Axalta Reports Increased Net Sales for Second Quarter
PHILADELPHIA — Paint and coatings manufacturer Axalta Coating Systems Ltd. announced its financial results for the second quarter ended June 30, 2018, reporting second quarter net sales of $1,206.5 million, an increase of 10.8% year-over-year.
The company reported 1.9% higher average selling prices and a 2.4% foreign currency benefit. Second quarter net sales growth was positive in all regions and average prices increased in all regions except Asia-Pacific, which was largely impacted by lower average price in Light Vehicle in China.
Net income attributable to Axalta was $74.9 million for the second quarter compared with a net loss attributable to Axalta of $20.8 million in Q2 2017. The increase was primarily driven by the absence of the Venezuela deconsolidation and lower refinancing charges in 2018 versus 2017. Second quarter adjusted net income attributable to Axalta of $87.1 million increased 15.5% versus $75.4 million in the second quarter of 2017.
Adjusted EBITDA of $247.6 million for the second quarter increased 9.0% versus $227.2 million in the second quarter of 2017. This result was driven by contribution from positive price and product mix, acquisitions, modest benefit from foreign currency translation, and slightly lower net operating costs. These factors were partially offset by higher raw material costs against a challenging prior year comparison that was still fairly inflation neutral.
"Second quarter results demonstrated performance meeting Axalta's expectations, which came despite several one-time impacts including Light Vehicle production interruptions caused by non-paint supplier issues, a general strike in Brazil and costs associated with Axalta's footprint realignment in Europe," said Charles W. Shaver, Axalta's Chairman and Chief Executive Officer. "Importantly, results also provided evidence of continued price recapture in key areas of the business. The second quarter benefited from fundamental global demand stability underlying our end-markets. Still, moderating GDP forecasts and modest reductions in Light Vehicle build expectations in several regions could be more significant factors in the second half of 2018. Also, the ongoing impact of cost inflation persisted in the second quarter, and we are working actively to adjust for this with structural cost reduction, as well as working with our customers to enable price pass through, which is required to support ongoing customer service and innovation."
Performance Coatings Results
Performance Coatings second quarter net sales were $784.5 million, an increase of 18.3% year-over-year driven by 6.2% organic sales growth, acquisition contribution of 9.2% and a 2.9% foreign currency benefit. Refinish end-market net sales increased 6.1% to $447.1 million in the second quarter of 2018 (increased 3.4% excluding foreign currency) with significantly positive pricing offset by slightly lower volume, while Industrial end-market net sales increased 39.6% to $337.4 million (increased 36.3% excluding foreign currency) including acquisition contribution, positive pricing and double-digit organic volume growth.
The Performance Coatings segment generated Adjusted EBITDA of $176.5 million in the second quarter, a year-over-year increase of 20.2%. Positive price and product mix, contribution from acquisitions, and modest foreign currency benefits were offset partly by higher raw material costs and slightly higher expenses to support sales growth in Refinish. Second quarter segment Adjusted EBITDA margin of 22.5% was slightly higher than 22.1% in the prior year.
Transportation Coatings Results
Transportation Coatings net sales were $422.0 million in the second quarter of 2018, a decrease of 0.8% year-over-year including a 1.6% foreign currency benefit and flat volume, offset by 2.6% lower price and product mix.
Light Vehicle net sales decreased 1.5% to $329.4 million year-over-year (decreased 3.1% excluding foreign currency), driven by lower average prices due to concessions made with select customers largely in 2017 and adverse product mix changes on flat volume. Commercial Vehicle net sales increased 1.4% to $92.6 million versus last year (increased 0.2% excluding foreign currency), driven by continued strong overall volumes in all regions except Europe and largely flat average price and product mix.
Transportation Coatings generated Adjusted EBITDA of $71.1 million in Q2 2018, a decrease of 11.6% versus Q2 2017, driven by impacts of higher raw material cost as well as lower average price and product mix, offset partly by lower operating costs. Segment Adjusted EBITDA margin of 16.8% in Q2 2018 compared with 18.9% in Q2 2017.
"Axalta's second quarter results were strong, witnessed in double-digit growth in net sales and high single-digit growth in Adjusted EBITDA year-over-year," said Robert W. Bryant, Axalta's Executive Vice President and Chief Financial Officer. "That said, we remain highly focused on a combination of passing through price increases as needed to offset substantial cost inflation across our businesses, while also executing ongoing productivity savings in order to enhance near-term corporate margin stability. Our initiatives thus far in 2018 are bearing fruit, but we are doubling down on certain cost measures needed to offset increasing cost inflation pressures including raw materials, transportation, logistics and packaging. Our updated guidance reflects somewhat reduced tailwinds from foreign exchange. Additionally, we note the potential impact within our existing guidance range from possibly higher overall cost inflation and modestly lower Light Vehicle build rates, as well as uncertain price recapture assumptions, in Transportation Coatings. We have also incorporated the effect of greater share repurchases undertaken versus prior periods."