Axalta Coating Systems Ltd. (AXTA)·Q3 2025 Earnings Summary

Executive Summary

• Q3 2025 delivered record Adjusted EBITDA ($294M, 22.8% margin) and record Adjusted Diluted EPS ($0.67), despite net sales declining 2% YoY to $1.288B; GAAP Diluted EPS rose 11% to $0.51 .
• Segment mix: Performance Coatings saw lower net sales ($828M vs $877M YoY) but resilient profitability (Adj. EBITDA margin 25.5%, +20 bps YoY); Mobility Coatings set a third-quarter net sales record ($460M, +4% YoY) with margin improvement to 18.0% .
• Guidance trimmed: FY 2025 revenue lowered to >$5.1B (from $5.20–$5.275B), FCF to ~$450M (from $475–$500M), while FY Adj. EBITDA ~$1.14B and Adj. EPS ~$2.50 maintained near prior range; Q4 outlook calls for mid-single-digit YoY net sales decline, Adj. EBITDA ~$284M, Adj. EPS ~$0.60 .
• Capital return accelerates: $100M repurchased in Q3 and plans for up to $250M in Q4; credit agreement amended to permit borrowings for repurchases—a potential near-term stock reaction catalyst alongside resilient margins vs softer volumes .

What Went Well and What Went Wrong

What Went Well

• Record profitability: “We executed another strong quarter delivering record Adjusted EBITDA and Adjusted Diluted EPS… twelve consecutive quarters of Adjusted EBITDA and Adjusted EBITDA margin growth year-over-year” .
• Mobility resilience: Third-quarter net sales record ($460M, +4% YoY) and Adj. EBITDA up 20% YoY to $83M; margin improved 230 bps to 18.0% on favorable price-mix and cost discipline .
• Cost control and EPS: SG&A down 7% YoY; lower interest expense supported GAAP and adjusted EPS; CFO noted gross margins held steady at 35% and raw materials broadly stable .

What Went Wrong

• North America soft: Performance Coatings net sales fell to $828M (from $877M), with Refinish down 7% YoY to $517M on lower claims activity and order pattern shifts; Industrial down 4% YoY to $311M .
• Free cash flow compression: Q3 operating cash flow $137M vs $194M prior year; FCF $89M vs $164M, driven by higher working capital and capex .
• FY top-line reset: Management lowered FY net sales and FCF outlook as expected demand pickup did not materialize; Q4 net sales now seen down mid-single digits YoY .

Financial Results

Segment breakdown

KPIs (Q3 2025)

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• CEO: “We have now delivered twelve consecutive quarters of Adjusted EBITDA and Adjusted EBITDA margin growth year-over-year and are well prepared for 2026.”
• CFO: “Positive price cost actions and disciplined cost management helped offset mix headwinds, resulting in gross margins holding steady at 35%… SG&A expenses declined 7%.”
• CEO on 2026: “The team remains fully committed to delivering on our $1.2 billion adjusted EBITDA target.”
• CFO on buybacks: “At these trading multiples, it makes all the sense in the world to deploy almost all of our capital at this point to buying back shares.”

Q&A Highlights

• Refinish headwinds: Destocking mid-single digits and industry volumes mid-to-high single-digit down; signs of stabilization and expectation for volumes to turn positive by Q2’26 .
• Cost structure durability: Majority of cost reductions are structural; EBITDA conversion per $1 revenue expected to move from ~35% to closer to ~40% .
• Commercial Vehicle pivot: Despite ~30% market volume decline, Axalta limited sales decline to ~7% by moving into marine, military, RVs, off-highway and smaller customers; capacity investment ahead of eventual Class 8 recovery .
• Capital return vs dividend/M&A: Near-term focus on buybacks given valuation; dividend under board discussion; M&A challenged by multiples but remains longer-term tool .
• Tariffs/materials: ~$20M incremental costs; basket broadly stable; solvents/isocyanates favorable, some offsets in monomers/pigments .
• Q4/FCF: Expect strong Q4 FCF from working capital unwind (inventory drawdown); SG&A reductions to continue similar to Q3 .

Estimates Context

• Q3 2025: EPS beat; revenue slight miss versus consensus.
• Note: S&P’s EBITDA “actual” for Q3 2025 is 277* vs company 8‑K EBITDA 274 (differences likely due to classification/rounding) .

Values retrieved from S&P Global.*

Key Takeaways for Investors

• Profitability resilience: Record adjusted profitability and sustained margin expansion across segments despite softer North American demand—supports medium-term thesis on structural cost improvements .
• Near-term setup: FY revenue/FCF trimmed; Q4 expected MSD decline YoY; watch free cash flow recovery from working capital unwind and execution on buybacks in Q4 .
• Mix and trajectory: Refinish stabilizing with destocking abating by Q2’26; Mobility healthy on China/LatAm; Industrial margins improved with potential tailwinds from lower rates/PMIs .
• Capital allocation: Aggressive repurchases ($100M in Q3, up to $250M in Q4) and credit amendment enabling buybacks could be supportive for the stock near term .
• Watch risks: North America demand softness, Class 8 production decline, tariff/macros; management indicates raw materials stable and cost actions largely structural .
• Innovation optionality: New EV battery coatings enhance Axalta’s technology positioning, potentially driving incremental opportunities in Mobility and Energy Solutions .
• Guidance sensitivity: FY Adj. EBITDA held at ~$1.14B and Adj. EPS ~$2.50; monitor Q4 margin delivery and FCF vs updated targets .