Axalta’s first quarter 2023 financial results show the company’s earnings were above the guidance range, driven by margin recovery initiatives and Mobility Coatings volume growth.
Consolidated net sales increased 9.4 per cent year-over-year, with the strong growth attributed to a 9.4 per cent higher average price mix and 2.7 per cent better volumes, offset by a 2.7 per cent foreign currency headwind.
Income from operations was US$125.3 million versus US$86.3 million in Q1 2022. Net income to common shareholders was US$60.5 million for the quarter, including a US$7.1 million pre-tax charge associated with the expected exit of a non-core product category in Mobility Coatings, compared with US$41.5 million in Q1 2022. The company said diluted EPS increased to US$0.27 and adjusted diluted EPS was US$0.35, compared to diluted EPS of US$0.18 and adjusted diluted EPS of US$0.31 in Q1 2022, despite the impact of increased interest expenses.
Higher income from operations was driven mainly by an improvement in year-over-year ‘price-cost’ as strong pricing netted favourably against moderating variable cost inflation. The cumulative total income from operations and adjusted EBIT impact since the beginning of 2021 from price-cost shifted positively for the first time, but Axalta said there remains a cumulative deficit in two of four end-markets where pricing remains a high priority.
As well as favourable year-over-year price-cost trends, Mobility Coatings volume contribution supported year-over-year profit growth, which altogether more than offset softer volumes in Industrial and the combined approximately US$6 million pre-tax impact from foreign currency translation and the Russia-Ukraine conflict.
Performance Coatings first quarter net sales increased four per cent year-over-year (an increase of 6.9 per cent ex-foreign currency translation) to US$847.1 million, driven by a 10.3 per cent price-mix benefit. Volumes declined 3.4 per cent as modest growth in Refinish was more than offset by softer regional activity in Industrial, inclusive of slow recovery in China from COVID-19 lockdowns and softer demand in EMEA. Foreign currency translation in the first quarter was a 2.9 per cent year-over-year headwind.
Refinish net sales increased 7.8 per cent (a 10.9 per cent increase ex-foreign currency translation) year-over-year to US$497.6 million, driven mainly by price-mix growth of 10 per cent. Volume increased modestly by 0.9 per cent as strong growth with MSOs in North America more than offset slow recovery in China as a result of COVID-19 lockdowns.
In the company’s core North America and EMEA markets, Axalta said body shop customers are still impacted by parts and labour shortages, driving elevated backlogs and continuing to strain volume growth. However, market share gains, MSO consolidation, increased points of distribution and expansion into adjacent markets are driving growth in Axalta’s business and the expected continuation of above-market performance.
The Performance Coatings segment generated adjusted EBIT of US$109.3 million in the first quarter compared with US$94.6 million in Q1 2022, with associated margins of 12.9 per cent and 11.6 per cent, respectively. The year-over-year adjusted EBIT growth was primarily driven by Refinish. Segment-adjusted EBIT margins improved by 130 basis points mainly from favourable price-cost contribution despite increases in variable and fixed costs.
“I am pleased to report first quarter earnings above our guidance range and am encouraged by the progress clearly demonstrated in our results,” said Chris Villavarayan, Axalta’s CEO and President. “We are building momentum and working hard to maximise the opportunity in front of us through focusing on more efficient execution at our plants, productivity across all functions and working with our partners to realise the full value of our product and services.
“We are taking actions to strengthen Axalta’s long-term profitability, and as I close my first quarter as CEO, the future looks bright. I am excited to unlock the tremendous potential of this organisation and wish to congratulate the entire Axalta team for a well-executed quarter.”