AXTA

Overall Financial & Operational Performance

• Q2 2026 delivered record results: adjusted EBITDA of $305 million (+5% year-over-year), adjusted diluted EPS of $0.72 (+13% year-over-year), with an adjusted EBITDA margin of 22.7% (up 30 basis points year-over-year, the highest Q2 margin in a decade).
• Net sales grew 3% year-over-year to just under $1.35 billion, the highest quarterly sales in 2 years.
• Cash generation remained strong: $152 million in operating cash flow (+7% year-over-year) and $107 million in free cash flow (+6% year-over-year), driven by improved working capital performance and lower interest payments. H1 2026 operating cash flow is up 31% year-over-year.
• Balance sheet improvement: gross debt reduced by $80 million in Q2 and $135 million year-to-date, bringing net leverage to 2.2x, the lowest in Axalta's history, on track to fall below 2x by the end of 2026.

Strategic Update: Proposed Merger with AkzoNobel

• A shareholder vote on the proposed merger of equals is scheduled for August 5, 2026, with regulatory reviews ongoing; management remains on track for closing in late 2026 or early 2027.
• Management continues to expect $600 million in annual run-rate cost synergies, with ~90% captured within the first 3 years post-close. Attractive revenue synergies are expected from cross-selling, technology sharing, and expanded global customer access.
• Strong recent performance puts Axalta in the strongest financial position in company history to enter the combination.

Operating Highlights by End Market

• Refinish channel destocking that pressured results in prior quarters has largely abated, driving improved performance in Q2 2026. New bodyshop wins are running well ahead of the historical annual average of 2,500 units, with large MSO wins in North America and Europe, and a new BMW win in Japan adding growth momentum.
• Industrial segment has achieved double the margin it held 2-3 years ago via disciplined cost management, with strength in European E-Coat and Asian Energy Solutions (for electric vehicle batteries and motors); management believes North American industrial demand may have hit bottom, with upside potential if demand recovers.
• Axalta has delivered 8 consecutive quarters of lower operating expenses on a constant currency basis, with variable input costs declining nearly 2% in Q2 2026.

• Management maintains all full-year 2026 guidance for net sales, adjusted EBITDA, adjusted diluted EPS, and free cash flow, citing prudent planning amid ongoing geopolitical uncertainty.
• For Q3 2026, management expects net sales to grow low single digits year-over-year, with adjusted EBITDA in the range of $295 million to $305 million, and adjusted diluted EPS of ~$0.70 (+4% year-over-year).
• Full-year raw material inflation is expected to be a mid-single-digit headwind on a gross basis, rising to a high single-digit pace in Q3 before moderating; productivity and purchasing initiatives are expected to offset most of this impact to meet guidance targets.
• Foreign exchange tailwinds that boosted sales in H1 2026 will abate in H2, but positive price mix and acquisition accretion are still expected to drive low single-digit top line growth for the full year.
• Refinish volumes are expected to be flat in Q3 2026, then rise in Q4, resulting in a slight year-over-year increase for H2 2026 overall, as new bodyshop wins offset an expected mid-single-digit decline in industry collision claims.
• Mobility overall is expected to deliver slight volume growth in H2 2026, driven by Light Vehicle wins in Europe and Latin America and ongoing growth in Commercial Vehicle, with price/mix expected to inflect positive starting in Q3 2026.

Axalta operates two core reportable segments: Performance Coatings and Mobility Coatings.

1. Performance Coatings: This segment is split into Refinish and Industrial sub-segments. Total segment net sales increased 4% year-over-year to $872 million (representing 64.6% of total company net sales), with adjusted EBITDA increasing 10% year-over-year to $218 million, for an adjusted EBITDA margin of 25.1% (up 130 basis points year-over-year).

   • Refinish: Net sales increased 6% year-over-year to $545 million, driven by channel inventory normalization, positive price mix, and volume growth across 3 of 4 regions. Europe delivered record net sales, with more than 1,900 new net bodyshops secured in H1 2026, plus an additional ~800 new North American MSO locations won in July 2026.
   • Industrial: Net sales increased 2% year-over-year to $327 million. Volume growth in Europe and Asia and positive price mix offset lower North American volumes. The segment has delivered 13 consecutive quarters of adjusted EBITDA margin expansion despite choppy North American macro conditions, with 6 straight quarters of net sales growth in Asia driven by Energy Solutions demand.

2. Mobility Coatings: This segment covers Light Vehicle and Commercial Vehicle coatings. Total segment net sales hit a quarterly record of $474 million (representing 35.1% of total company net sales), an increase of 1% year-over-year. Adjusted EBITDA totaled $87 million, for an adjusted EBITDA margin of 18.4% (up 90 basis points sequentially, down year-over-year due to a $7 million one-time benefit in Q2 2025 that did not repeat).

   • Light Vehicle: Net sales declined slightly year-over-year, as organic growth in Latin America and favorable foreign currency offset lower volumes in other regions.
   • Commercial Vehicle: Net sales increased 7% year-over-year across all regions, driven by the ramp-up of North American Class 8 production. Diversified non-Class 8 commercial end markets (off-highway, military, emergency vehicles, RVs) now make up 50% of the Commercial Vehicle business, which grew 5% year-over-year, delivering record quarterly sales.

• Geopolitical uncertainty, including the ongoing conflict in the Middle East, the situation in Iran, and global tariff tensions, creates uncertainty around raw material pricing and demand trends, leading management to retain existing guidance rather than raise it despite strong H1 performance.
• North American industrial demand remains weak and choppy, tied to high interest rates and slow residential construction, even as management believes demand may have bottomed.
• Industry collision claims are expected to decline mid-single-digits in H2 2026, driven by lower consumer affordability for repairs and higher total loss rates due to rising repair and parts costs.
• Raw material prices show significant volatility across the input basket: solvents are up 15-20% and monomers are up high single digits due to rising oil prices tied to Middle East tensions, even as overall basket prices are not expected to rise further for the rest of 2026.
• The proposed merger with AkzoNobel carries inherent regulatory and approval risks, with closing timing dependent on successful regulatory clearance and shareholder approval.

Q: Refinish outperformed expectations in Q2; with destocking easing, will Refinish volumes grow year-over-year in H2, and what growth contribution will the 800 July new bodyshop wins add? / A: Through July 2026, Axalta has secured ~2,700 new net bodyshops, already exceeding the full-year historical average of 2,500. The large 800-unit MSO win in North America will drive incremental volume in the second half, alongside benefits from recent distributor acquisitions in Europe, Asia, and Australia that drove Q2 results and will continue to add upside. Management expects overall H2 volumes to be slightly up year-over-year, with Q3 roughly flat as new wins ramp into the P&L, followed by growth in Q4. Destocking headwinds are now mostly behind the business.

Q: Free cash flow was better than expected driven by working capital improvements; how sustainable is this strength, and should investors expect givebacks in H2? / A: The team improved Axalta's cash conversion cycle by 10% year-over-year, driven by an 8-day reduction in inventory days, even after accounting for merger-related deal fees. Excluding deal costs, free cash flow would be up ~20% year-over-year, reflecting ongoing operational improvements across the business. This strength has helped drive net leverage to a record low 2.2x and reduced cash interest payments, and management expects sustained strong cash generation for the full year. The improvement is rooted in structural process changes rather than one-time timing shifts.

Q: Industrial volumes improved in Q2, with strength in Europe and Asia; what is the overall volume trend, and where are the pockets of strength? / A: Overall Industrial volumes were down ~1% in Q2, with net sales up 2% driven by positive price mix. Margins have doubled from 2-3 years ago, driven by disciplined cost management amid a choppy macro environment. Strength is led by European E-Coat volumes and 6 straight quarters of growth in Asian Energy Solutions (for EV battery casings and motor resins), a trend that has continued into July 2026. North America Industrial remains challenged but management believes it may have hit bottom, with significant upside potential for margins if demand recovers.

Q: What is driving strong commercial vehicle performance, and how far along is MSO consolidation in Refinish? / A: Strong commercial vehicle results come from two factors: the ongoing recovery of North American Class 8 production, which is returning to a normal run rate of ~300,000 units annually, and strong growth in diversified non-Class 8 commercial end markets, which now make up 50% of the commercial vehicle business and grew 5% year-over-year. For Refinish MSO consolidation, the pace has slowed slightly amid market conditions, but Axalta now serves 13 of the top 20 North American MSOs, up from 12, giving it strong exposure to the premium collision market. The proposed merger with AkzoNobel will further expand Axalta's position in the economy Refinish segment, where AkzoNobel is already strong. MSO wins add incremental premium volume and scale to support further adjacency growth, which has grown from 9% to 11-12% of Refinish over the last 3 years.