Axalta Q4 2023 Financials: Sales Up, 2023 “Transformative”

Axalta Coating Systems says it is beginning to unlock the potential of the business after achieving net sales increases in the fourth quarter and full year 2023.

Fourth quarter net sales jumped 4.9 per cent year-over-year to US$1.3 billion, driven by a 2.3 per cent foreign exchange benefit, 1.7 per cent improvement in volumes, and 0.9 per cent price-mix growth.

Net income increased 68 per cent year-over-year to US$74 million versus US$44 million in the prior-year period due to significant earnings improvements in Performance Coatings and Mobility Coatings. Net income benefited from “pricing actions” executed throughout the year, positive mix impacts and variable cost deflation, which were partially offset by higher productivity investments and higher variable labour expense.

Adjusted EBITDA improved to US$251 million compared to US$208 million in the fourth quarter of 2022, while an adjusted EBITDA margin of 19.3 per cent improved by 250 basis points.

Fourth quarter 2023 cash provided by operating activities was US$286 million versus US$246 million in the prior-year period, with free cash flow totalling US$254 million compared to $206 million. The year-over-year increases were driven mainly by working capital benefits.

Cash and cash equivalents at year end were US$700 million and total liquidity was US$1.2 billion. The net debt to trailing twelve month adjusted EBITDA ratio (total net leverage ratio) was 2.9x at quarter-end versus 3.8x as of 31 December 2022. An additional US$55 million of term loan principal was paid down, contributing to the US$200 million of gross debt reduction for the full year 2023.

Performance Coatings fourth quarter 2023 net sales were US$849 million, up 3.7 per cent from the prior-year period and driven by strong price-mix in both end-markets. Refinish volumes were up modestly year-over-year against a stable market environment, while Industrial volumes were lower year-over-year as stable volumes in Europe were more than offset by soft macro-economic conditions in North America.

The Performance Coatings segment generated adjusted EBITDA of US$192 million in the fourth quarter compared to US$169 million in the prior-year period, with associated margins of 22.6 per cent and 20.6 per cent, respectively. The increases in segment-adjusted EBITDA and adjusted EBITDA margin were driven by better price-mix and variable cost deflation, which more than offset higher labour expenses and lower Industrial volumes.

Full year 2023 consolidated net sales increased 6.1 per cent year-over-year (5.6 per cent excluding foreign currency translation) to US$5.2 billion. Net income totalled US$269 million versus US$192 million in 2022. The increase in net income was driven by strong price-mix growth and variable cost deflation, offset partially by higher labour expense, costs related to productivity investments, and increased interest and tax expenses.

Adjusted EBITDA improved to US$951 million in FY 2023 from US$811 million in FY 2022, while the adjusted EBITDA margin of 18.4 per cent improved by 180 basis points year-over-year with solid contributions from both segments. Diluted earnings per share of US$1.21 compared to $0.86 in 2022, while adjusted diluted earnings per share for 2023 improved by six per cent to US$1.57 compared to US$1.48.

FY 2023 cash provided by operating activities was US$575 million versus US$294 million in the prior year, driven mainly by working capital benefits and improved earnings. Free cash flow totalled US$447 million compared to US$163 million in 2022, an increase of US$284 million.

“We finished the year out strong and intend to build on this momentum in 2024,” said Chris Villavarayan, CEO and President of Axalta. “2023 was a transformative year. We took decisive action to fully offset lingering inflationary headwinds and as a result achieved record sales and adjusted EBITDA. We believe we are only just beginning to unlock the potential of this enterprise.”