Refinish Market Growth and Outlook
Q: What's driving Refinish growth and future expectations?
A: The Refinish business grew top line by 5% in Q2, driven by four strategic elements: gaining 1,200 new body shops evenly split between economy/main and premium segments , expanding into adjacencies to increase share of wallet , executing acquisitions like CoverFlexx and André Koch, which are performing ahead of expectations , and driving growth through retail stores in Europe. Despite a flat market, these efforts have led to growth. For Q3, the market appears stable to soft, with some softness in Europe due to destocking and stable conditions in North America, albeit with some distributor consolidation. Nevertheless, the company expects continued growth, with low single-digit increases even in a softer market, maintaining a 2–3% organic growth outlook for the year.

Industrial Segment Margin Improvement
Q: How is the Industrial segment progressing on margin improvement?
A: The Industrial business showed the largest margin improvement from Q1 to Q2 , not only improving margins but also growing sales with a 2% volume increase in Q3. The team has been focusing on "earning the right to grow" by exiting low-profit powder businesses and certain customer agreements. With margins now at strong levels, any future improvement in construction or residential markets should contribute positively. The company expects the Industrial margin profile to increase over 300 basis points from last year.

Light Vehicle Pricing and Growth
Q: How is Light Vehicle managing pricing pressure and growth?
A: Despite market builds trending in line with the forecasted 89 million builds , the Mobility business focuses on profitable growth, achieving nearly 15% margin last quarter. The company has eight consecutive quarters of growth, with a 7% increase in the last quarter, driven by strong performances in China (up almost 30%) and Latin America (up double digits). Incremental growth comes at accretive pricing, offsetting marketplace weaknesses. While there is some pricing pressure in Europe, new business is entering at favorable pricing, and the team feels contractually well-positioned.

Cost-Savings Initiatives
Q: What's the status of the $75 million cost initiatives?
A: The cost initiatives are progressing as planned, with approximately $10 million expected to impact this year, flowing through equally since the announcement in the first quarter. These savings are embedded in the guidance and are anticipated to increase between the $10 million and $75 million levels in 2025, reaching the full $75 million run rate by 2026.

Commercial Vehicle Outlook
Q: What is the outlook for the Commercial Vehicle business?
A: The Commercial Vehicle segment performed strongly in Q2, particularly in North America, with Class 8 production exceeding expectations due to continued strong fleet demand. However, the company forecasts a 20% decline in this segment over the next two quarters, aligning with customer forecasts and market trends. Looking ahead, they anticipate higher demand in part of 2025 and especially in 2026, driven by a pre-buy ahead of emissions changes in 2027. Latin America also remains a strong market, with the team winning new agreements. In China, the market is more challenging due to margin pressures, so focus remains selective.

EBITDA Guidance and Margins
Q: Why isn't the back half guidance reflecting more upside?
A: The company delivered $550 million of EBITDA in the first half of 2024, a $110 million increase over last year. The guidance for Q3 implies consistent EBITDA levels around $275 million. At the top end of the range, they expect $1.1 billion in EBITDA for the full year, an increase of $150 million year-over-year. Despite volume declines forecasted in most segments by 3–4%, they are projecting mid- to low-single-digit sales growth, maintaining margins through the back half. Therefore, the guidance reflects confidence in current performance rather than conservatism.

M&A Pipeline
Q: What's the outlook for future acquisitions?
A: The company remains active in pursuing M&A opportunities, aiming for a $500 million growth target as outlined in their A Plan. Having already accomplished $130 million to $150 million this year, they have $350 million remaining over the next two years, with half expected from M&A and half from organic growth. They are focusing on bolt-on acquisitions in accretive parts of the business, such as Refinish and Commercial Vehicle, and anticipate further announcements in the future.

Price/Cost Expectations
Q: How will price/cost dynamics evolve this year?
A: The company has managed the price-cost differential effectively across businesses. In Refinish, pricing remains steady annually. In Industrial, proactive management and offsets from higher inflation in labor help maintain neutrality. In Mobility, price increases where appropriate are mitigating impacts from raw material indices. Overall, they expect margins to improve by about 200 basis points for the full year , focusing on margin stabilization and hitting 2026 targets.

Impact of Interest Rates
Q: How will lower interest rates affect the business?
A: While the current guidance doesn't factor in potential rate cuts, longer-term lower interest rates could benefit the company by stimulating consumer demand in sectors like automotive and housing, potentially providing a tailwind. Approximately 50% of their debt is floating rate, so they would gain some interest expense relief when rates decline.

Future Volume Growth
Q: What's the outlook for volume growth if demand improves?
A: The company expects significant volume growth if demand picks up in 2025. With a strong foundation in margin and operational efficiency, any increase in sales should convert well and be accretive. They are well-positioned across all segments, including areas like Refinish (with the CoverFlexx acquisition expanding presence in the economy segment where they have 11% share). The teams are focused on pivoting toward growth and driving the growth engine.

Buybacks
Q: What are the plans for share repurchases?
A: The company has a $700 million repurchase authorization from the Board and executed $50 million in buybacks in Q2. In the short term, they are also focusing on paying back the revolver draw used for the CoverFlexx acquisition, having repaid $50 million already. They plan to continue being buyers of their stock and utilize the $700 million authorization over the next several years.

CoverFlexx Contribution
Q: How much will CoverFlexx contribute this year?
A: CoverFlexx is expected to contribute around $40 million in revenue in the second half. While exact margin details aren't provided, the Performance Coatings segment's overall margin is a good proxy. Early signs post-acquisition are positive, with new opportunities both commercially and on the cost side.

Irus Mix Rollout
Q: What's the status of the Irus Mix rollout in Refinish?
A: The Irus Mix rollout is progressing well, with over 300 installations this year and a target of 1,000 units by the end of next year. Customers are showing significant interest, and the system provides efficiency gains of 8 to 12 hours per week in body shops. The rollout began in Europe and is expanding into North America.

Deprioritization in Industrial
Q: What's the scope of deprioritizing low-margin businesses in Industrial?
A: Approximately 10% of the Industrial business was identified for potential changes, including exiting certain customers and low-profit powder businesses. This strategic shift has contributed to the positive inflection in top-line growth and is expected to increase the Industrial margin profile by over 300 basis points from last year.

Performance Coatings Margins
Q: Will Performance Coatings EBITDA margin improve in Q3?
A: Margins are expected to be down slightly sequentially from Q2 to Q3 due to seasonality and mix considerations. This is consistent with typical patterns, and the factors affecting the overall company margins also apply to the Performance Coatings segment.

ERP Impact on Volumes
Q: How did the ERP implementation affect volume growth comparisons?
A: The ERP-related production constraints in North America last year impacted sales by about $20 million to $30 million. The team worked diligently to regain those sales, demonstrating product strength and customer loyalty. The comparable percentage impact is around 2%.