 2K19.

1st Quarter 2K19 Merged Financial Results

1st quarter net sales of $1,119.3M declined 4.5 percent Y-o-Y counting 4.8 percent negative foreign currency impacts. Constant currency net sales raised 0.3 percent in the period, driven by 2.1 percent higher average price and product mix and modest acquisition contribution, offset partly by 2.1 percent lower organic volumes.

1st quarter net sales development ex-FX was driven by modest development from the Americas seen in higher price and product mix and development in Commercial Vehicle end-markets, partially offset by lower net sales from the Asia Pacific, given ongoing volume pressure from China in Transportation Coatings.

Income from operations for the 1st quarter totaled $98.6M, down 17.8 percent from $120.0M in Q1 2018. This was driven by lower stated net sales counting negative foreign currency effects and continued headwinds from Y-o-Y variable cost inflation. The quarter was also influenced by $6.1M in accelerated depreciation charges associated with our anticipated Belgium plant closure and a $5.2M loss on an anticipated sale of a 60 percent owned powder coatings joint venture in China.

Adjusted EBIT of $143.9M for the 1st quarter declined 9.3 percent as compared to $158.6M in Q1 2018. This result was driven by substantial Y-o-Y variable cost inflation impacts, negative impacts from a foreign currency, and headwinds from lower volumes mostly in Light Vehicle, offset in part by strong contribution from higher average price and product mix and from improved overall productivity.

“1st quarter results met our formerly offered guidance, and were formed despite several headwinds, counting notably higher raw material expenses and a substantial swing in foreign exchange impacts as compared to 1st quarter 2018,” said Robert W. Bryant, Axalta’s CEO. “Our Performance Coatings segment saw the strong ongoing price and mix improvement, more than offsetting slightly negative volumes in the quarter.

In Transportation Coatings, we saw a modest raise in average prices while product mix had a decremental impact in the quarter. Light Vehicle volume also saw pressure from slower worldwide production rates, notably from double-digit declines in China as similar to the previous year quarter. Our focus on productivity also contributed to lower overall operating expenses for the 1st quarter.”

Performance Coatings Results

Performance Coatings 1st quarter net sales were $713.3M, a decrease of 2.4 percent Y-o-Y counting a 4.8 percent negative currency impact. Constant currency net sales raised 2.4 percent in the period, driven by 1.9 percent organic sales development which was mainly the result of improved average price and mix. Acquisitions contributed 0.5 percent to net sales development.

Refinish end-market net sales declined 2.1 percent to $405.5M in Q1 2K19 (raised 3.5 percent apart from foreign currency) with strong average price and mix contribution offset partly by lower volume, which in North America resulted mostly from moderate distributor channel inventory reduction.

Industrial end-market net sales declined 2.8 percent to $307.8M(raised 1.0 percent apart from foreign currency), counting positive pricing across all regions offset partly by modest organic volume declines from EMEA and to a lesser extent in the Asia Pacific.

The Performance Coatings segment generated Adjusted EBIT of $78.6M in the 1st quarter, a 3.4 percent Y-o-Y raise. Positive price and product mix and a very modest acquisition contribution were offset partly by impact from raw material inflation, volume declines, and foreign exchange headwinds. 1st quarter segment Adjusted EBIT margin of 11.0 percent improved from 10.4 percent in the previous year as price and product mix more than offset ongoing raw material headwinds.

Transportation Coatings Results

Transportation Coatings net sales were $406.0M in Q1 2K19, a decrease of 7.9 percent Y-o-Y, counting a 4.8 percent negative currency impact.  Constant currency net sales declined 3.1 percent in the period counting a 3.3 percent decrease in volume, offset by 0.2 percent higher average price and product mix effect.

Light Vehicle net sales declined 10.6 percent to $315.9M Y-o-Y (declined 5.4 percent apart from foreign currency), driven by lower volumes and foreign exchange impacts, offset by moderately higher average price and product mix. Overall average pricing remained positive in the period, offset partially by negative product mix effects.

Commercial Vehicle net sales raised 2.6 percent to $90.1M from Q1 2018 (raised 6.6 percent apart from foreign currency), counting stronger volumes led by North America and mostly stable markets globally. Average price and product mix were essentially flat.

Transportation Coatings generated Adjusted EBIT of $34.2M in Q1 2K19, a decrease of 24.0 percent as compared to Q1 2018, driven by the impact from raw material inflation in addition to lower volume, while the average price and product mix were a slight positive offset. Segment Adjusted EBIT margin of 8.4 percent in Q1 2K19 contrast with 10.2 percent in Q1 2018.

Balance Sheet and Cash Flow Highlights

We finished the quarter with cash and cash equivalents of $501.1M. Our debt, net of cash, was $3.4 billion as of March 31, 2K19, which contrast with $3.2 billion as of year-end 2018. This was driven by the 1st quarter use of operating cash flow, in addition to share repurchases made in the period. Our net debt to trailing twelve months Adjusted EBITDA ratio was 3.6x at quarter end. Axalta repurchased 2.5M shares of its common stock in the 1st quarter of 2K19 for total consideration of $65.8M.

1st quarter operating cash flow totaled a use of $57.9M as compared to a use of $21.0M in the corresponding quarter of 2018, reflecting lower operating income and modest working capital headwinds partially because of the timing of collections. Free cash flow totaled a use of $74.9M contrast to the use of $60.5M in the 1st quarter of 2018.

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