Axalta Coating Systems Ltd. Q2 FY2025 earnings call

• Delivered record quarter for adjusted EBITDA and adjusted diluted earnings per share in challenging market. - Mobility segment performed exceptionally well with 2% organic growth, driven by China and Latin America, and adjusted EBITDA margin nearly 20%. - Refinish in North America faced challenges but showed signs of stabilization with industry softness and distributor inventory corrections. - Reinforced commitment to zero incidents, improving safety record by 55% year-over-year. - Disciplined cost management drove 6% year-over-year reduction in operating expenses, with $40 million in cost savings from transformation initiative. - Closed 3 manufacturing plants to optimize industrial footprint. - Recognized for innovation with Axalta's NextJet and Daimler Truck North America's Masters of Quality Supplier Award. - Maintained strong financial position with total net leverage in line with A Plan targets and continued share repurchases.

Mobility Coatings: Second quarter net sales were $469 million, a 1% increase year-over-year. Adjusted EBITDA was $92 million, up 35% year-over-year, with a margin nearing 20%. Performance Coatings: Net sales totaled $836 million, down 6% year-over-year. Refinish net sales decreased 6% to $514 million. Industrial net sales declined 6% to $322 million. Adjusted EBITDA for Performance Coatings was $200 million, with a margin of 23.8%.

• For Q3, expect net sales to decline low single digits, with adjusted EBITDA between $290 million and $300 million and adjusted diluted earnings per share in range of $0.63 to $0.67. - Full year 2025 net sales expected between $5.2 billion and $5.275 billion, adjusted EBITDA between $1.14 billion and $1.165 billion, and adjusted diluted earnings per share between $2.45 and $2.55. - Softer demand environment expected to persist longer than anticipated, leading to guidance adjustments.

• Global market challenges and volume pressures. - Inflationary impacts affecting consumer behavior and repair costs. - Potential for industry volume fluctuations impacting performance.

Q: U.S. Refinish market has faced challenges with divergence between collision claims and rates. What's the assessment of MSOs and distribution channel?

A: Accidents are down, but claims are affected by insurance costs and repair costs. Insurance rates are starting to flatline, backlogs are coming down, and distributors are adjusting inventory. Stabilization expected in Q3.

Q: Thoughts on margin story and productivity cadence?

A: Just 2 years into A Plan, significant cost improvements made. Still early innings of operational excellence plan, with opportunities in material performance, transformation, and AI/technology integration.

Q: How is U.S. auto sales pull forward affecting new car production?

A: Some customers in North America had shutdowns, but strength from China and Latin America. Light vehicle builds expected to increase slightly, with commercial vehicle market down but Axalta up due to CTS business.

Q: Concerns about Refinish top line weakness vs peers. Is it structural?

A: Temporary due to destocking with a large customer, cost abatement in insurance and repair costs, and reconditioning activity as precursor to market recovery.

Q: Why not make structural portfolio moves now?

A: Focused on setting foundation with A Plan metrics, hitting financial targets a year ahead of plan. Will outline new A Plan in spring next year to detail future growth and margin opportunities.

Q: Pricing true-up in Mobility and visibility on 4Q?

A: Pricing true-up had discrete actions, but mobility margin profile strong with positive price-mix. Refinish showing sequential stability, with confidence in Q4 inflection.