Axalta Coating Systems has announced its financial results for the fourth quarter and full year ended Dec. 31, 2017.
Fourth Quarter Consolidated Financial Results
Net sales of $1,164.8 million for the fourth quarter of 2017 increased 13.4 percent, including 3.5 percent favorable foreign currency translation contribution. Constant currency net sales increased 9.9 percent in the period, driven by 8.6 percent in acquisition contribution, coupled with 0.7 percent volume growth and 0.6 percent higher average selling prices. Modest organic net sales growth included growth from Industrial and Commercial Vehicle end-markets globally, but was offset somewhat by the completion of distributor working capital adjustments in North America Performance Coatings as well as slightly lower Light Vehicle net sales.
Net loss attributable to Axalta for the fourth quarter was $61.5 million compared with $37.2 million in the fourth quarter of 2016, primarily driven by after-tax charges of $24.4 million in severance, $10.5 million in acquisition-related costs and the impact of the U.S. Tax Cuts and Jobs Act legislation. This tax reform resulted in a provisional net tax charge of $112.5 million primarily from the write-down of net deferred tax assets to the lower enacted U.S. corporate tax rate of 21 percent. The provisionally estimated net tax charge reflects Axalta’s current estimate of the new legislation’s impact, which may differ with further regulatory guidance, changes in Axalta’s current interpretations and assumptions. Fourth quarter adjusted net income of $90.2 million increased versus $70.5 million in fourth quarter of 2016 due to the contribution of recent acquisitions, benefit from productivity initiatives and moderate improved average pricing, offset partially by higher raw material costs.
“Axalta’s fourth quarter demonstrated a return to solid growth following our more challenged third quarter result, with net sales and Adjusted EBITDA performance both at or above our revised guidance ranges,” said Charles Shaver, Axalta’s chairman and CEO. “Our stated expectation of improved financial performance beginning in the fourth quarter was met and was supported by broad based market strength and sound execution by our business teams.”
Shaver continued, “For the full year 2017, we are pleased to have met many of our key objectives, with highlights including significant cash deployment to M&A, substantial organic growth in our Industrial coatings end-market, ongoing share gains in our Refinish end-market, continued innovation investment resulting in more than 250 new product launches, and key completed investments in new R&D and training centers globally.
“Looking ahead at 2018, we anticipate generally stable market conditions in each segment, and are encouraged by recent and anticipated core volume growth across most end-markets we serve. Overall, we continue to expect Axalta to outgrow our end-markets on the basis of strong technology and innovation and careful execution on our global growth strategy,” added Shaver. “Although we continue to face notable headwinds from raw material inflation, we have plans in place to mitigate this through a combination of price increases and substantial productivity savings which we have already initiated for the current year.”
2018 Guidance Update
Axalta is updating its outlook for the full year 2018 as follows:
- Net sales growth of 8-9 percent as reported, or 6-7 percent excluding FX tailwinds
- Adjusted EBITDA of $940-980 million
- Interest expense of ~$165 million
- Income tax rate, as adjusted, of 19-21 percent reflecting the anticipated benefit of the enactment of the U.S. Tax Cuts and Jobs Act legislation
- Free cash flow of $420 million to 460 million
- Capital expenditures of ~$160 million
- Depreciation and amortization of ~$365 million
- Diluted shares outstanding of ~249 million
Revision of Prior Year Financial Statements
During the three months ended June 30, 2017, as part of Axalta’s efforts to analyze the impact of the 2018 U.S. GAAP accounting adoption of ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”, Axalta identified and corrected errors that affected previously-issued consolidated financial statements. Axalta determined that these corrections were immaterial to the previously-issued financial statements; however, Axalta has revised certain amounts in the previously issued condensed consolidated financial statements to reflect those errors, including revisions to the condensed consolidated statement of operations for the three months and full year ended Dec. 31, 2016.
Axalta has corrected the errors in the timing of revenue recognition by estimating the additional rebates and pricing concessions at the time of sale to distribution customers and reducing net sales by $2 million ($0.7 million after tax) and $4.7 million ($3 million after tax) for the three months and full year ended Dec. 31, 2016, respectively, as a result. These corrections did not have a material impact on the 2017 consolidated financial statements, according to Axalta.
