Axalta has announced its financial results for the third quarter 2022, reporting net sales of US$1.24 billion, an increase of 13.8 per cent year-over-year, including a negative 6.3 per cent foreign currency impact. The growth was driven by a 9.7 per cent higher average price-mix, 8.8 per cent better volumes and 1.6 per cent mergers and acquisitions benefit.
Performance Coatings net sales increased 7.5 per cent year-over-year, driven by constant currency growth of 19.9 per cent in Refinish and 7.1 per cent in Industrial.
Income from operations for Q3 2022 totalled US$123.5 million versus US$124.7 million in Q3 2021.
While the quarter benefited from robust sales growth, operating income was negatively impacted by continued variable raw material inflation, and elevated logistics, energy, and labour expenses. Additionally, foreign currency headwinds, the Russia-Ukraine conflict, and COVID-19 lockdowns in China represented an approximate US$16 million headwind to income from operations in the quarter.
Axalta ended the period with cash and cash equivalents of US$517.4 million and total liquidity of over US$1 billion. Third quarter total operating cash flow was US$79.9 million versus US$142.9 million in Q3 2021. Working capital was a larger use of cash in the period versus the prior-year period following inflationary pressures and higher physical inventory levels as of 30 September 2022. Accounts receivable increased, reflecting stronger volumes and pricing inputs. Free cash flow totalled US$50.5 million compared with US$111.7 million in Q3 2021.
Axalta said the market recovery is steadily progressing with improvement in key metrics such as office occupancy and road congestion. Refinish again drove above-market volume growth with several notable MSO wins in the quarter alongside an increase in points of distribution. Sequentially, volumes declined 4.4 per cent, which the company says was consistent with seasonal factors and in line with prior expectations. Price-mix was 11.7 per cent higher year-over-year, which more than offset the impact of continued variable cost inflation.
Refinish net sales increased 12.5 per cent to US$498.7 million (19.9 per cent ex-FX), including a 4.3 per cent increase in volume and a 3.9 per cent contribution from mergers and acquisitions, partially offset by a foreign exchange headwind of 7.4 per cent. Volume growth was strong in the Americas and stable in China and in EMEA year-over-year.
“I am pleased that we were able to report earnings within our stated guidance range despite acute currency and inflationary headwinds plus pockets of softening regional demand,” said Rakesh Sachdev, Interim CEO and President of Axalta. “Our resilient third quarter performance can be attributed to the prioritisation of price to offset variable cost inflation, as well as continued market recovery in our Refinish and Light Vehicle end-markets. New customer wins across the portfolio supported volume growth and again highlighted our customers’ continued preference for our industry-leading products and services.
“The third quarter also represented an inflection point in our price-cost trajectory as we more than offset year-over-year variable cost inflation for the first time since the current unprecedented inflationary environment began in mid-2021. Our teams are taking the steps necessary to recapture the value provided by our products and services to our partners, but more is needed for us to return to pre-COVID levels of profitability.”
Sachdev said enhancing Axalta’s profitability is among his highest near-term strategic imperatives. “Successful day-to-day execution is fundamental to achieving our long-term goals, which will be realised through driving improved operational performance and productivity. We have a great leadership team ready to tackle these objectives. I believe we can accelerate a return to pre-COVID profitability on our pathway to sustained growth.”