Axalta Coating Systems Ltd. Q1 FY2026 earnings call

Delivered strong results and exceeded expectations across financial metrics. Generated net sales of $1.25 billion, adjusted EBITDA of $259 million, and adjusted diluted EPS of 56 cents, 12% above expectations. Set cash generation records with $68 million of cash from operations and $21 million of free cash flow. Industrial business had 12th consecutive quarter of year-over-year profitability improvement. Mobility achieved first quarter net sales record and 17.5% adjusted EBITDA margin. Refinish saw stabilization at nearly $500 million in sales. Received six Business Intelligence Group Innovation Awards and three Edison Awards. ECHO NextJet and Alesta E-Pro FG Black got Gold Edison Awards, TintMaster AI got Bronze Edison Award.

Net sales were $1.254 billion, a 1% decrease year over year, primarily driven by lower volumes and performance codings, partially offset by favorable foreign currency translation. Gross margin was 33%. Net income was $91 million, a decrease of $8 million from the prior year period. Adjusted EBITDA in the quarter was $259 million, resulting in an adjusted EBITDA margin of 20.6%. Performance Coating's first quarter net sales declined 2% year-over-year to $802 million. Refinish net sales declined 3% to $498 million. Industrial net sales declined 2% year-over-year to $304 million. Mobility Coatings delivered record first quarter net sales coming in at $452 million, adjusted EBITDA totaled $79 million in the first quarter, and adjusted EBITDA margin increased 100 basis points year-over-year to 17.5%.

Macro uncertainty exists. Refinish expects volumes to improve in second half. Industrial is cautious about North America recovery. Mobility assumes global auto production of approx. 91 million builds, North America Class 8 builds of approx. 274,000 units. Second quarter net sales roughly flat, adjusted EBITDA $280 - $290 million, adjusted diluted EPS approx. $0.65. Full year maintains previous guidance expectations, tracking closer to lower end of EBITDA and EPS guidance, expects adjusted EBITDA margins of approx. 22%.

Geopolitical developments like Iran and Middle East tensions increase global market uncertainty, impacting energy prices, inflation and consumer sentiment, potentially creating additional pressure on demand and cost in second half of the year.

Q: Just given the abrupt spike in the raw material costs, has that dynamic changed the destocking dynamics impacting auto refinish, especially in North America? And could you just update us on your view for that timeline for volumes in that business...

A: As we see it right now, we're certainly seeing stabilization. And, you know, as April is closing and as we look at Q2, I would say, you know, we're showing a bit of an increase in volumes in Q2 or let's call it sales in Q2. And we're certainly seeing that come through...

Q: when you think about the second half of the year, third quarter, fourth quarter, you have more headwinds with raw material costs and such. And to get to the midpoint, you're going to need a much stronger second half versus first half. So can you sort of walk us through how you get that ramp into the third and the fourth and how you think the raw material situation gets sort of handled during that time period...

A: If I look at Q1, you can see that, you know, we had a good quarter. We had pockets of improvements across all three businesses...

Q: Chris, you talked about the 50% of mobility revenue that's tied to the World Materials Index. Can you talk about any lag, if there's any in there? And also for the remaining 50%. Will prices come on time to not have any negative impact in the second half of the year...

A: That's a great question. And it's, you know, reflective of what I would say the team has performed. If you look at the last three years, as you know, this isn't the first time we've been here...

Q: just kind of turning back to refinish and the trends you're seeing, your competitors that have already reported have suggested share gains. So just kind of how would you characterize your positioning today or any more color you could give...

A: I think I've obviously stayed away on commenting with what our competitors do. Maybe I'll give you about three or four perspectives here...

Q: Just given some of like how much like the chemical spot rates have moved this year, can you help us understand a little bit better like why the inflation headwind is only like mid-single digits this year and not higher like many people thought and maybe just kind of like what you're what the raw material headwind will be as you're exiting Q4...

A: Sure. Good morning. I'll start and maybe I'll hand it over to Carl. I would say there are probably about three or four things that maybe were similar or differentiate us from others or peers than what we're seeing...

Q: I think your slides had called out mid-single digit pricing for refinish. Is that a full year comment or a 2Q to 4Q comment? And how can I kind of square that away with the negative price mix you saw in 1Q? Also, any updates on the IRS fixing rollout would be helpful as well...

A: Yeah, sure. Thanks for the question. Yeah, so I think at the first quarter, pure price was about low single digits up about 2% on a year-over-year basis...

Q: I was hoping that, Chris, maybe you could give us a little more detail on what you're seeing in commercial vehicle, just some thoughts on the timing of this big swing in Class 8. And then maybe some more detail on what's going on in commercial transportation solutions...

A: Sure. Thanks, Mike. Great question. I'd love to. So, you know, as we look at commercial vehicle and obviously, you know, coming from my past, it's certainly very cyclical...

Q: I know that you're still guiding to greater than $500 million for a full-year free cash flow. So given the potential for mid-single-digit inflation and working capital requirements, how are you managing inventory levels and receivables through the balance of the year...

A: Yeah, thanks Rachel for the question. So I think maybe we'll start in the first quarter. You know, we were pleased with the performance...

Q: I realize you can't necessarily jump the gun in terms of the AXA deal, but in terms of your own cost execution and just navigating what I think most of us would characterize as fairly difficult markets over the last few years, is there any kind of update in your thoughts or the trajectory of the synergy target with the companies?...

A: Yeah. Good morning, Christopher. Good question. Certainly, you know, I think on both sides, We're managing costs...

Q: What are you seeing in the demand function for your industrial business? Sales look like they're stronger in Asia and Europe than domestically. Could you take us through how the business is doing regionally? And then finally, what are your thoughts on whether rising input costs for your customers in that business will lead to incremental demand weakness in the back half of the year...

A: I think maybe I'll first give you a perspective, again, to the two bright spots. Asia continues to grow...

Q: It seems like there's kind of been a shift amongst, I guess, both you guys and the rest of the coatings peers towards like greater index linking of pricing to raw material shifts. So I guess that's probably happening more in the coatings businesses that seem to have less pricing power compared to those with more. And I guess while this sort of might reduce shorter-term earnings volatility at the front of the cycle, I mean, it then seems like it's set up to kind of give the pricing back on the back end and might like reduce the net price-cost benefit that you're capturing over the full cycle...

A: Well, maybe I'll start and then hand it over to Carl. I would have to disagree with that a bit, primarily because of my view on what the indexing provides...