Axalta’s Q4 2022 Earnings At Top Of Guidance Range

Axalta released its financial results for the fourth quarter and full year ended 31 December 2022, which show Q4 volumes grew 2.4 per cent year-over-year as market recovery in Mobility Coatings more than offset pockets of softer demand in Industrial and a slower China recovery in Performance Coatings.

Mobility Coatings net sales were US$418.2 million, an increase of 25.5 per cent (30.2 per cent ex-FX) year-over-year, supported by a recovery in global vehicle production and continued pricing momentum.

Refinish fourth quarter net sales increased 4.5 per cent (10.5 per cent increase ex-FX) year-over-year to US$492.2 million, driven by a price and product mix benefit of 11.5 per cent. Volume declined one per cent year-over-year as stronger North American activity was more than offset by reduced traffic patterns in China as a result of COVID-19 lockdowns, and modest declines in Europe, the Middle East and Africa (EMEA) driven by the impacts of the Russia-Ukraine conflict.

Overall Q4 net sales increased 8.7 per cent year-over-year, including a 5.4 per cent foreign currency headwind. The strong year-over-year growth was driven by 11.7 per cent higher average price-mix, and 2.4 per cent better volumes. Income from operations totalled $US109.8 million compared to US$94.7 million in Q4 2021.

However, operating income was negatively impacted by continued year-over-year variable raw material inflation and elevated logistics, energy and labour expenses. Additionally, foreign currency headwinds, the Russia-Ukraine conflict, and COVID-19 impacts in China, represented a combined up to $17 million headwind to income from operations in the quarter.

Axalta ended Q4 with cash and cash equivalents of US$645.2 million and total liquidity of nearly US$1.2 billion.

Total operating cash flow was US$245.6 million versus US$268.6 million in Q4 2021. Working capital was less of a source of cash in the period versus the prior-year period, following inflationary pressures and higher physical inventory levels as of 31 December 2022. Accounts receivable increased, reflecting stronger volumes and pricing. Free cash flow totalled US$206 million compared with US$249.4 million in Q4 2021, given lower working capital contribution versus the prior year period and modestly higher capital expenditures in Q4 2022.

“I am pleased to report fourth quarter earnings at the top of our guidance range, which reflected considerable year-over-year improvement,” said Chris Villavarayan, CEO and President of Axalta. “Strong pricing gains were realised across all end-markets and supported better year-over-year profitability. Margin recovery is a key priority for us, and our second-half results showed notable progress on this front.

“Meanwhile, volumes again improved across the portfolio as demand for our products and services continue to outpace most end-market trends. We are exiting 2022 with strong momentum and a foundation to deliver continued progress into 2023.”

Full year net sales increased 10.6 per cent year-over-year, including a 4.9 per cent foreign currency headwind. Year-over-year growth was driven by 10.1 per cent higher average price-mix, 3.7 per cent better volumes and 2.2 per cent contribution from acquisitions.

Income from operations totalled US$423.2 million in 2022 versus US$462.4 million for 2021. While 2022 benefitted from robust sales growth, including significant realised pricing gains and volume improvement, Axalta said operating income was negatively impacted by continued variable raw material inflation, and elevated logistics, energy, and labour expenses. In addition, foreign currency headwinds, the Russia-Ukraine conflict, and COVID-19 impacts in China represented a combined  up to US$70 million headwind to income from operations.

“We ended 2022 with momentum in our key businesses and demonstrated improvement in many metrics, including earnings growth for two consecutive quarters and margin improvement in Q4,” said Sean Lannon, Chief Financial Officer of Axalta.

“Looking ahead, I expect the resilient core of Axalta to remain strong as we believe trends remain favourable for our differentiated products and services, most notably in our industry-leading Refinish end-market. Elsewhere, our Q4 results demonstrated what we believe to be the beginnings of a reversal in several cyclical factors, such as inflation, constrained auto production, and unreliable supply-chains, which together have depressed profitability and cash generation.

“I expect us to continue to show meaningful progress into 2023 with the Q4 sequential increase in Mobility Coatings EBIT representing a promising step in our recovery alongside a meaningful reduction in the cumulative price-cost gap. Soft demand in our most economically sensitive end-market, Industrial, is likely to persist for the time being as regional macroeconomic factors slow in certain sectors. However, we expect that the significant pricing momentum across the portfolio should more than offset modest incremental volume risk.

“We are committed to driving earnings and cash flow growth in the coming year and, given our unique market positioning, we see a constructive setup into 2023 and the years to follow.”