Axalta Coating Systems Ltd. Q4 FY2025 earnings call

• In Q4, strong operational execution, solid margin performance, and record cash generation. Net sales were ~$1.3 billion despite macro headwinds. Adjusted EBITDA was $272 million with a 21.5% margin. - 2025 was a year of record financial results: adjusted EBITDA $1.13 billion, up $317 million since 2022; adjusted diluted EPS up ~55%; free cash flow $466 million. - Operational highlights: reduced injuries by 40% since 2024, achieved TRIR 0.18; delivered over $300 million in variable cost through programs; lowered fixed expenses by over 6% in constant currency; invested $196 million in CapEx; improved on-time delivery by 10%. - Commercial highlights: Refinish added over 2,800 net new body shops; Mobility Coatings secured $60 million in net new wins; Industrial Asia Pac had 5% net sales growth. - Merger update: Announced merger of equals with Axonobel, creating a global leader with scale, diversification, and significant free cash flow potential.

In the fourth quarter, Mobility Coatings had net sales of $471 million, a 1% year-over-year increase. Adjusted EBITDA was $92 million, up 20% from the prior year. Performance Coatings had net sales of $791 million in Q4, down 6% year-over-year. Refinish net sales were $509 million, down 7%, and Industrial net sales were $282 million, down 5%. For the full year 2025, net sales were $5.117 billion, down 3% due to broad industry softness in Performance Coatings. Mobility Coatings contributed with new business wins in Latin America and China. Adjusted EBITDA for the full year was $1.128 billion, with a margin of 22%, and adjusted EPS was $2.49, a 6% increase from 2024.

• 2026 setup: Slow start in Q1, recovery in Q2 and H2. - Refinish: Expect inflation impacts manageable, second-half increase in repairable claims, positive price mix and higher volumes in H2. - Industrial: Slower start with recovery likely in H2 as operating environment improves. - Light vehicle: Assume global auto production ~92 million builds, flat year-over-year. - Commercial vehicle: North America Class eight builds flat in 2026 but increase throughout the year. - Q1 2026: Revenue expected to decline mid-single digits, adjusted EBITDA $240 million - $250 million. - Full-year 2026: Revenue up low single digits, adjusted diluted EPS $2.55 - $2.70 (5% growth midpoint vs 2025), adjusted EBITDA $1.14 billion - $1.17 billion, full-year free cash flow >$500 million.

• Macro headwinds impacting demand in North America, industrial, and commercial vehicles. - Distributor consolidation in North America creating near-term volume pressure in Refinish. - Continued softness in industrial and Class eight commercial vehicle markets. - Uncertainties related to the proposed merger of equals with Axonobel, including vote outcomes and integration challenges.

Q: Just could you just give us the status of global Refinish markets? And I'd love to focus on, you know, three different facets. Number one, just where we stand with, you know, destocking trends. Number two, just how you see claims data conversion with actual collision data as we progress through 2026. And then number three, just, you know, where we stand with, you know, share gain potential, iris launches, you know, penetration in Europe and the US versus expectations A: Sure. Good morning, Chris. I'll take this one. So starting with destocking, I think, you know, this if I look at our Q4 performance and a little bit of Q1, it's a perfect representation of what happened prior associated with destocking. Three of our four end markets, so when we look at South America, Europe, and Asia, all three grew. So this was really a geographic mix issue, and this was just primarily related to destocking. And what I would say is destocking came in slightly worse than where we expected. And as you know, with the margin performance that we have, and how strong our North American business is, that's what kind of drove a little bit of the impact. Sales, I would say, for Q4, were primarily almost flat to slightly lower, I would say, line. It was just the pure of how strong North America and how destock obviously impacts us in this region. If I play that into Q1, we're essentially pulling that weakness through. And as I've always said, destocking started or this consolidation of our largest distributor acquiring FM started in Q2 of last year, and we expect that to end as with all our conversations and what we're tracking in Q2 of this year. So as you play that out, that's why we expect that to come back. And if you look at the expectations of performance, we just have to hit what we did last year in Q2. So from that perspective, that's what gives us confidence as we play this forward. In terms of claims, as you think about the slide that Carl went through on the guidance, I think there's a lot of green shoots that really build confidence into what we see in 2026. I would say, you know, claims are down 1% to 2%, which is, you know, what's been the average. On top of that, you can start seeing milestone-driven is still ticking up the right way, 1% to 2%. And on top of that, the great news is certainly what's happening with the insurance rates. Insurance rates, if I go back to '23 and '24, were, you know, just going up at, like, 18%. And what we can certainly see in the back half of '25 and '26 is we can start that coming back to the normalized levels we saw, let's call it, pre-pandemic or mid-pandemic, which is a really good sign here. Consumers are starting to really shop their insurance premiums, and they're starting to add back collisions. So we're certainly seeing that benefit. As well as obviously new car pricing going up and used car pricing going up is also going to be a positive trend. And for all of us on the East Coast, all the weather also helps. So I would say the overall trend as we predict into Q2 is it's trending the right way. I think there is a ton of green shoots that's certainly giving us a little bit more confidence as we get into Q2. And then your last question around share gains. Nothing's changed in our perspective. We have had four pillars that were absolutely focused around, you know, net body shop wins, going into adjacencies, moving into what do you call the economy space as well as M&A. And all of those haven't changed. And if I look at NetBody shops as one example, we had a great year in 2025. 2,800 body shops is higher than we have done in most years. Normally, we do around 2,200 to 2,500. So it's been a really strong year. Even in a challenging macro and with a lot of So we feel really, really good. Even in North America, we grew 400 body shops. So it's been a great story. And then as the slide points out, we grew in adjacencies by $25 million. We obviously did the CoverFlex acquisition. So, we grew by about 400 basis points. And we have no different expectations as we go into '26 even with the merger. So I would say from a growth perspective, we're right on plan, and everything's playing out as we expect.

Q: Just could you just give us the status of global Refinish markets? And I'd love to focus on, you know, three different facets. Number one, just where we stand with, you know, destocking trends. Number two, just how you see claims data conversion with actual collision data as we progress through 2026. And then number three, just, you know, where we stand with, you know, share gain potential, iris launches, you know, penetration in Europe and the US versus expectations A: Sure. Good morning, Chris. I'll take this one. So starting with destocking, I think, you know, this if I look at our Q4 performance and a little bit of Q1, it's a perfect representation of what happened prior associated with destocking. Three of our four end markets, so when we look at South America, Europe, and Asia, all three grew. So this was really a geographic mix issue, and this was just primarily related to destocking. And what I would say is destocking came in slightly worse than where we expected. And as you know, with the margin performance that we have, and how strong our North American business is, that's what kind of drove a little bit of the impact. Sales, I would say, for Q4, were primarily almost flat to slightly lower, I would say, line. It was just the pure of how strong North America and how destock obviously impacts us in this region. If I play that into Q1, we're essentially pulling that weakness through. And as I've always said, destocking started or this consolidation of our largest distributor acquiring FM started in Q2 of last year, and we expect that to end as with all our conversations and what we're tracking in Q2 of this year. So as you play that out, that's why we expect that to come back. And if you look at the expectations of performance, we just have to hit what we did last year in Q2. So from that perspective, that's what gives us confidence as we play this forward. In terms of claims, as you think about the slide that Carl went through on the guidance, I think there's a lot of green shoots that really build confidence into what we see in 2026. I would say, you know, claims are down 1% to 2%, which is, you know, what's been the average. On top of that, you can start seeing milestone-driven is still ticking up the right way, 1% to 2%. And on top of that, the great news is certainly what's happening with the insurance rates. Insurance rates, if I go back to '23 and '24, were, you know, just going up at, like, 18%. And what we can certainly see in the back half of '25 and '26 is we can start that coming back to the normalized levels we saw, let's call it, pre-pandemic or mid-pandemic, which is a really good sign here. Consumers are starting to really shop their insurance premiums, and they're starting to add back collisions. So we're certainly seeing that benefit. As well as obviously new car pricing going up and used car pricing going up is also going to be a positive trend. And for all of us on the East Coast, all the weather also helps. So I would say the overall trend as we predict into Q2 is it's trending the right way. I think there is a ton of green shoots that's certainly giving us a little bit more confidence as we get into Q2. And then your last question around share gains. Nothing's changed in our perspective. We have had four pillars that were absolutely focused around, you know, net body shop wins, going into adjacencies, moving into what do you call the economy space as well as M&A. And all of those haven't changed. And if I look at NetBody shops as one example, we had a great year in 2025. 2,800 body shops is higher than we have done in most years. Normally, we do around 2,200 to 2,500. So it's been a really strong year. Even in a challenging macro and with a lot of So we feel really, really good. Even in North America, we grew 400 body shops. So it's been a great story. And then as the slide points out, we grew in adjacencies by $25 million. We obviously did the CoverFlex acquisition. So, we grew by about 400 basis points. And we have no different expectations as we go into '26 even with the merger. So I would say from a growth perspective, we're right on plan, and everything's playing out as we expect.

Q: Just could you just give us the status of global Refinish markets? And I'd love to focus on, you know, three different facets. Number one, just where we stand with, you know, destocking trends. Number two, just how you see claims data conversion with actual collision data as we progress through 2026. And then number three, just, you know, where we stand with, you know, share gain potential, iris launches, you know, penetration in Europe and the US versus expectations A: Sure. Good morning, Chris. I'll take this one. So starting with destocking, I think, you know, this if I look at our Q4 performance and a little bit of Q1, it's a perfect representation of what happened prior associated with destocking. Three of our four end markets, so when we look at South America, Europe, and Asia, all three grew. So this was really a geographic mix issue, and this was just primarily related to destocking. And what I would say is destocking came in slightly worse than where we expected. And as you know, with the margin performance that we have, and how strong our North American business is, that's what kind of drove a little bit of the impact. Sales, I would say, for Q4, were primarily almost flat to slightly lower, I would say, line. It was just the pure of how strong North America and how destock obviously impacts us in this region. If I play that into Q1, we're essentially pulling that weakness through. And as I've always said, destocking started or this consolidation of our largest distributor acquiring FM started in Q2 of last year, and we expect that to end as with all our conversations and what we're tracking in Q2 of this year. So as you play that out, that's why we expect that to come back. And if you look at the expectations of performance, we just have to hit what we did last year in Q2. So from that perspective, that's what gives us confidence as we play this forward. In terms of claims, as you think about the slide that Carl went through on the guidance, I think there's a lot of green shoots that really build confidence into what we see in 2026. I would say, you know, claims are down 1% to 2%, which is, you know, what's been the average. On top of that, you can start seeing milestone-driven is still ticking up the right way, 1% to 2%. And on top of that, the great news is certainly what's happening with the insurance rates. Insurance rates, if I go back to '23 and '24, were, you know, just going up at, like, 18%. And what we can certainly see in the back half of '25 and '26 is we can start that coming back to the normalized levels we saw, let's call it, pre-pandemic or mid-pandemic, which is a really good sign here. Consumers are starting to really shop their insurance premiums, and they're starting to add back collisions. So we're certainly seeing that benefit. As well as obviously new car pricing going up and used car pricing going up is also going to be a positive trend. And for all of us on the East Coast, all the weather also helps. So I would say the overall trend as we predict into Q2 is it's trending the right way. I think there is a ton of green shoots that's certainly giving us a little bit more confidence as we get into Q2. And then your last question around share gains. Nothing's changed in our perspective. We have had four pillars that were absolutely focused around, you know, net body shop wins, going into adjacencies, moving into what do you call the economy space as well as M&A. And all of those haven't changed. And if I look at NetBody shops as one example, we had a great year in 2025. 2,800 body shops is higher than we have done in most years. Normally, we do around 2,200 to 2,500. So it's been a really strong year. Even in a challenging macro and with a lot of So we feel really, really good. Even in North America, we grew 400 body shops. So it's been a great story. And then as the slide points out, we grew in adjacencies by $25 million. We obviously did the CoverFlex acquisition. So, we grew by about 400 basis points. And we have no different expectations as we go into '26 even with the merger. So I would say from a growth perspective, we're right on plan, and everything's playing out as we expect.