Axalta Coating Systems Ltd. reported Q4 net sales of $1,098.4 million, down 5.8 percent, including 1.3 percent negative foreign currency translation impact and a 2.0 percent impact from the sale of a consolidated Joint Venture (JV) interest in the second quarter. Constant currency organic net sales decreased 2.5 percent in the period, with 2.5 percent higher average selling prices and product mix with contribution from both segments, offset by a 5.0 percent volume decrease.
However, net sales in Axalta’s refinish end-market increased 2.3 percent in the Q4, although increased 3.5 percent net of foreign currency translation. The refinish performance was driven by price and mix benefits from all regions and essentially flat volumes overall, though the North America region reported renewed volume growth.
Q4 income from operations decreased to $108.7 million, down from $127.8 million in Q4 2018, driven principally by lower volume, headwind from incentive compensation expense, costs associated with Axalta’s on-going strategic review as well as modest ongoing foreign exchange headwinds and charges of $17.7 million primarily related to the abandonment of engineering work for aspects of Axalta’s China footprint project which has been adjusted due to evolving market conditions. This was partially offset primarily by improvement in overall price and product mix in the period, as well as by contribution from reduced variable costs. Q4 adjusted earnings before interest and taxes (EBIT) increased to $173.5 million up slightly on the $170.8 million in Q4 2018 and adjusted EBIT margin increased 110 basis points for the quarter to 15.8 percent.
In the fourth quarter, we generated record free cash flow, expanded operating margins, and continued to strengthen Axalta’s balance sheet. Despite some incremental volume headwinds during the fourth quarter, we mostly offset this with progress in price and mix enhancement as well as with aggressive cost control. Our solid quarterly results reflected our keen focus on execution and success in commercialising new products across multiple business lines.”
For the full year, Axalta reported net sales of $4,482.2 million for 2019, down 4.6 percent on prior year, although constant currency organic net sales decreased 0.5 percent in the same period. The Refinish end-market remained a stable offset with net sales growth of 3.3 percent disregarding the impact of currency translation.
Income from operations increased 10.4 percent to $488.2 million for 2019, driven principally by an improvement in overall price and product mix in the period, lower year-over-year expense for employee-related severance, and lower step-up depreciation and amortisation expense. This was partly offset by lower volume, increased variable costs and modest ongoing foreign exchange headwinds, as well as modestly increased operating expense inclusive of lower net stock-based and incentive compensation expense. Adjusted EBIT increased 4.7 percent to $706.0 million for the year and adjusted EBIT margin for the year increased 140 basis points to 15.8 percent.
“In 2019, Axalta made great progress; we introduced over 250 new products, and we continued to offset substantial input cost inflation from the last several years with necessary pricing actions and ongoing productivity enhancement. This enabled us to hit many of our primary goals and targets for the year, including noticeably exceeding our free cash flow goal, posting expanded operating margins despite slightly lower volumes, and also meeting objectives for both Adjusted EBIT and Adjusted Diluted EPS. We also finished the year with notably lower balance sheet net leverage at 3.0x,” Bryant concluded.