First Quarter 2017 Highlights:
- Net sales of $1,007.8 million
driven by volume growth of 8.9%, which includes 4.5% acquisition
contribution
- Net income attributable to Axalta of
$64.1 million versus $30.9 million in Q1 2016; Adjusted net income
attributable to Axalta of $63.1 million for Q1 2017 versus $43.0
million in Q1 2016
- Adjusted EBITDA of $203.1 million
versus $194.8 million in Q1 2016
- Successfully completed two
acquisitions; also announced the acquisition of Valspar’s North
American industrial wood coatings business
Axalta Coating Systems Ltd. (NYSE:AXTA) (“Axalta”), a leading
global coatings company, announced its financial results for the
first quarter ended March 31, 2017.
“Axalta’s financial and operating performance has started the
year well on plan, with top-line growth at the high end of our
expectations and continued success in our operating, productivity
and acquisition initiatives,” said Charles W. Shaver, Axalta’s
Chairman and Chief Executive Officer. “We are thrilled by our
agreement to purchase the industrial wood coatings business from
Valspar and by the opportunity that this deal and others we have
recently closed give us to further extend our growth and
competitive position in Performance Coatings.”
First Quarter 2017 Consolidated Financial Results
First quarter net sales of $1,007.8 million were driven by
volume growth of 8.9%, offset partly by 1.2% lower average selling
prices and by a 2.2% negative foreign currency translation impact.
Constant currency net sales increased 7.7% compared to the year-ago
quarter, driven by volume growth. Acquisitions added 4.5% of the
volume growth in the quarter. Net sales growth in the first quarter
was positive in all regions and included volume growth in all
regions and end-markets.
We reported net income attributable to Axalta of $64.1 million
for the first quarter of 2017 compared with net income attributable
to Axalta of $30.9 million in Q1 2016. Adjusted net income
attributable to Axalta of $63.1 million for the first quarter of
2017 increased 46.7% compared to $43.0 million in Q1 2016. Both net
income attributable to Axalta and adjusted net income attributable
to Axalta for Q1 2017 and Q1 2016 include benefits for excess tax
benefits relating to share-based compensation of $5.8 million and
$1.2 million, respectively. The retrospective adoption of ASU
2016-09 relating to share-based compensation is discussed
below.
Adjusted EBITDA of $203.1 million for the first quarter
increased 4.3% versus $194.8 million in Q1 2016. This result
benefited from higher volumes, contribution from acquisitions,
lower variable costs, and incremental savings from our productivity
initiatives. These factors were partially offset by lower average
selling prices, negative foreign currency translation, and
incremental operational expenditures to support planned growth.
Performance Coatings Results
Performance Coatings net sales were $586.4 million in Q1 2017,
an increase of 8.0% year-over-year including a 3.0% unfavorable
foreign currency translation impact. Constant currency net sales
increased 11.0%, driven by strong volumes in the period.
Acquisitions added 6.7% to volume growth in the quarter. Refinish
end-market net sales increased 2.6% to $388.6 million in Q1 2017
(increased 5.7% excluding foreign currency translation), while our
Industrial end-market net sales increased 20.4% to $197.8 million
(increased 23.3% excluding foreign currency translation).
The Performance Coatings segment generated Adjusted EBITDA of
$116.9 million in the first quarter, a 6.2% year-over-year
increase. Contribution from acquisitions, organic volume growth and
modest variable cost savings were partially offset by negative
foreign currency translation and incremental operating expense to
support growth initiatives. First quarter segment Adjusted EBITDA
margin of 19.9% was largely consistent with 20.3% in the same
quarter last year.
Transportation Coatings Results
Transportation Coatings net sales were $421.4 million in Q1
2017, an increase of 2.1% year-over-year including a 1.1%
unfavorable foreign currency translation impact. Constant currency
net sales increased 3.2% versus Q1 2016, driven largely by 6.1%
volume growth, partially offset by a 2.9% negative price impact.
Acquisitions added 1.5% to volume growth in the period.
Light Vehicle net sales increased 3.2% to $340.0 million
year-over-year (increased 4.0% excluding foreign currency
translation), driven principally by growth in Latin America.
Commercial Vehicle net sales decreased 2.2% to $81.4 million versus
last year (flat excluding foreign currency translation), as overall
demand for both truck and non-truck end customers stabilized in
North America and Latin America after a year of lower volumes.
Transportation Coatings generated Adjusted EBITDA of $86.2
million in Q1 2017, an increase of 1.8% versus Q1 2016, with
positive volume and variable cost contributions largely offset by
lower average pricing and ongoing operating expense increases to
support planned growth. Segment Adjusted EBITDA margin of 20.5% in
Q1 was consistent with the prior year’s first quarter.
Balance Sheet and Cash Flow Highlights
We ended the quarter with cash and cash equivalents of $439.1
million. Our debt, net of cash, was $2,868.2 million as of March
31, 2017, compared to $2,728.5 million at December 31, 2016. Cash
use in the quarter included normal seasonal working capital
outflows as well as the funding of $56.9 million for two
acquisitions completed in January. Axalta made no open market
purchases of its common stock in the first quarter.
First quarter operating cash flow was a use of $6.5 million
versus a use of $13.3 million in the corresponding quarter of 2016,
reflecting a stable seasonal operating result from both an
operational and working capital perspective. Free cash flow,
calculated as operating cash flow less capital expenditures,
totaled a use of $38.8 million after capital expenditures of $32.3
million compared to a use of $53.6 million in the first quarter of
2016.
“Our first quarter financial performance was solid and puts us
on track to achieve our full year guidance,” said Robert W. Bryant,
Axalta’s Executive Vice President and Chief Financial Officer. “We
are pleased that in the first quarter we posted solid sales growth
inclusive of expected price reductions in certain areas, while
closing on two incremental acquisitions in January as well as
entering into the Valspar North American wood coatings purchase
agreement which was signed subsequent to the quarter end. We also
announced the authorization of our first share buyback program,
which reflects our confidence in the cash generation of the
business to fund operations, strategic growth initiatives and
return for our shareholders.”
2016 Adoption of Share-based Compensation Expense Accounting
Standard
During the three months ended December 31, 2016, Axalta early
adopted ASU 2016-09, which addresses, among other items, the
accounting for income taxes, calculations on diluted weighted
average shares outstanding, and cash flow presentation relating to
share-based compensation. The early adoption resulted in the
recasting of previously issued quarterly financial statements,
including an increase to net income attributable to Axalta by $1.2
million for the three months ended March 31, 2016. The impact of
early adoption also increased Axalta's dilutive shares by 1.8
million shares for the three months ended March 31, 2016. Axalta
will provide more detailed information regarding the impact of the
early adoption and recasting of previously issued financial
information in its quarterly report on Form 10-Q for the quarter
ended March 31, 2017.
2017 Guidance Update
We are reconfirming our previous outlook for the full year 2017
which does not include the announced Industrial Wood Coatings
business transaction:
- Net sales growth of 1-3% as-reported;
4-6% ex-FX, including acquisition contribution of 2-3%
- Adjusted EBITDA of $930-980
million
- Interest expense of ~$150 million
- Income tax rate, as adjusted, of
22-24%
- Free cash flow of $440-480 million
- Capital expenditures of ~$160
million
- Depreciation and amortization of ~$335
million
- Diluted shares outstanding of 246-249
million
Conference Call Information
As previously announced, Axalta will hold a conference call to
discuss its first quarter 2017 financial results on Wednesday,
April 26th, at 8:00 a.m. ET. The U.S. dial-in phone number for the
conference call is (877) 407-0784 and the international
dial-in number is +1 (201) 689-8560. A live webcast of the
conference call will also be available online at http://axalta.com/investorcall. For those unable
to participate in the conference call, a replay will be available
through May 3, 2017. The U.S. replay dial-in phone number is
(844) 512-2921 and the international replay dial-in number is
+1 (412) 317-6671. The replay passcode is 136 59 936.
Cautionary Statement Concerning Forward-Looking
Statements
This release may contain certain forward-looking statements
regarding Axalta and its subsidiaries including those relating to
the impact of our acquisitions as well as our 2017 full year
outlook, including net sales growth, Adjusted EBITDA, interest
expense, income tax rate, as adjusted, free cash flow, capital
expenditures, depreciation and amortization, and diluted shares
outstanding. All of these statements are based on management’s
expectations as well as estimates and assumptions prepared by
management that, although they believe to be reasonable, are
inherently uncertain. These statements involve risks and
uncertainties, including, but not limited to, economic,
competitive, governmental and technological factors outside of
Axalta’s control that may cause its business, industry, strategy,
financing activities or actual results to differ materially. More
information on potential factors that could affect Axalta's
financial results is available in the "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" section within Axalta's most recent annual
report on Form 10-K, and in other documents that we have filed
with, or furnished to, the U.S. Securities and Exchange Commission.
Axalta undertakes no obligation to update or revise any of the
forward-looking statements contained herein, whether as a result of
new information, future events or otherwise.
Non-GAAP Financial Measures
The historical financial information included in this
presentation includes financial information that is not presented
in accordance with generally accepted accounting principles in the
United States (“GAAP”), including constant currency net sales
growth, income tax rate, as adjusted, EBITDA, Adjusted EBITDA, free
cash flow, net debt and Adjusted net income. Management uses these
non-GAAP financial measures in the analysis of our financial and
operating performance because they assist in the evaluation of
underlying trends in our business. Adjusted EBITDA consists of
EBITDA adjusted for (i) non-cash items included within net
income, (ii) items Axalta does not believe are indicative of
ongoing operating performance or (iii) nonrecurring or
infrequent items that Axalta believes are not reasonably likely to
recur within the next two years. We believe that making such
adjustments provides investors meaningful information to understand
our operating results and ability to analyze financial and business
trends on a period-to-period basis. Adjusted net income shows the
adjusted value of net income (loss) attributable to controlling
interests after removing the items that are determined by
management to be items that we do not consider indicative of our
ongoing operating performance or unusual or nonrecurring in nature.
Our use of the terms constant currency net sales growth, income tax
rate, as adjusted, EBITDA, Adjusted EBITDA, free cash flow, net
debt and Adjusted net income may differ from that of others in our
industry. Constant currency net sales growth, income tax rate, as
adjusted, EBITDA, Adjusted EBITDA, free cash flow, net debt and
Adjusted net income should not be considered as alternatives to net
sales, net income (loss), income (loss) before operations or any
other performance measures derived in accordance with GAAP as
measures of operating performance or operating cash flows or as
measures of liquidity. Constant currency net sales growth, income
tax rate, as adjusted, EBITDA, Adjusted EBITDA, free cash flow, net
debt and Adjusted net income have important limitations as
analytical tools and should be considered in conjunction with, and
not as substitutes for, our results as reported under GAAP. This
presentation includes a reconciliation of certain non-GAAP
financial measures with the most directly comparable financial
measures calculated in accordance with GAAP. Axalta does not
provide a reconciliation for non-GAAP estimates for constant
currency net sales growth, Adjusted EBITDA, income tax rate, as
adjusted, or free cash flow on a forward-looking basis because the
information necessary to calculate a meaningful or accurate
estimation of reconciling items is not available without
unreasonable effort. For example, such reconciling items include
the impact of foreign currency exchange gains or losses, gains or
losses that are unusual or nonrecurring in nature, as well as
discrete taxable events. We cannot estimate or project these items
and they may have a substantial and unpredictable impact on our US
GAAP results.
Segment Financial Measures
The primary measure of segment operating performance is Adjusted
EBITDA, which is a key metric that is used by management to
evaluate business performance in comparison to budgets, forecasts
and prior year financial results, providing a measure that
management believes reflects Axalta’s core operating performance.
As we do not measure segment operating performance based on net
income, a reconciliation of this non-GAAP financial measure with
the most directly comparable financial measure calculated in
accordance with GAAP is not available.
About Axalta Coating Systems
Axalta is a global leader in the coatings industry, providing
customers with innovative, colorful, beautiful and sustainable
coatings solutions. From light vehicles, commercial vehicles and
refinish applications to electric motors, building facades and
other industrial applications, our coatings are designed to prevent
corrosion, increase productivity and enhance durability. With more
than 150 years of experience in the coatings industry, the 13,000
people of Axalta continue to find ways to serve our more than
100,000 customers in 130 countries better every day with the finest
coatings, application systems and technology. For more information,
visit axaltacoatingsystems.com and follow us @axalta on
Twitter.
Financial Statement Tables AXALTA COATING
SYSTEMS LTD. Condensed Consolidated Statements of Operations
(Unaudited) (In millions, except per share data)
Three Months Ended March 31, 2017 2016 Net
sales $ 1,007.8 $ 955.6 Other revenue 5.9
6.0 Total revenue 1,013.7 961.6 Cost of goods sold 641.1
606.4 Selling, general and administrative expenses 225.3 219.1
Research and development expenses 15.6 12.6 Amortization of
acquired intangibles 21.7 20.2 Income
from operations 110.0 103.3 Interest
expense, net 35.8 50.1 Other (income) expense, net (1.6 )
8.0 Income before income taxes 75.8 45.2 Provision
for income taxes 9.9 13.4 Net income
65.9 31.8 Less: Net income attributable to noncontrolling interests
1.8 0.9 Net income attributable to
controlling interests $ 64.1 $ 30.9 Basic net income
per share $ 0.27 $ 0.13 Diluted net income per share $ 0.26 $ 0.13
Basic weighted average shares outstanding 239.8 237.1 Diluted
weighted average shares outstanding 246.1 243.4
AXALTA COATING SYSTEMS LTD. Condensed Consolidated
Balance Sheets (Unaudited) (In millions, except per share
data) March 31, 2017 December 31, 2016
Assets Current assets: Cash and cash equivalents $ 439.1 $
535.4 Restricted cash 2.9 2.7 Accounts and notes receivable, net
872.2 801.9 Inventories 559.1 529.7 Prepaid expenses and other
62.1 50.3 Total current assets
1,935.4 1,920.0 Property, plant
and equipment, net 1,334.4 1,315.7 Goodwill 1,016.1 961.0
Identifiable intangibles, net 1,151.5 1,130.3 Other assets
523.0 527.8 Total assets $ 5,960.4
$ 5,854.8
Liabilities, Shareholders’
Equity Current liabilities: Accounts payable 456.7 474.2
Current portion of borrowings 29.0 27.9 Other accrued liabilities
365.8 417.6 Total current
liabilities 851.5 919.7
Long-term borrowings 3,278.3 3,236.0 Accrued pensions 252.0 249.1
Deferred income taxes 161.9 160.2 Other liabilities 32.9
32.2 Total liabilities 4,576.6
4,597.2 Commitments and contingencies
Shareholders’ equity Common shares, $1.00 par, 1,000.0 shares
authorized, 241.9 and 240.5 shares issued and outstanding at March
31, 2017 and December 31, 2016, respectively 240.4 239.3 Capital in
excess of par 1,312.4 1,294.3 Retained earnings (Accumulated
deficit) 17.0 (47.1 ) Accumulated other comprehensive loss
(309.8 ) (350.4 ) Total Axalta shareholders’ equity
1,260.0 1,136.1
Noncontrolling interests
123.8 121.5 Total shareholders’
equity 1,383.8 1,257.6 Total
liabilities and shareholders’ equity $ 5,960.4 $
5,854.8
AXALTA COATING SYSTEMS
LTD. Condensed Consolidated Statements of Cash Flows
(Unaudited) (In millions) Three Months Ended March
31, 2017 2016 Operating activities: Net income $
65.9 $ 31.8 Adjustment to reconcile net income to cash used for
operating activities: Depreciation and amortization 82.4 76.0
Amortization of financing costs and original issue discount 2.1 5.1
Deferred income taxes - (3.3 ) Realized and unrealized foreign
exchange (gains) losses, net (3.7 ) 7.5 Stock-based compensation
10.4 10.2 Other non-cash, net (0.3 ) (2.9 ) Changes in operating
assets and liabilities: Trade accounts and notes receivable (62.5 )
(26.5 ) Inventories (11.2 ) (7.5 ) Prepaid expenses and other (27.5
) (13.8 ) Accounts payable (0.8 ) (16.6 ) Other accrued liabilities
(56.6 ) (69.9 ) Other liabilities (4.7 ) (3.4
)
Cash used for operating activities
(6.5 ) (13.3 ) Investing activities: Business
acquisitions (56.9 ) - Purchase of property, plant and equipment
(32.3 ) (40.3 ) Other investing activities (0.2 )
(2.9 ) Cash used for investing activities (89.4 )
(43.2 ) Financing activities: Payments on short-term
borrowings (2.3 ) (0.3 ) Payments on long-term borrowings (5.0 )
(6.9 ) Financing-related costs (2.3 ) - Dividends paid to
noncontrolling interests (0.4 ) (1.5 ) Proceeds from option
exercises 8.8 2.0 Acquisition-related contingent consideration (1.6
) - Other financing activities - (0.3 )
Cash used for financing activities (2.8 ) (7.0
) Decrease in cash (98.7 ) (63.5 ) Effect of exchange rate changes
on cash 2.6 (1.9 ) Cash at beginning of period 538.1
487.7 Cash at end of period $ 442.0
$ 422.3 Cash at end of period reconciliation:
Cash and cash equivalents $ 439.1 $ 419.5 Restricted cash $ 2.9
$ 2.8 Cash at end of period $ 442.0
$ 422.3 The following table reconciles
net income to EBITDA and Adjusted EBITDA for the periods presented
(in millions):
Three Months Ended March 31,
2017 2016 Net income $ 65.9 $ 31.8 Interest
expense, net 35.8 50.1 Provision for income taxes 9.9 13.4
Depreciation and amortization 82.4 76.0
EBITDA 194.0 171.3 Foreign exchange remeasurement (gains)
losses (a) (1.2 ) 7.5 Long-term employee benefit plan adjustments
(b) 0.4 0.6 Termination benefits and other employee related costs
(c) 0.8 1.9 Consulting and advisory fees (d) (0.1 ) 3.0
Transactional costs (gains) (e) (1.0 ) - Stock-based compensation
(f) 10.4 10.2 Other adjustments (g) 0.2 1.8 Dividends in respect of
noncontrolling interest (h) (0.4 ) (1.5 )
Adjusted EBITDA $ 203.1 $ 194.8 (a)
Eliminates foreign exchange (gains) losses resulting from the
remeasurement of assets and liabilities denominated in foreign
currencies, net of the impacts of our foreign currency instruments
used to hedge our balance sheet exposures. (b) Eliminates the
non-cash non-service cost components of long-term employee benefit
costs. (c) Represents expenses primarily related to employee
termination benefits including our initiative to improve the
overall cost structure within the European region as well as costs
associated with our Axalta Way initiatives, which are not
considered indicative of our ongoing operating performance. (d)
Represents fees paid to consultants, and associated true-ups to
estimates, for professional services primarily related to our
Axalta Way initiatives, which are not considered indicative of our
ongoing operating performance. (e) Represents acquisition-related
expenses, including changes in the fair value of contingent
consideration, which are not considered indicative of our ongoing
operating performance. (f) Represents non-cash costs associated
with stock-based compensation. (g) Represents certain
non-operational or non-cash (gains) and losses unrelated to our
core business and which we do not consider indicative of ongoing
operations, including indemnity losses (gains) associated with the
Acquisition, losses (gains) on sale and disposal of property, plant
and equipment, losses (gains) on the remaining foreign currency
derivative instruments and non-cash fair value inventory
adjustments associated with our business combinations. (h)
Represents the payment of dividends to our joint venture partners
by our consolidated entities that are not wholly owned, which are
reflected to show the cash operating performance of these entities
on Axalta's financial statements. The following table
reconciles net income to adjusted net income for the periods
presented (in millions, except per share data):
Three
Months Ended March 31, 2017 2016 Net
income $ 65.9 $ 31.8 Less: Net income attributable to
noncontrolling interests 1.8 0.9
Net income attributable to controlling interests 64.1 30.9 Foreign
exchange remeasurement (gains) losses (a) (1.2 ) 7.5 Termination
benefits and other employee related costs (b) 0.8 1.9 Consulting
and advisory fees (c) (0.1 ) 3.0 Transactional costs (gains) (d)
(1.0 ) - Accelerated depreciation associated with facility closures
(e) 2.2 - Total adjustments
0.7 12.4 Income tax impacts (f)
1.7 0.3 Adjusted net income $
63.1 $ 43.0 Diluted adjusted net income per
share $ 0.26 $ 0.18 Diluted weighted average shares outstanding
246.1 243.4 (a) Eliminates foreign exchange (gains) losses
resulting from the remeasurement of assets and liabilities
denominated in foreign currencies, net of the impacts of our
foreign currency instruments used to hedge our balance sheet
exposures. (b) Represents expenses primarily related to employee
termination benefits including our initiative to improve the
overall cost structure within the European region as well as costs
associated with our Axalta Way initiatives, which are not
considered indicative of our ongoing operating performance. (c)
Represents fees paid to consultants, and associated true-ups to
estimates, for professional services primarily related to our
Axalta Way initiatives, which are not considered indicative of our
ongoing operating performance. (d) Represents acquisition-related
expenses, including changes in the fair value of contingent
consideration, which are not considered indicative of our ongoing
operating performance. (e) Represents accelerated depreciation
associated with previously announced closure of two manufacturing
facilities, which are not considered indicative of our ongoing
operating performance. (f) The income tax impacts are determined
using the applicable rates in the taxing jurisdictions in which
expense or income occurred and includes both current and deferred
income tax expense (benefit) based on the nature of the non-GAAP
performance measure. Additionally, our income tax expense also
includes the impact of the removal of discrete income tax impacts
within our effective tax rate which were expenses of $0.0 million
and $2.5 million for the three months ended March 31, 2017 and
2016, respectively.
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version on businesswire.com: http://www.businesswire.com/news/home/20170426005299/en/
Axalta Coating SystemsChristopher Mecray, +1
215-255-7970Christopher.Mecray@axaltacs.com
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