Q1 2025 Axalta Coating Systems Ltd Earnings Call
Mrs. Anderson, Unknown Executive, Colleen Lubic, Chrishan Villavarayan Mrs. Anderson, Unknown Executive, Colleen Lubic, Chrishan Villavarayan
Ladies and gentlemen, thank you for standing by. Welcome to the Axalta Coating Systems Q1 2025 Earnings Call. All participants will be in English in only mode. A question in the info session will follow the presentation by management. Thank you very much.
Today's call is being recorded and a replay will be available through May 14th.
Those listening after today's call should please note that information provided in the recording will not be updated and therefore may no longer be current. I will now turn a call over to Colleen Lubic, Vice President of Investor Relations
Colleen Lubic: Good morning, everyone, and thank you for joining us on the call today to discuss our fiscal 2025 first-quare results.
This is Colleen Lubic, Vice President of the Investor Relations
Speaker Change: Joining me today are Chris Villavarayan, CEO and President, and Carl Anderson, Chief Finance Officer Sarah.
Speaker Change: We posted our first quarter furniture results in our earnings release this morning. As a reminder, you can find additional materials, including today's presentation and associated schedules on the investor relations section of our website at exalsa.com, which we will be referring to during this call.
Speaker Change: Our prayer of remarks, the side presentation, and our discussion today may contain forward-looking statements reflecting the company's current view of future events and their potential effect on exhaustive operating and financial performance.
Speaker Change: These statements involve uncertainties and risks, and actual results may misdiffer materially from those forward-looking statements.
Speaker Change: Please note that the company is under no obligation to provide updates. It is forward-looking statement.
Speaker Change: Auburn Marks, and the SLI presentation also contain various non-GAAT financial measures. We've included reconciliation of these non-GAAT financial measures to the most directly comparable GAAT financial measures. Refer to our filings with the SEC for more information.
Chris Villavarayan: We kindly ask that you limit yourself to one question at a time to give others the opportunity to have their questions addressed. I would like to turn the call over to Chris.
Chris Villavarayan: Thank you, Colleen. We're pleased to report another strong quarter of financial results for a first quarter record for adjusted EBITDA and adjusted W.D.P.S
Speaker Change: I want to thank Axalta's employees for rallying together to deliver our A-plan priorities and maintaining our strong execution and resilient performance.
Speaker Change: NET sales remained flat to the first quarter of last year on a constant currency basis with contributions from cover flags and a positive price mix mitigating volume declines.
Speaker Change: Ijusted EBITDA was 270 million, representing a 4% increase year over year. Ijusted EBITDA margin, grew by 140 basis points year over year, marking the 10th consecutive quarter of Ijusted EBITDA margin
Speaker Change: Driving A-Plan initiatives, improving our operations, and reinvesting in the business we main a top priority for us.
Speaker Change: Despite wage inflation, operating expenses decreased by 4% from last year due to savings from our transformation initiative introduced in 2024 . . .
Speaker Change: Kathleen Strandichers have nearly doubles compared to Q1 of 2024 driven by incremental investments designed to enhance productivity in our operations of our operations in our operations.
Speaker Change: Our balance sheet remains robust with total net leverage remaining steady for the year end at 2.5 times
Speaker Change: adjusted diluted EPS, grew by 16% year-old year to 59 cents. This marks the seventh consecutive quarter of adjusted diluted EPS growth.
Innovation is fundamental to enhancing the customer experience [inaudible]
Speaker Change: In the first quarter, we are proud to be the recipients of two Edison awards and a big innovation award This is the seventh consecutive year that Exalta has earned an Edison award which honors industry leading innovations in new products and services [inaudible]
This year, Exhaustas Ira Scan and Exhaustas My Color were recognized.
Speaker Change: Iris Kahn is the first handheld color measurement device for the collusion repair industry. It has the ability to capture color sparkle, few shifting pigments, and gloss to provide an accurate color match for vehicle repairs
Speaker Change: Exhault as my color offers an innovative color creation delivery process. This technology streamlines automotive OEM approvals enabling custom colors to be available in as little as four weeks instead of more than a year. [inaudible]
Speaker Change: We were presented with a big innovation award by the Business Intelligence Group for our Voltatex product. Voltatex is a wire enamel that improves the reliability and efficiency of electric vehicles and other high performance electrical systems.
Speaker Change: These awards underscrew our strengths of our product pipeline and our ability to convert investments in R&D and technology into solutions that appeal for our customers and differentiate exalters offerings. Let's move to slide forward.
Speaker Change: Cree of our four-end market showed macro declines in the quarter
Speaker Change: Exanta, however, was able to generate positive organic net sales in both mobility and markets and achieve an organic net sales performance in refinished above industry trends compared to the same period last year.
Speaker Change: In refinished, organic net sales decreased by 1% while the industry was down meant single digits based on industry metrics that we try . . .
Speaker Change: The external demand pressures experienced in 2024 continue to affect collision claims and body shop repair activity in the first quarter
Speaker Change: These factors are driven by insurance premium inflation, increasing repair costs, and waning consumer confidence
Speaker Change: Irrespective of the industry dynamics, we were able to add approximately 900 net new body shops, growing adjacencies, and expand further in the economy segment
Organic Vect sales in light vehicle increased by 2%
Speaker Change: Volume for light vehicle aligned with global auto production, which rose by 1%. We also achieved double-digit volume growth year over year in both China and Latin America. The passing auto production growth in both those geographies. [inaudible]
Speaker Change: Commercial Vehicle Organic Net Sales Group by 2% while Class A heavy-duty production in North America dropped by 17%
Speaker Change: We mitigated industry pressure from the heavy-duty truck sectors by executing on our commercial transportation solution priorities across various applications, including recreational and public safety vehicles.
Additionally, we expanded our presence outside the Americas.
Speaker Change: As a result, together with strong performance in light vehicle and price cost stability, the mobility segments margin expanded by 230 basis points to 16.5%, the highest margins since 1st quarter of 2021 .
Speaker Change: Industrial Organic Net Sales, Decreased by 4% you're all the year in line with broader trends.
Speaker Change: Across our end businesses, we continue to see mixed signals. Industrial production in the United States increased slightly year over year in the first quarter, but contracted in March, while most European economies experience declines. [inaudible]
Speaker Change: North American housing declined for the 4th consecutive quarter causing that slow start to the seasons [inaudible]
Speaker Change: for our North American Building Products Business. Despite these challenges, the team's focus on portfolio mix and productivity improvements resulted in an adjusted EBITDA margin increase for the eight consecutive quarter. Let's move to slide five. Let's move to slide five.
Speaker Change: With the increased trade tensions that emerged during the quarter, we wanted to provide some color on Exaltus Global Ladsky [inaudible]
Speaker Change: As shown in the presentation, our business is geographically diverse with 38% of our net sales in North America and 16% in Asia Pacific [inaudible]
Speaker Change: Most importantly, approximately 90% of our products are manufactured and sold within the same region, significantly reducing our exposure to international tariffs Additionally, only about 10% of our total purchases are currently impacted by the new tariffs
Speaker Change: The team has already done a fantastic job of maximizing USMCA-compliant products in North America, minimizing tariffs across the regions.
Speaker Change: Based on our current business model, we estimate tariffs imposed in 2025 could now cost approximately 50 million annually with about 25 million expected to impact in 2025.
Speaker Change: Carl will take you through how this impacts the guide later in the discussion .
Speaker Change: Proof various means including in-sourcing, sourcing role materials locally, reformulating products, managing strategic inventory and pricing. We believe we have avenues for structural improvements if tariffs were to become permanent.
Speaker Change: I will now turn the call over to Carl to go through our financial results and update a 2025 guide.
Speaker Change: Thank you, Chris, and good morning, everyone. Let's turn to site 6
Speaker Change: First-corternet sales decreased by approximately 3% year-of-year to 1.26 billion, primarily driven by a 3% unfavorable foreign currency impact, and lower volumes, partially offset by positive price mix and contributions from cover flags.
Speaker Change: Gross margins were 34% in the quarter, an increase of 110 faces points over last year
Speaker Change: Income from operations increased by $55 million, as we had significantly lower restructuring expense compared to a year ago when we announced and started to execute on our 2024 Transformation Initiative.
Speaker Change: Adjusted EBITDA in the quarter was 270 million, 4% above last year, marking another record quarter for adjusted EBITDA performance.
Speaker Change: Variable cost declined by low single digits, slightly better than anticipated
Speaker Change: For the full year 2025, we now believe that raw material costs will be approximately flat year-on-year excluding the direct impact of tariffs [inaudible]
Speaker Change: Our productivity pipeline remains strong and we expect it to drive sustained improvements to our operating model going forward
Speaker Change: We continue to benefit from savings related to the 2024 Transformation Initiative.
Speaker Change: Additionally, incremental cost management initiatives implemented at the start of the year also help to mitigate the challenges from a weaker macro.
Speaker Change: And lastly, adjusted deluded earnings per share increased 16% to 59 cents, a first quarter record driven by higher overall earnings and lower interest expense compared to the first quarter of last year. [inaudible]
Moving to slide seven
Speaker Change: That's sales for performance coatings to climb 3%, year over year to 822 million, driven primarily by both lower volumes and unfavorable foreign currency impacts.
These headwinds were partially offset by contributions to cover flags [inaudible]
Speaker Change: Refinished net sales to decrease 2% to 511 million. The incremental contributions from cover flex, partially offset foreign currency headwinds and volumes of clients in Europe and North America.
Speaker Change: Price Mix was roughly flat in the quarter, as price increases were offset by negative mix impacts.
Speaker Change: industrial net sales decline 6% year by year to 311 million due to volume declines predominantly driven by weakness in North America and Europe partially offset by growth and China .
Speaker Change: Positive Price Mix partially mitigated the impact of unfavorable foreign currency headwinds
Speaker Change: Overall, first-quarter performance coatings and just-it-even-up increase 1% year-over-year to $197 million.
Speaker Change: Adjusted even a margin increased by 100 basis points, 24.1% primarily driven by lower operating expenses and lower variable costs
Speaker Change: Mobility Coating's first quarter 2025 net sales were $440 million, a decrease of 1% from the prior year, inclusive of a 3% head one from foreign currency. [inaudible]
Speaker Change: Light vehicle net sales were down 1% in the first quarter.
Speaker Change: On a constant currency basis, that sales grew 2% driven by volume growth in China and Latin America, which more than offset anticipated declines in North America and Europe .
Speaker Change: Price Mix was a low single digital one in the quarter driven by selective pricing and favorable mix [inaudible]
Speaker Change: So commercial vehicle net sales declined 3%, primarily due to foreign currency headwind.
Speaker Change: On a cancer currency basis, net sales grew 2%, driven primarily by positive price mix.
Speaker Change: Mobility Coating's adjusted EBITDA in the quarter improved by 15% to $73 million and $1.
Speaker Change: Adjusted even at margin expanded by 230 bass points versus last year, coming in at 16.5%
Speaker Change: Bards and expansion in both businesses were primarily driven by positive price mix and a reduction in operating expenses [inaudible]
Turning to five-night [inaudible]
Speaker Change: Based on the current economic environment, we are updating our market expectations for the year.
Speaker Change: Uncertainty persists and recent industry data is coming in softer than we were forecasting at the beginning of the year.
Speaker Change: Insurance claims data continues to pose to clients in both North America and Europe . Repair costs have increased by over 10% since 2022 and the average age of the car park is approaching 13 years in North America in 2010.
Speaker Change: These industry drivers, along with higher distribution inventory levels in North America, are expected to offset an increase in miles driven.
Speaker Change: Our strategy remains unchanged as we continue to add new body shops expand further into the economy segment accelerate accessory growth and look to add both on M&A as evidence by our execution during the quarter
Speaker Change: Overall, we expect our refinish results to outpace industry trends and deliver strong adjusted even out again this year.
Speaker Change: More industrial, we previously anticipated modest, old single-digit growth year-on-year, with positive trends in Europe and North America expected in the second half.
Speaker Change: In February 2025, the ISMPMI signaled a second consecutive month of economic expansion.
Speaker Change: However, the rise in trade tensions and growing consumer pessimism led to a pullback in March's manufacturing's PMI erasing the gains from January and February [inaudible]
Speaker Change: Additionally, GDP growth projection for the US, Europe and China are trending lower
Speaker Change: Given the current climate, we now expect the industry to remain flat or to decline those single digits, with a clear outlook for economic expansion dependent on future trade policy developments.
Speaker Change: Global auto production for 2025 is now forecast that it's just under 88 million units, a 2% decline from last year.
Speaker Change: Despite recent downward revisions due to tariffs and affordability concerns, we expect to outpace the industry, particularly in China and Brazil, due to the successful ramp up of new business wins. [inaudible]
Speaker Change: For the USMCA Classic Market, the 25 production forecast has been revised down to 255,000 units, a decline of over 20% compared to 332,000 units in 2024.
Speaker Change: Initially, industry projections were roughly flat year over year, but these were adjusted in April in response to softer consumer trends impacting the freight sector.
Speaker Change: Our business, however, continues to perform well as we gain new business in commercial transportation solutions and in Brazil which are all aligned with our A-Playing Growth Strategies. [inaudible]
Speaker Change: Let's turn to side 10 for the second quarter in full year 2025 guidance.
Speaker Change: In the second quarter, we anticipate macro factors to affect all 4N markets primarily driven by slowing global demand in lower-body shop activity in North America [inaudible]
Speaker Change: That sales for the company are projected to decrease low single digits versus the prior year with partial offsets for pricing actions in cover flex [inaudible]
Speaker Change: 2nd quarter adjusted EBITDA is projected to be between 280 and 290 million and adjusted diluted earnings per share is estimated to be between 60 and 63 cents
Speaker Change: Now we expect to execute mitigation strategies and increase prices related to tariffs. We don't expect to see a full run rate of the effects in the second quarter . . . . . . . . .
Speaker Change: For the full year, we remain cautious regarding the global demand environment and are slightly revising down our net sales guide based on current industry dynamics.
Speaker Change: We now expect that sales to be in a range of 5.3 billion to 5.375 billion in approximate 1% increase at the midpoint year on year
Speaker Change: With the weakening US dollar, we now expect the foreign exchange translation impact on revenue to be about a $25 million
Speaker Change: Arjusted EBITDA and adjusted diluted earnings for sure Alek remains unchanged as we are driving down operating costs to offset the impact for more revenue.
Speaker Change: In addition, pre-catchel is now expected to be in range of 475 to 500 million down slightly from a previous outlook driven primarily from increased cash outlays from higher restructuring costs
I will now hand the call back to Prist.
Chris Villavarayan: Thanks, Carl. I want to emphasize that our top priority remains delivering on our A-plan targets.
Speaker Change: From vast improvements in our safety metrics to supply chain optimization and meaningful business wins, we're transforming the company [inaudible]
Chris Villavarayan: Based on our 2025 full-year guidance, we are on track to achieve four of our five financial objectives, a full-year ahead of schedule, and the teams are executing well across all pillars [inaudible]
Chris Villavarayan: While the macro-environment remains uncertain, the strategic actions we have taken enable us to be more stable and resilient through the cycles. We have consistently demonstrated our confidence for strong execution, meaningful cost actions and margin expansion. [inaudible]
Chris Villavarayan: Thank you for joining us today. This concludes our prepared remarks. Operator, please open the lines Q&A
Chris Villavarayan: At this time, if you would like to ask a question, please press the start and one on your telephone key, Van. You may remove yourself from the queue at any time by pressing start two. In the interest of time, we do ask that you limit yourself to one question. We'll take our first question from Chris Parkinson with, with, with, with research, your line is now open. Thank you very much.
Great, thank you so much. Chris, Carl, Ian
Chris Villavarayan: There's three major things that have happened over the last 12-18 months and it's across.
Speaker Change: Cost Execution, Share Gains, and Ultimately Price Discipline. A lot of things you spoke about at your analyst day last year. Clearly the world has changed as you've been highlighting in your preferred remarks, but can you just give a little bit more detail on how you're thinking about these three major facets as it relates to the current economic environment. Thank you so much.
Speaker Change: Yeah, good morning, Chris. Thanks for the question. I think all of those three elements that we defined in the A plan, if you put the five pillars of the A plan, essentially, you know, those are two of the main pillars of the A plan, whether it's the operational excellence. [inaudible]
Speaker Change: or Corout in which we focused on not only share games, but also pricing.
Speaker Change: and I think, you know, as you can see, with made significant progress.
Speaker Change: Through that, what's changed primarily if you think about where we started a year ago and you know where we forecasted all four markets even from an industry forecast. . .
Speaker Change: Every one of those markets have significantly changed if you look at a mobility or light vehicle we're down about two million bills from where we forecast it if you look at
Commercial Vehicle, we're at
$250,000, $255,000 bills that's
Lord and Replacement Demand at 275 .
Speaker Change: If you look at refinance, you have seen significant changes here.
Speaker Change: in terms of market decline. But the amazing thing, or I think what I'm really proud of what we've been able to accomplish is even in that macro environment, all of those three elements have come and played a significant part in our execution strategy. Thank you.
Speaker Change: from a cost standpoint, the margin, expansion that you see consistently, quarter over quarter, and the EBITDA growth and the EPS performance is all coming from really a lot of the proactive cost actions we took.
and Chrishan Villavarayan.
Speaker Change: From a sharegain standpoint, you can see that across all at least three of our four end markets.
We continue to...
Expand,
and Gain Market will be on the current market environment. And finally, Price Mixed.
Speaker Change: Has been a consistent good story for us. So I would say the strategy continues to work. The A plan is I think been a great structure for us and it's really providing the resilience in a tough market. [inaudible]
Thank you [inaudible]
Walton Press
Speaker Change: Thank you. We'll take our next question from Mike Leithead with Barclays, Your Line of Cell Open.
Great, thanks. Good morning, team. Just a question on the reef.
Speaker Change: Morning, Chris. Question on refinition. You have that slide nine on the macro, which is helpful.
Speaker Change: I think it shows collision claims, body shop activity down something like high single digits on a two-year stack and I think most investors historically have thought about refinishing a fairly steady industry. So I guess how does your team get comfortable that this is just a macro blip? [inaudible]
Speaker Change: and not something more structural like ADAS or changing consumer insurance behavior and how if at all are you pivoting the refinished business to help handle the downturn?
Speaker Change: Yeah, that's a really good question, Mike. And I think, you know, if you look at the business, any, you know, you even go back six to nine quarters.
Speaker Change: The business has been low to mid-single digits claims decline for at least nine quarters so we've been facing let's call it a week macro in refinish for about nine quarters
Speaker Change: And what's driving that? You know, parts of it you could argue are structural and parts of it have been let's call it destocking that happened.
Speaker Change: Through the first half of last year related to a large distributor, LKQ, acquiring Finnish master. But if you went through some of the other changes, for example, we're faced three to four years of hyperinflation.
Speaker Change: have continued to go down primarily also driven by the cost of repairs and full ride-offs. Another aspect of this is insurance premiums. [inaudible]
Speaker Change: If you look from a 23 to a 24 basis, have gone up about 20%, so there's been a lot of factors that have driven the decline . . .
Speaker Change: If you break it down to consumer confidence here, one of the things you can notice is folks have been pulling collision off their claims and a lot of it is also related to folks also cashing in claims just based on where the economy is. [inaudible]
Speaker Change: So, to your question is how do you get comfortable around 25 and where the market is going? I think in a part of that structural, let's call it change.
Speaker Change: You might see some light, a sign of light for light coming on the back half Insurance claims are starting to flatline Use car pricing is coming up which helps You might see some light, a sign of light coming on the back half
Speaker Change: Miles Driven is still continuing to grow up. We see a 1% increase. We had some bad weather last year.
Speaker Change: And most importantly for me, the way I'm looking at it is the back half of last year we had, let's call it, a high single digit decline. So we're going to start lapping it in the back half of this year.
Speaker Change: So I do believe there's an opportunity for this to become at least more stable, but if you look at our guide, we're still predicting this to be down a mid to single high single digits, we've moved our forecast from flat to low single digits to mid to high single digits.
Speaker Change: single digits decline in the back half of the year so it kind of gives you a perspective that we're planning for the continued decline here and any light of any balance or any stability in the market would be a good news story for us.
Thank you so much.
You are?
Speaker Change: Thank you. We'll take our next question from Steve Byrne with Bank of America. Your line is now open.
Steve Byrne: Yes, thank you. How much of this 400 basis point margin expansion target for industrial has already been achieved?
Speaker Change: And do you have other initiatives that are still playing out this year that will drive that margin and more importantly? [inaudible]
Speaker Change: Are there other initiatives you're considering beyond the plan? I got the impression from your your ago investor event on the tour that
Speaker Change: The Productivity Initiative that you're looking at now are just scratching the surface [inaudible]
Speaker Change: Steve, good morning. It's Karl. I can take that question on industrial. So if I look at the margin performance, you know, in 2024, we were pretty close to driving about 300 basis points of an increase in our industrial business or our industrial business.
Speaker Change: and I think as we kind of look forward this year, even in a pretty challenging macro, we are planning for this.
to probably most likely.
Unknown Executive, Colleen Lubic, Chrishan Villavarayan
Speaker Change: in managing our raw materials and our buy. And then also, I think, you know, there are selective pricing actions.
Unknown Speaker ...
Speaker Change: He was beginning to execute and have executed over the last 12 months as well. So I think we feel very good about the margin trajectory of that business and this year we'll definitely look at people be exceeding the target we laid out back in May of last year.
Thank you. Bye. Bye.
Speaker Change: Thank you, we'll take our next question from John Roberts with Mrs. O, your line is now open.
Good morning, John .
John , please check the knit function on your device.
Speaker Change: We will now take our question from Ghassham Panjabi with Beard, your line is open.
Hey guys, good morning. All right. Good morning, Bantam.
Speaker Change: Good morning, Chris. I just want to go back to your comments on, you know, auto refinition and just kind of, you know, zooming out to the high level many of the factors you've touched on as it relates to affordability and, you know, collision claims and insurance, etc. I'm probably going to be quite sticky for a while. So I'm just curious as to, you know,
Speaker Change: Your thoughts as it relates to what could be the catalyst for the industry from a volume standpoint going forward?
Speaker Change: and just given your expansion into the broader market, the economy segment, etc. for that business. Price mix has been very positive for that segment for a very long time. Do you see that trend line sort of changing as you adjust your strategy as well towards the economy? Thank you.
Speaker Change: continues to wane and folks, you know, with inflation sticking where it is. You're right, Ghansham, there's a risk that this takes for a bit longer, but if you start then breaking it down into our strategy, you know, what are the things that will drive that? Well one more thing. [inaudible]
Speaker Change: There are opportunities for that to break, for example, if you see where the backlogs were when you go back to COVID at body shops, they were quite a long, you know, we were talking about 12 weeks to 16 weeks [inaudible]
Speaker Change: That is starting to come down. And what you can see is with the reduced backlogs there's an opportunity there for repair costs to also go down over time, which will drive more business back into the body shops. Another element of this is with wearable. [inaudible]
Speaker Change: The tariffs and where new car pricing is being driven, use car pricing going up also creates an opportunity where you have four more folks putting cars. [inaudible]
and into the repair base.
Speaker Change: And the final aspect of this is as I've watched this, the car park continues to increase. So again, I do believe that there are opportunities for this marketplace to improve. We're not counting on that and I think it's what's important. [inaudible]
Speaker Change: to the second half of your question is how are we addressing this?
Speaker Change: If you look at our Q1 performance on Body Shop Winds, normally we average about 600 Body Shop Net Winds
Speaker Change: A quarter. We did 900. And, you know, if you look back, you know, over the last two to three years, we've done about 24 to 2600 and body shop wins.
Speaker Change: So I see the strength of our performance in Q1 as a good sign of market share wins and that's if you go back over that same period of time
Speaker Change: The cool part of this is also then getting into the mainstream and economy business.
Obviously, a reflex helped us with this [inaudible]
Speaker Change: Our market share there is significantly lower than where we are in the premium. As you know, in the premium we lead. Exalted is the leader and refinished. We have over 40% market share. [inaudible]
Speaker Change: But in mainstream and economy this is somewhere between 9 to 11% so we have a great opportunity to grow there and a lot of the wins that we saw in in last quarter was also in this space. [inaudible]
Speaker Change: This does affect us from, if you look at from a margin perspective because it's lower than what we have in refinished, but net net to exalt help, it's a creative, it's, you know, it's a great story for us and certainly
Speaker Change: What is the strategy that we're going to continue to execute over the next few quarters?
Perfect, thank you [inaudible]
Speaker Change: Thank you, we'll take our next question from Kevin McCarthy with Vertical Reach Partners. Your mine is now open.
Kevin Mccarthy: Good morning all. Chris, I appreciate the detail that you provided on slide five regarding the...
Speaker Change: and then I'm specifically curious about the bottom action of executing pricing. Have you announced any new pricing actions or if not, you know, what sort of timing are you contemplating for that lever? Yes, I do.
Yeah, good morning, Kevin. Good question. So, you know,
Speaker Change: stepping back and looking at the impact of tariffs for us, you know.
Speaker Change: What I talked about was 25 million in this year or 50 million year impact over the full year.
Speaker Change: If you break that down and you think about the impact for Exalta, again,
Speaker Change: You know, as I said in my remarks, 90% is local for local and 10% of RAWs even after going back to the announcement we made it at the year end call. It's pretty much similar is the impact of raw materials that are going across borders. [inaudible]
Speaker Change: and then what I want to break it down to is there are probably about four or five levers we can pull before we look at pricing and that's certainly the approach we're taking at speed first. .
Speaker Change: And it's primarily if you start looking at it, we have the opportunity to vertically integrate into it. Thank you.
Speaker Change: We have, you know, with where volumes are in some of the regions, but not so much in China, but certainly in North America. We have the ability to vertically integrate, which is essentially manufacture more in our facilities because we have available capacity. Thank you very much.
Speaker Change: We're working with our supply base to essentially bring in material for local for local so if they have plans or if they can move capacities around we're working with that.
Specific to refinish, we're also working on some strategic
Inventory Action, so...
Speaker Change: 90% of what we do is we work through distribution and our distribution partners have inventory of inventory.
So we're working with them to essentially...
Speaker Change: to use up some of the inventory until we determine or have a more clarity on where we're going with tariffs.
Speaker Change: And finally there's lots of opportunity to reformulate working with our engineering teams to reformulate products.
Speaker Change: of available supply on continent to be able to offset some of the cost and then we will look at pricing.
Speaker Change: Now, to your question on pricing, we have gone out with pricing as we normally do We implemented about a 7% pricing for example in the beginning of the year with in refinition North America and about 4% in Europe . These are pricing actions that we took
Speaker Change: Proactively in some regions because we were already facing the impact of the terrace coming in earlier on, of the 10% terrace, of the 10th million that we talked about in Q1. Those were actions that we took. [inaudible]
Speaker Change: Again, as I look at it, it's certainly something…
Speaker Change: that we have in plan for two offset, but we're very confident in offsetting the 25 million of tariff impact this year. It might take us probably a quarter, but we'll certainly get it done this year.
Very good. Thanks very much.
You're welcome.
Speaker Change: Thank you. We'll take our next question from Joshua Spector with UBS. Your line is now open.
Speaker Change: Good morning, this is Lucas Clement on the Josh So I just want to look at the updated Ividar phasing for the year. It's been now kind of pointing to low single digit declines in 2Q but then shifting to kind of 7% growth in the second half.
Speaker Change: So on the one hand there, you've got the new winds coming in on the second, in the second half, then on the other the macro environment is sort of getting weaker within Chris Tedwin's there. So you've got to just walk us through your assumptions and then sit up there and what's giving you confidence on sort of being able to deliver on that stepped up second half quite that look. Okay.
Speaker Change: Thanks. Thank you. Thanks, Lucas. See, if you look at just the first half total EBITDA using the midpoint of our current guide, you know, relative to the full year that implies about the first half of about 48% of our total EBITDA, a year ago we did about 49%.
Speaker Change: So I think the EBITOP progression year-on-year is very similar to what we had a year ago .
Speaker Change: To your point, as we think about some of the winds specifically in Brazil.
Speaker Change: are beginning to ramp up in the third quarter, which will provide some significant tailwind as we think about that revenue that will be coming in in the second half of the year. And then I think as we look at the rest of the businesses.
as well.
Speaker Change: You know, we are planning for overall, you know, revenue to
Unknown Executive, Colleen Lubic, Chrishan Villavarayan
Speaker Change: As well as, you know, industrial, you know, we don't forget our industrial business was down about 6% in the first quarter. We believe that trend line will begin to change as we kind of get into the second half.
Speaker Change: Thank you, we'll take our next question from Jeff Sikaris with JP Morgan, Your Mind is Open. Thank you very much for your time.
Thanks very much [inaudible]
Speaker Change: Normally your EBITDA steps up in the second quarter from the first quarter and normally it's more refinished driven. I think you spoke about your refinished prices being
Flat Year Over Year.
So it's the idea that it might take...
Speaker Change: some time before the benefits of those price increases make themselves felt.
Speaker Change: And then secondly, can you talk about how the light vehicle market demand felt to you in March and April ?
Speaker Change: Yeah, thanks, Jeff. Yeah, if I look at your right, typically Q1 to Q2, you do.
Speaker Change: You do see a sequential tick-up, and you're seeing that right with our EBITDA guide. We're going to be up about $15 million EBITDA at the midpoint. And if I look at kind of the businesses as well, you know, we're kind of forecasting. Thank you very much.
Speaker Change: You know, to be down about a single-digit percent on a year-over-year basis in the second quarter, but that's still, that is implying that your second quarter revenue will be-
Speaker Change: The Running, probably $50 to $70 million higher on a sequential basis, so that's still kind of holding true for us, embedded in the guide. The one thing that Chris referenced regarding some of the...
Chris Villavarayan: The cost impacts from tariffs, we are seeing that a little bit of headwind in the second quarter before we can kind of fully recover that. And that's when you'll start seeing some of those pricing actions kind of, you know...
Chris Villavarayan: Dickend, to provide a full quarter coverage, and then relative to mobility, I think...
Chris Villavarayan: You know, the one point that we wanted to really highlight with that business, the team has done a really just a phenomenal job of continuing the outperformance in China.
Chris Villavarayan: as well as in Brazil. That is coming in and you can see the margin performance within that business.
Unknown Executive, Colleen Lubic, Chrishan Villavarayan
Unknown Speaker 0
Speaker Change: Maybe just to add up just I think Carl's captured all of it just at probably a little bit more color on the refinish march and one of the other things that we're working with is working with our distribution. [inaudible]
Speaker Change: Partners who have inventory, obviously, in the system to be able to use up some of that inventory to manage the impact of tariffs. So that's how it...
Also, Defined our Q2 Guide.
Speaker Change: And then when I come back, again, to add to Carl's points, I mean the undemobility side, certainly the marketplace has been in a great shape. Not only if we look at our performance in Latin and China, but we're also seeing signs of life in North America with...
Speaker Change: Currently, some of the family plans that have been announced by the big three.
Speaker Change: So we will wait and see how all this plays out, obviously there is also the challenge of…
Speaker Change: Supply Chains to make those cars based on the impact of tariffs on things like raw materials and semi-conductors but once we get past that you do see an opportunity for quite a tailwind also in that marketplace.
Thank you
Speaker Change: Thank you. Thank you. We'll take our next question from Vincent Andrews with Morgan Stanley , your line is now open.
Speaker Change: Hi, I just wanted to get a little more detail on this three cash flow guidance. It was I think a single target before 500 million now it's 475 to 500 so what's causing the sort of introduction of the range and the lower end and just looking at your cash flow statement. Can you remind us what's in that other accrued liabilities bucket that was a 106 drawdown of cash in the quarter?
Speaker Change: from the macro environment. So, I would say the bulk of that...
Speaker Change: Impact on pre-cassual is really driven by just higher... [inaudible]
Speaker Change: Restructuring cash outlays that we're going to have in the rest of the year.
Speaker Change: It is what kind of drove the range. So overall, we're so very good. It's a very solid and very strong pre-catchable.
Unknown Executive, Colleen Lubic, Chrishan Villavarayan
Thank you very much.
Speaker Change: Thank you, we'll take our next question from Alesski Yefremov from Keybank. Your line is now open.
Aleski Jofroman: Thanks, good morning, everyone. Chris, you already spoke about your recent-ish value segment. I was hoping to get a little more details on how this segment is doing relative to the broader market.
Is this?
Unknown Executive, Colleen Lubic, Chrishan Villavarayan
Obviously expand on Mark Chirps
Speaker Change: If you look at the second half of your question, how is the market responding?
Speaker Change: Obviously this is the, let's call it this aspect relates to
Speaker Change: Where consumers are a little bit more cautious, this is more value driven, so the consumers here are not so much type to insurance and these are folks that are making choices on repairing their cars.
Speaker Change: outside insurance or just improving the look of their cars. And...
from that perspective.
Speaker Change: The consumer confidence is waning, so you can't see, let's call it here
Demand is a little bit weaker. [inaudible]
Speaker Change: Now to your last question about how we performing here. I would say if I looked at just two one performance in our win ratio, I would say we're performing above the market here, and you can also see it a little bit in our performance when I look at it. [inaudible]
Speaker Change: This is growing faster than our premium business because we have such significant market share in our premium business.
Speaker Change: This is obviously a business that we took on to grow so it is growing faster and so that's a great sign.
Speaker Change: But again, I would say confidence, the consumer confidence in this market though is probably dropping more than what we're seeing in our premium segment so I hope that provides the color you're looking for.
Great. Thanks, Chris.
You're welcome.
Speaker Change: Thank you. We'll take our next question from John McNulty with BMO Capital Markets. Your line is now open.
Hey, good morning. This is Caleb. I'm from John.
Speaker Change: So, for the four-year sales, God, you lowered that despite effects being less of a headwind than it was at the start of the year but the EBITDA guide remained intact due to what you said earlier on the cost savings [inaudible]
Speaker Change: But you also kept the 30 to 40 million dollars in cost savings goal for the year. So maybe could you just talk to like how exactly netting out or if there's maybe potential upside to the 30 to 40 million cost savings you're looking for? No, no, no, no.
that we've executed. [inaudible]
on the cause side in that we're executing. We're executing.
Speaker Change: I would say that would be the first point. I think the second point is, you know, when we started the year, you know, when we kind of gave a full year outlook at the time, I think there's always a some degree, some level of conservatism as well that we had with the original outlook and I would, you know, and that's coming into play now, especially with revenue with being a little bit softer. Then we originally were anticipating and so I would say it was between both of those items that allowed us to be able to hold serve on our even range.
at this point.
Okay, thanks for the follow and congrats on the quarter.
Thank you. Thank you.
Speaker Change: Thank you. We'll take our next question from Mike Harrison with C-Port Research Partners, your line is now open.
Hi, good morning.
Good morning, Mike Bussis. [inaudible]
Speaker Change: Within the refinished business, you noted that you're seeing customers cashing in claims and with reduced insurance claims probably a lot of damage
Speaker Change: or Dings and things like that that's not being repaired right now. What does that mean when these damaged vehicles are sold when somebody wants to buy a new car or traded in for a used car? How much business do you guys have with big resellers like CarMax or Automation or other dealership groups? [inaudible]
Speaker Change: And are you starting to see any growth in that segment of the market for refinish coatings? Thanks
Speaker Change: Yeah, that's a great question, Mike. I think that's the good news, if there is any good news, is the fact that with new car pricing going up with the possibility of tariffs, is what we are seeing is used car pricing going up.
Speaker Change: and as you look at folks essentially turning in cars into a dealership and the dealership looking at taking that repair cost and essentially splitting it up to your point and looking at things like CarMax, those folks and what they're doing in that space. [inaudible]
Speaker Change: Which provides us an opportunity here to see a lot more cars coming in.
at some point, again. [inaudible]
Speaker Change: I think it's a question of time that drives stability back in the marketplace because you've seen four to six orders of, let's call it, significant decline in this marketplace .
Speaker Change: Market is as you I'm sure heard from every call is the level of uncertainty and change.
Speaker Change: I think once we have some clarity on the uncertainty, the market dynamics will play out, you know, over a period of time. It's just a question of time. I think folks are just waiting to make decisions.
Speaker Change: Whether it's whether it's the folks like RMAX and the actual... You know...
Speaker Change: Repair folks as well as the consumer itself. So as I view it, it's just a question of time.
Speaker Change: and obviously the longer that the uncertainty plays out, that creates a bit of a risk for us, but beyond that I do believe that there's an opportunity for a stabilization in the marketplace over time. [inaudible]
Thanks very much [inaudible]
You're welcome.
Speaker Change: Thank you. We'll take our next question from Lorenzo there. With BNP, your line is now open.
Speaker Change: That's good morning. A question on the capital education, please. Can you talk about your priorities in some of the carriage deployment between delivering given uncertainty versus a fair buyback, so indeed other M&A as we hear that there are some assets on the block? Thank you.
Speaker Change: Yes, thank you. So camp allocation for us continues and will remain a significant lever for us to drive value creation for our shareholders going forward.
Speaker Change: As I look at it, our free cash in the first quarter is always a seasonal low point. And if you think about the next three quarters, we expect to deliver about $500 million of cash over that time period.
Speaker Change: So if you look at the Capitol allocations priority here in the first quarter, we did ramp up our Capitol expenditures.
Speaker Change: We almost doubled that from what we did a year ago which was consistent with our A-Plan strategy .
Speaker Change: As we continue to see very significant productivity opportunities within our network . .
Speaker Change: Having sent all of that though, if I look at just our interest expense and where that's running at about $180 million, that's exactly what we begged to be the interest expense for 2026.
Speaker Change: are not leverages at two and a half times. So as we go forward, our plan is really to allocate capital.
between Sherry purchases. [inaudible]
Speaker Change: as well as Opportunistic M&A. Just given where we are from an overall interest expense and leverage profile, we are going to continue to naturally be lever as we go forward so it does open up those opportunities to be.
Speaker Change: Selective and in focus, really to censure by-backs and opportunities [inaudible]
Unknown to succumbent.
Speaker Change: It just, you know, maybe just to add a little bit on
Speaker Change: The look on M&A, as I said in the last quarter, I think this is certainly something that we will continue to look at for the rest of the year from our perspective. Thank you.
Speaker Change: You know, I think there were two things that, you know, coming in, we were trying to solve for Xalta one was, you know, the financial performance and really building the foundation.
Speaker Change: for us to be able to grow. And I think, you know, with what we've done with the four out of the five elements of the A plan, we've certainly been able to accomplish that.
Speaker Change: from my perspective even in the challenging macro as I think about you know what is the next evolution of what we have to solve.
with Axalta. It's really the growth algorithm. And so anything that provides a growth...
Speaker Change: Vector above our current end markets and that really provides value with the operational emphasis that we have for our shareholders and also for us as a company. I think those are the things that we will continue to look at at an opportunistic.
Okay, thank you.
Thank you. You're welcome.
Speaker Change: Thank you. We'll take our next question from David Begleiter with Deutsche Bank. Your line is now open.
Speaker Change: Thank you, good morning. Chris, Mobility margins, they were very nice in the quarter. Where can they go longer term? Can they get to upper teens or even 20% longer term? Thank you.
Speaker Change: Good question, David. Good morning. I think we're certainly proud of where that team has done an exceptional job getting the margins. Thank you very much.
Speaker Change: And, you know, what's interesting, if you really break it out and pull out of it and look at it, you know, just taking a minute here [inaudible]
Speaker Change: is the fact that, you know, the, you know, commercial vehicle has, has a significantly higher margin than our like vehicle business.
Speaker Change: and with the significant decline that we saw in Q1 and actually we're forecasting for the rest of the year.
Speaker Change: You can see what the teams have been able to do with the life or business to be able to and combined to be able to
who managed the decline in margin.
Speaker Change: The really, really good new story for me there is being proactive in getting going after and growing the CTS business, which is really looking at RVs and sports utility vehicles and all the, you know, ambulances and special
Speaker Change: The question on margins, if I look at this as a cyclical low point, there is opportunity for outside here in margin, obviously, I would call it 16, it's a good spot for us too.
Speaker Change: to start off with, and it's certainly something that we're planning to hold, and I look forward to maybe talking about some better opportunities, but again, we want to see how we grow in Lactam, and also continue to grow in CTS before we can commit to anything here.
Thank you.
and Chrishan Villavarayan.
Speaker Change: Thank you, we'll take our next question from Mike Sison, with Wells Fargo Your Line is now open. Thank you very much for your time.
Hey, good morning. Just one quick one on ref finish [inaudible]
You know, industry varns are going to be down this year, what? [inaudible]
Speaker Change: What do you think happens to volumes if we do go into a U.S. recession? And then can you maybe give me a quick history lesson? When was the last time industry volumes were positive or religion claims were positive? [inaudible]
Speaker Change: And what was the environment? Was it, you know, better interest rates, better consumer sentiments, sort of made a backdrop of when those, when the markets were better? [inaudible]
Speaker Change: Yeah, I think you know, just looking at data, I would say it's got to be pre-pandemic where volumes have been
Speaker Change: I'm increasing to be honest with you and you know if I look at it I certainly you know if I look at my my ten year here and I would say then the last nine quarters we'll continue to see volume declines and obviously claims have also declined during that time. [inaudible]
Speaker Change: If you look at our industry, our business, specifically in refinished though, if you went back even beyond the nine quarters and you went right back to the pandemic and looked at four years or 16 quarters, this but business has consistently
Speaker Change: Brown Sales and performed financially quarter over quarter better over the last at least 14 quarters that I have data in front of me.
But it's really a multitude of, let's call it.
execution philosophies that they have driven.
Speaker Change: Whether it's M&A, whether it's growing body shops, neck body shops winning.
Speaker Change: It's the value-prose position that they bring to the customers. I look at the fact that...
in a whether it's for color or efficiency.
Speaker Change: We are the best in the marketplace at both of those things, and I can say that because we continue to be the leader in the premium segment.
Speaker Change: So the consistency of essentially reducing the time and the effort and the cost within our body shops is the reason why this team's won over 10,000 body shops if I look at that same period of the last three to four years.
Speaker Change: So I think that's the strength of our business even though we have seen volume declines for what I would say is over 45 years .
Now specific to, you know, what? [inaudible]
Speaker Change: The future holds for the business. I think, you know, as I said, I do believe that insurance premium flat lining here as I look at Q1, the fact that use car pricing is starting to go up and also the availability of capacity. [inaudible]
Speaker Change: and let's call it the possibility of repair costs coming down.
Speaker Change: and you can see this also with actions that certain states are taking.
Speaker Change: They're essentially driving the lost thresholds from 75% up to 85%
Speaker Change: I think four states have enacted that. And finally, you know the fact that we are wrapping high single-digit claims increases or decreases from the last half of last year into this year. I do believe that there's an opportunity for this marketplace to stabilize here. [inaudible]
Speaker Change: So I hope that gives you some clarity of what I see the back half of 25 doing
Great, thank you.
You're welcome.
Speaker Change: Thank you. We'll take our next question from Patrick Cuttingham with City Your Line Is Now Opened
Speaker Change: Hi, good morning, and thanks for squeezing me in here. It seems like you're still forecasting some back half growth and industrials, but overall housing sentiment building products is not great with indirect and direct impacts and tariffs, high interest rates. So why does that outlook still hold and how meaningful are these new business wins from the top line perspective? Thank you.
Speaker Change: Yes, it takes metric. Yeah, is that look at the second half for industrial, you know, we are seeing the market up slightly if I look at a sequential basis, but you know, you're talking, you know, probably incrementally, you know, 10 to 15 million dollars higher, you know, each quarter is I think about the third quarter and the fourth quarter from what the run rate was in the second quarter. So [inaudible]
Speaker Change: Not a significant dollar increase but I will tell you as we think about the base business you know the team are in Asia Pacific continues to outperform so we're seeing you know that growth is helping offset some of the weakness.
Speaker Change: here you're seeing in North America. And I will say Europe has begun to stabilize and showing some pockets of potential growth as well. So I think those are the two areas where we think we have a little bit of, you know, higher revenue opportunities in the second half.
Speaker Change: Yeah, maybe just to give a shout out to our team in China, I think, you know, even looking at our April results .
Speaker Change: I would say specifically in what we do for coatings, our voltage text product that we do provide coatings for quote motors and what we provide even for, let's call it windings for drones
Speaker Change: We provide this product that essentially does a great job in...
Speaker Change: and connectivity as well as reducing heat and it's just an exceptional product that we've seen some great growth with. So the teams have done an exceptional job continuing to grow. There's China's been a good story for us in our industrial business. [inaudible]
Great, thank you [inaudible]
Everything [inaudible]
Speaker Change: Thank you. We have reached out a lot of time for questions. I will now turn the program back over to Chris Villavarayan for any additional closing remarks.
Speaker Change: Well, thank you. Before we close, I really want to emphasize that the A plan is working. We consistently delivered operational excellence and exceeded our financial challenges.
Chris Villavarayan: I have financial targets in a challenging macro. Again, I really want to thank the exalted employees for uniting around a clear set of priorities.
Chris Villavarayan: And while we believe the environment in 2020 with five is somewhat uncertain, I'm confident that our team will perform at the high level that we have and we're well positioned for when the markets turn around. And with that, thank you for joining us today.
Chris Villavarayan: This does conclude today's program. Thank you for your participation. You may disconnect at any time and have a wonderful day.