Axalta's Q3 2025 Earnings Call: Contradictions Emerge on Refinish Recovery Timelines, Pricing Strategies, and Share Repurchase Plans

Date of Call: October 28, 2025

Financials Results

• Revenue: $1.3 billion, down 2% year-over-year
• EPS: $0.67 adjusted diluted EPS, up 6% versus prior year
• Gross Margin: 35%, holding steady

Guidance:

• Q4 net sales expected to decline mid-single digits; adjusted EBITDA ~ $284M; adjusted diluted EPS ~ $0.60.
• Full-year 2025: net sales > $5.1B; adjusted EBITDA ~ $1.140B; adjusted diluted EPS ~$2.50 (up 6% vs 2024); free cash flow ~ $450M.
• Expect a significant FCF increase in Q4 as working capital unwinds; repurchasing up to $250M of stock in Q4.
• Refinish revenue and volumes expected to stabilize with volumes turning positive in Q2 2026; company targeting $1.2B adjusted EBITDA for 2026.

Business Commentary:

* Record Financial Performance: - Axalta reported net sales of $1.3 billion in Q3, marking record adjusted EBITDA and adjusted diluted EPS driven by disciplined execution. - The results were supported by stable trends in Europe and growth in China and Latin America, despite challenges in North America.

• Cost Management and Efficiency:
• Operating expenses declined by 5%, reflecting ongoing focus on efficiency and cost management.

• Interest expenses are down 15% year-to-date, bolstering adjusted diluted EPS performance.

• Refinish Segment Challenges and Growth:

• Auto Refinish component of Performance Coatings recorded a 7% decline in volume in Q3, attributed to destocking and lower market demand.

• Despite this, Axalta achieved approximately $90 million in incremental net sales this year through strategies such as new body shop wins and adjacency sales.

• Mobility Segment Stability:

• Mobility Coatings saw 4% growth in net sales, driven by increased sales in Latin America and China.

• The team's focus on new business wins and cost control resulted in a 230 basis points expansion in adjusted EBITDA margin.

• Share Repurchase and Capital Allocation:

• Axalta repurchased $165 million in shares in the first three quarters of 2025, with an additional planned repurchase of up to $250 million in Q4.
• This strategy is based on the belief that the company's stock is undervalued, indicating strong confidence in future performance.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted "record adjusted EBITDA and record adjusted diluted EPS," 12 consecutive quarters of adjusted EBITDA/margin growth, maintained net leverage at 2.5x (lowest in company history), and announced aggressive share repurchases ($100M in Q3, up to $250M in Q4), signaling confidence in earnings power and cash generation.

Q&A:

• Question from Ghansham Panjabi (Robert W. Baird & Co.): On Q3 Refinish (down ~7%), how much was industry volume versus inventory destocking, and what commercial strategies support improvement into 2026?
  Response: Destocking accounted for roughly mid-single-digit of the decline (markets down mid- to high-single-digits); company cites ~2,200 net new body shops, pricing, adjacencies and CoverFlexx integration and expects destocking to abate by Q2 2026 with recovery into H2 2026.

• Question from Christopher Parkinson (Wolfe Research): Are the cost reductions sustainable and how should we think about cost progress into 2026 when volumes recover?
  Response: Most savings are structural (500 bps delivered); Transformation Initiative ~$75M with $60–70M realized and ~$20M flowing into next year, and further supply-chain/footprint opportunities remain to drive incremental savings.

• Question from Lucas Beaumont (UBS Investment Bank): What are your expectations for industrial and commercial vehicle markets for 2026 beyond Refinish?
  Response: Commercial vehicle remains muted (volumes down ~25–30%) but company is pivoting to CTS and expects CV revenue ~ $225–250M in 2026; industrial markets are muted and likely flat to slightly up if rates/mortgage activity improve.

• Question from Matthew DeYoe (BofA Securities): Thoughts on initiating a dividend and appetite for M&A given current valuation?
  Response: Board is discussing dividends but management prefers buybacks given perceived undervaluation; M&A is constrained by current trading multiples though can play a role longer term.

• Question from John Ezekiel Roberts (Mizuho): What are the underlying drivers in Refinish (accident rates, insurance inflation, repair costs)?
  Response: Accident rates roughly flat/down ~1%; claims down high-single-digits in North America; insurance premiums and repair costs are stabilizing/flattening, supporting a recovery outlook.

• Question from Michael Harrison (Seaport Research Partners): Are current cost actions structural or temporary and will discretionary spend return?
  Response: Vast majority of cost actions are structural; some discretionary items (e.g., T&E) may return, but structural cuts raise incremental revenue-to-EBITDA conversion toward ~40%.

• Question from Patrick Cunningham (Citigroup): Is the low-single-digit price/mix decline in Refinish primarily mix from mainstream/economy and what's the structural pricing outlook for 2026?
  Response: Negative mix is driven by wins in mainstream/economy and North America destocking; pricing for premium remains targeted at ~2% net in 2026.

• Question from Aleksey Yefremov (KeyBanc): Should we expect a typical Refinish pricing pattern in 2026 or will you adjust stance?
  Response: Plan is to maintain a similar pattern—targeting roughly 2% net pricing next year.

• Question from David Begleiter (Deutsche Bank): For Q4, are you running production normally or drawing down inventory, and will SG&A continue to decline at ~7% YoY?
  Response: Expect a Q4 inventory drawdown (working capital unwind) driving strong FCF; SG&A reduction should be similar to Q3 (~7% YoY).

• Question from John McNulty (BMO Capital Markets): What did you see on raw materials and tariffs impact; are you through tariff headwinds?
  Response: Tariffs represent roughly $20M of incremental costs largely behind us; raw material basket was down ~1% in Q3 (solvents and isocyanates lower; offsets in monomers/pigments) and is expected to remain stable for 3–4 quarters.

• Question from Vincent Andrews (Morgan Stanley): Do you expect Refinish volumes to turn positive in Q2 2026 as revenue does?
  Response: Yes—management expects volumes to start trending positive in Q2 2026 as destocking abates and body-shop wins/adjacencies ramp.

• Question from Jeffrey Zekauskas (JPMorgan): What will determine the up-to-$250M Q4 buyback and how much have you bought so far?
  Response: Management has repurchased $165M year-to-date ($65M Q2, $100M Q3); up-to-$250M planned in Q4 driven by current valuation and confidence in earnings/cash flow.

• Question from Michael Sison (Wells Fargo): If Refinish doesn't normalize in 2026, how will strategy change and does BASF's sale create market share opportunities?
  Response: If weakness persists, company will pivot further into adjacencies, economy segment, private branding and small tuck-ins to drive growth; BASF PE sale likely increases discipline but not materially change competitive dynamics.

• Question from Kevin McCarthy (Vertical Research Partners): Are you working on a new strategic plan post-A Plan and what will it emphasize?
  Response: Yes—new plan to be rolled out by May; focus will shift from cost/margin delivery (largely achieved) to aggressive growth initiatives leveraging high margins and capital allocation.

• Question from Arun Viswanathan (RBC Capital Markets): What macro factors will revive Refinish and Industrial and can you spur demand via innovation/economy initiatives?
  Response: Industrial needs lower mortgage/interest rates and improved construction PMI; Refinish recovery tied to destocking abating but company can drive growth via body-shop wins, adjacencies and expanding economy offerings.

• Question from Laurence Alexander (Jefferies): How will working capital days evolve as end markets recover and can Q3/Q4 SG&A be annualized into next year?
  Response: Q4 will see an inventory unwind boosting FCF; SG&A similar to Q3 in Q4 with a modest uptick next year for merits, but overall SG&A expected to remain low as a percent of sales with disciplined inventory management going forward.

Contradiction Point 1

Refinish Market Recovery Timeline

It involves differing expectations regarding the timeline for market recovery in the Refinish business, which is crucial for assessing the company's operational and financial outlook.

Could you break down the 7% Q3 auto Refinish volume decline between industry demand and inventory destocking? What strategies will drive commercial segment growth in 2024? - Ghansham Panjabi(Baird)

2025Q3: Despite this, Axalta achieved growth through new body shop wins, pricing actions, and adjacency expansions. Destocking is expected to abate by Q2 '26, with stabilization anticipated in the Refinish business. - Chrishan Anthon Villavarayan(CEO)

How is the U.S. Refinish market performing, given the divergence between collision claims and collision rates, and what is the outlook for 2026? - Christopher S. Parkinson(Wolfe Research)

2025Q2: The market will change in '26, with backlogs decreasing and costs abating. Distributor inventories are being adjusted. We expect stabilization and record Q3 results. - Carl D. Anderson(CFO)

Contradiction Point 2

Refinish Pricing Strategy

It highlights inconsistencies in Axalta's Refinish pricing strategy, which directly impacts their financial performance and market positioning.

What is the Refinish pricing strategy for next year? - Aleksey Yefremov(KeyBanc)

2025Q3: The pricing strategy for next year is to maintain the current 2% net pricing policy. The premium segment will follow this pattern, while the mainstream and economy segments will have slightly different dynamics. - Chrishan Anthon Villavarayan(CEO)

Why was Performance Coatings price/mix below expectations, and what is Refinish's value proposition? - Vincent Stephen Andrews(Morgan Stanley)

2025Q2: We executed 8 discrete actions. While some are onetime, others sustain positive price-mix. Brazil and Latin American business shifts impact positively. Refinish revenue is stable Q1 to Q4, with expected improvement in Q4. - Carl D. Anderson(CFO)

Contradiction Point 3

Refinish Volume Recovery Timeline

It involves differing expectations regarding the timeline for volume recovery in the Refinish business, which is crucial for assessing the company's operational and financial outlook.

Do you expect Refinish volume to turn positive by Q2 2026? - Vincent Andrews (Morgan Stanley)

2025Q3: Axalta anticipates volume to turn positive in Q2 '26, driven by destocking abatement and continued new body shop wins and adjacency expansion. - Chrishan Anthon Villavarayan(CEO)

How is Axalta addressing macroeconomic challenges in the Refinish industry and planning to navigate this downturn? - Mike Leithead (Barclays)

2025Q1: We expect to see industry volumes stabilize sometime in the next 12 to 18 months as some of the structural factors resolve themselves. But this is kind of in line with what we've been saying for the last 9 quarters. - Chrishan Anthon Villavarayan(CEO)

Contradiction Point 4

Share Repurchase Strategy

It involves changes in the share repurchase strategy, which impacts capital allocation and investor expectations regarding shareholder value creation.

Are there plans for dividends and acquisitions given your valuation? - Matthew DeYoe (BofA Securities)

2025Q3: We see great value in repurchasing shares due to its current trading multiples. Dividends are a board decision, but Axalta is an outlier in the chemical space regarding dividends. M&A is challenging at current multiples, so share repurchases are prioritized. - Carl Anderson(CFO)

What are your capital allocation priorities, especially for share buybacks and M&A? - Laurent Favre (BNP)

2025Q1: We'll continue to look for opportunities to leverage that capital for share repurchase or M&A opportunities. We don't see them as mutually exclusive. - Carl Anderson(CFO)

Contradiction Point 5

Industrial Volume Recovery

It involves differing expectations regarding the Industrial volume recovery, which impacts revenue and profit forecasts for a significant segment of the company's business.

What are your expectations for industrial and commercial vehicle markets next year? - Lucas Beaumont (UBS Investment Bank)

2025Q3: Industrial performance remains muted, but Axalta is well-positioned for interest rate cuts to drive residential construction. - Chrishan Anthon Villavarayan(CEO)

How would a U.S. recession impact Refinish volumes, and when was the last period of positive volumes? - Mike Sison (Wells Fargo Securities)

2025Q1: Our outlook for Industrial is positive as we continue to expect sales volume to stabilize in 2025 and have opportunities to grow in China and in other parts of the world where we have new product offerings. - Chrishan Anthon Villavarayan(CEO)