Axalta Coating Systems (AXTA) Q1 FY26 earnings call: guidance and Q&A

How have raw material spikes affected destocking in auto refinish, what's the timeline for volume recovery, and how does this intersect with broader economic slowdown concerns?

Management sees stabilization and an increase in Q2 volumes for Refinish, with positive indicators like rising miles driven, moderating insurance costs, and rising used car prices. Destocking is abating, leading to positive price/mix inflection. They expect price actions and recent M&A to further benefit the second half.

“I would say the market is pretty stable, and we're heading towards a recovery. And if you look at Carl's last slide, if you look at all the indicators, they're all positioning the right way, miles driven up. Insurance costs are starting to abate, and we can start seeing that flat line. And also the used car pricing is trending the right way.”

asked by Ghansham Panjabi · answered by Chrishan Anthon Villavarayan

Given the need for a stronger second half to meet guidance, how will the company achieve this ramp, especially with raw material costs?

The second-half ramp is driven by positive price/mix in Refinish as destocking abates, a rebound in Commercial Vehicle volumes (which have higher margins), and slight market pickups in Industrial and Refinish. These factors, combined with proactive pricing and cost actions, are expected to offset inflation.

“The first thing is with destocking coming out, we expect that positive price mix in Refinish to inflect and continue through the back half. The next element of this is really the the CV volumes coming back. Again, with commercial vehicle coming back in the back half, that strengthens us in the back half really drives good margin performance.”

asked by Michael Sison · answered by Chrishan Anthon Villavarayan

What is the lag for the 50% of Mobility revenue tied to raw material indices, and will pricing for the remaining 50% be timely enough to avoid negative impact?

There is a 3- to 6-month lag with indices, but the company has already implemented pricing for the other 50% of the Mobility business. Management is confident that pricing and productivity initiatives will allow them to capture costs, leading to strong margin performance in Mobility (17-18%) and company-wide (22%).

“There is a 3- to 6-month lag with indexes but you also get the positive on once this starts inflecting the right way. But overall, as you can see our margins and what we're laying out as our guide for Q2 and the rest of the year, it shows the positive performance because we absolutely believe we can capture this not only through pricing but also the cost actions from a productivity and a purchasing initiative standpoint that we have out there.”

asked by Edlain Rodriguez · answered by Chrishan Anthon Villavarayan

Competitors have suggested share gains; how does Axalta characterize its Refinish positioning and what more color can be given?

Axalta's net body shop wins increased 10% year-over-year, a record for the quarter, and the company has grown from 85,000 to over 95,000 body shops over 3-4 years. Growth is particularly strong in the economy and mainstream segments, driven by the CoverFlexx acquisition, increasing market share from 9% to over 11%. They expect continued expansion with MSOs in North America.

“we measure net body shop wins. And as I described it, in our Q1 performance, we saw that go up 10%, and that is a record, record quarter for Axalta. And so how are we growing? And if you look at this data also over a 3- to 4-year look, you notice we went from about 85,000 body shops to close to north of 95,000 body shops.”

asked by Emily Fusco · answered by Chrishan Anthon Villavarayan

Why is the inflation headwind only mid-single digits this year despite chemical spot rate movements, and what will the raw material headwind be exiting Q4?

Axalta's lower exposure to European/Asian markets, with China at 10% and Asia at 15%, helps. Only 40-50% of COGS are tied to oil. Strategic purchasing initiatives have shifted 60% of direct spend to contracts from spot buys, providing a natural hedge. Inventory levels of 115 days also help. Q2 impact is low single digits, potentially rising to high single digits by year-end, which will be met with pricing.

“The first 1 is geographic mix. If you look at the impact, which is more European and Asia from an Asian impact, China is about 10% for us. Asia is, let's call it, just north of 15 points percent for us. So in terms of impact, it's less for us from a geographic perspective.”

asked by Caleb Boehnlein · answered by Chrishan Anthon Villavarayan

Provide more detail on Commercial Vehicle trends, timing of Class 8 swing, and momentum in CTS, including customer wins or applications.

Commercial Vehicle is cyclical, and a pickup is expected after Q1's weakness. Axalta's Q1 CV sales were down only 6% despite the market being down 26%, due to strong performance in CTS. CTS focuses on specialty, off-highway, military, and RVs, a $3.5 billion market where Axalta has only 7% share, offering significant growth opportunity. Capital investments have been made to support this growth, and global expansion is planned.

“The market is down 26 points we're just down 6 points so that offset really happened from all the wins that we had on the CTS side. Now going forward, the additional space opportunities here is this isn't just focused in North America. We're also looking at how we can really expand this globally.”

asked by Michael Harrison · answered by Chrishan Anthon Villavarayan