Axalta Coating Systems Ltd. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Culture and Safety: Culture is foundational to transformation; aligned organization around accountability, execution, and operational excellence. Achieved a TRIR of 0.3 and reduced injury rate by ~50% vs two years ago. Committed to zero incidents.
• Operational Improvements: Invested in operations and engineering, streamlined organizational structure, brought corporate employees together in Philadelphia. Enhanced efficiency, reduced costs, and improved profitability; reduced variable costs by 7%, improved delivery times by 10%, began closing two manufacturing sites. Reduced SKUs and created common law inputs across portfolio; transformation savings ahead of plan, achieving ~$20 million in 2024 towards $75 million goal.
• Growth Initiatives: Secured ~2,800 net new body shop wins in Refinish, completed CoverFlexx acquisition, drove 5% full-year light vehicle net sales growth despite global auto bills decline, increased margins in Industrial Coatings with accretive new business ramping to ~$40 million in 2025. Announced Tim Bowes succeeding Shelley Bausch as President of Industrial Business.
• Innovation: Progressed with Axalta Irus Mix machine, installed 300 in 2024, expect to nearly double in 2025. Announced strategic partnership with Dürr for automotive digital paint solutions. Recognized with six industry awards in 2024, totaling 24 over last five years.

Segment Performance

• Performance Coatings: Fourth quarter net sales declined 1% year-over-year to $843 million, primarily due to lower volumes and unfavorable foreign currency translation, partially offset by CoverFlexx acquisition and positive price mix. Refinish net sales increased 2% to $545 million in the quarter, with incremental contributions from acquisitions and net body shop wins. Industrial net sales declined 5% year-over-year to $298 million due to volume declines. Full-year net sales grew 2% year-over-year to $5.3 billion, a new company record.
• Mobility Coatings: Fourth quarter 2024 net sales were $468 million, an increase of 4% from the prior year period. Light vehicle net sales grew 9% in the fourth quarter, with volumes increasing 6% year-over-year despite global auto production being down 5%. Commercial vehicle net sales declined 10% year-over-year.

Revenue contribution: Performance Coatings and Mobility Coatings are key segments, with Performance Coatings being a larger component of net sales.

Guidance

• Net sales in 2025 expected to grow by low single digits, range $5.35 billion to $5.4 billion. Adjusted diluted earnings per share expected between $2.50 and $2.60 per share, ~9% increase over 2024. Adjusted EBITDA expected between $1.150 billion and $1.175 billion, margin >21%.
• Plan to increase CapEx to ~$175 million to $190 million in 2025 for productivity investments. Remainder of $600 million share repurchase authority and pipeline of accretive M&A opportunities to evaluate in 2025. Forecast $10 million full-year adjusted EBITDA impact from tariffs, include flat variable costs vs 2024 plus direct tariff costs. Transformation initiative expected to drive $30 million to $40 million incremental benefit, mitigating labor inflation. Full year free cash flow expected ~$500 million, assuming increased CapEx partially offset by reduced cash interest.

Risks

• U.S. tariffs on Canada, Mexico, and China create challenging global trade environment; duration and ultimate impacts on global demand uncertain. Majority of raw materials bought within local trade borders, but actively evaluating resourcing and pricing actions. Excess capacity in U.S. for certain customers to shift production if required, but fluid situation with uncertainties.

Question and Answer Q: In light vehicle, 6% volume growth; is it customers winning share or like-for-like market share? And on price mix in mobility.

A: Chris Villavarayan: Combination of both; partnering with right local players in China and LATAM, gaining market share. Carl Anderson: Part of price mix due to different products/businesses compared to prior year and comparison to prior year quarter.

Q: On refinished market, triangulate relative performance in Europe and North America and investment community monitoring.

A: Carl Anderson: Focus on four pillars - body shop wins, accretive M&A, adjacency in retail, Irus Mix launch. Market expected flat-to-weaker, weather and consumer spending habits as factors to watch.

Q: On industrial SKU rationalization and price increases into 2025.

A: Chris Villavarayan: Margin improvement ahead of plan, Shelley Bausch drove 300 basis points of 400 basis point target, Tim Bowes to complete remaining 100; $40 million new incremental business in industrial.

Q: On M&A pipeline and buybacks.

A: Chris Villavarayan: Current volatility creates M&A opportunities, expect more in next couple of quarters, will look at bolt-on’s hitting ROIC targets.

Q: On refinish market outlook and macro risks.

A: Chris Villavarayan: Market forecast flat-to-down, transitory factors like insurance rates and consumer spending, backlogs normalizing; transitory elements may change over time, weather could be tailwind.

Q: On free cash flow bridge and light vehicle wins.

A: Chris Villavarayan: Free cash flow affected by working capital timing; light vehicle wins combination of index-based and fixed-based contracts, strong in Latin America with upside.

Q: On new multi-year targets and FX impact.

A: Chris Villavarayan: Plan to release next plan by end of 2025 or early 2026; FX headwinds expected $80 million to $100 million full-year, $25 million to $30 million Q1.

Q: On refinish win economics and margins.

A: Chris Villavarayan: Wins accretive to margins, Performance Coatings margin expansion in 2024 driven by refinish and industrial.

Q: On tariffs impact and anti-dumping.

A: Carl Anderson: $10 million full-year EBITDA impact from tariffs, managing through resourcing and pricing; anti-dumping impacts already loaded into outlook.

Q: On self-help initiatives and free cash flow.

A: Chris Villavarayan: SG&A reduction, supply chain productivity, plant investments; self-help initiatives to drive $30 million to $40 million EBITDA benefit, offset labor inflation and tariffs.

Q: On mainstream vs premium market strategy and M&A.

A: Chris Villavarayan: Focus on premium with CoverFlexx enabling entry into mainstream, adjacencies in fillers/putties; expect more M&A in coming quarters.

Q: On China light vehicle market and Dürr partnership.

A: Chris Villavarayan: Strong partnerships with large Chinese EV and ice players, capacity expansion ahead of others; Dürr partnership enables acceleration of NextJet product line for digital paints, sustainable with negligible overspray.

Q: On tariffs impact on car prices and production.

A: Carl Anderson: Tariffs could add ~$3,000 per car, OEs working to offset, mobility teams assisting customers in finding measures.

Q: On refinish net body shop wins and Irus Mix adoption.

A: Chris Villavarayan: Most 2,800 wins starting without Irus Mix, launching in Europe, expect to nearly double installations in 2025, focusing on premium customers first.