Supply chain challenges continue to impact results, particularly within mobility coatings.
Axalta Coating Systems Ltd. (NYSE:AXTA) announced net sales of $1,088.6 million increased 6.0% for the third quarter ended September 30 compared to the previous year, including a 1.3% foreign currency benefit, driven by 4.5% higher average price and product mix and a 1.8% M&A benefit, partly offset by 1.6% lower volumes.
Performance Coatings Q3 net sales increased 14.1%, including double-digit growth rates from both the Industrial and Refinish end-markets. The 10.1% reported net sales decrease for Mobility Coatings included a 14.8% decrease from Light Vehicle, which remained impacted by customer production constraints as a result of ongoing semiconductor chip and other supply chain shortages. This was offset partly by solid 9.0% net sales growth from Commercial Vehicle given supportive demand and customer production rates despite moderate supply issues also impacting that end-market. Positive price and product mix within both Performance Coatings and Mobility Coatings came from pricing adjustments implemented to offset broad-based inflationary pressure, while product mix was a modest headwind for the period.
Income from operations for Q3 2021 totaled $124.7 million versus $141.7 million in Q3 2020. Net income to common shareholders was $69.1 million for the quarter compared with $82.5 million in Q3 2020, and diluted earnings per share was $0.30 compared with $0.35 in Q3 2020. Results were significantly impacted by lower volumes from Mobility Coatings due to customer supply chain shortages, variable cost inflation which increased approximately 21% from the prior year quarter and the lapse of temporary cost reductions from the prior year, which were partly offset by continued demand strength and volume recovery within Performance Coatings. Substantial price realization progress was also made company-wide to offset the variable cost inflation and operating expenses benefited from structural savings actions and reduced restructuring-related charges from Q3 2020 of $26.1 million. The Q3 2021 results also include a $27.6 million benefit recorded in the period related to further anticipated
Robert W. Bryant, Axalta’s President and CEO, commented, “Axalta’s third quarter results demonstrate strong financial performance and operating execution despite clear headwinds in the period. Cost inflation during third quarter has been significant, including all categories of raw materials, freight, utilities, packaging, and labor. At the same time, global supply chain constraints have persisted. These systemic issues have impacted Axalta both in terms of elevated pricing and lower availability of key inputs to our products, as well as at the customer level, where production rates have been constrained, most notably within Mobility Coatings. We continue to take active steps to offset these headwinds with implemented pricing and cost actions. While substantial progress has been made to date, we expect to take further actions as required to meet the challenge posed by persistent and widespread inflationary cost increases across our entire business portfolio, while also ensuring that we retain our existing base of volumes and valued customer relationships.”
Bryant continued, “Axalta benefited in the third quarter from ongoing demand strength and recovery across our Performance Coatings businesses, and strong customer production rates within Commercial Vehicle. Still, strong underlying demand in Light Vehicle has been masked by ongoing customer supply chain disruption.”
“We are excited to have closed the acquisition of U-POL in September and welcome the U-POL team to the Axalta family,” Bryant noted. “U-POL is expected to provide a solid growth accelerator for our Refinish business, notably within the mainstream portion of the portfolio, as well as in accessories and other adjacent aftermarket repair and protective markets.”
Bryant concluded, “In addition to recent acquisitions, we have continued our innovation focus this year, which remains the lifeblood of Axalta’s growth and long-term value creation. As an example, Axalta’s Building Products team introduced an environmentally friendly “one-coat” coating for kitchen cabinets during Q3 to eliminate process steps at the customer. Also, our Energy Solutions business launched a new high performance electrical steel coating with broad effectiveness across the voltage range as well as improved corrosion performance. Finally, we are rapidly launching new products to serve the fast growing e-mobility market, where Axalta already has industry leading products in electric motor coatings, that have the potential to substantially increase our content per vehicle within electric vehicles.”
Performance Coatings Results
Performance Coatings third quarter net sales were $779.2 million, an increase of 14.1% year-over-year. Organic constant currency net sales increased 10.2% in the period as both end-markets provided strong contributions to a 5.2% segment volume increase and a 5.0% price and product mix benefit. M&A, which included some contribution from the U-POL acquisition, added 2.7% to net sales in the period. Foreign exchange in third quarter was a 1.2% year-over-year tailwind led by the stronger Chinese Renminbi and Euro.
Refinish net sales increased 10.4% year-over-year to $443.4 million in Q3 2021, including a 2.7% increase in volume versus the prior year as continued global traffic recovery has translated to additional global Refinish body shop demand. Despite the ongoing recovery, volumes remain below 2019 pre-pandemic levels by mid-single digits. Incremental traffic and congestion over the next year is anticipated to drive a continued rebound in Refinish net sales. Average price and product mix increased mid-single digits in the period, including moderate mix headwinds more than offset by improved average product pricing to offset rising variable cost inflation.
Industrial net sales increased 19.5% to $335.8 million, including strong high-single digit volume growth coupled with mid-single digit increases in average price and product mix, largely from improved pricing to offset variable cost inflation. Acquisitions contributed 3.9% of net sales growth in the quarter. Net sales increased substantially in all Industrial end-businesses and in all regions during the third quarter, though Asia Pacific saw moderate business mix headwinds that partially offset solid volume growth. Despite this strong result, constrained raw material availability during the period had a moderate impact on net sales volumes, primarily in North America and EMEA.
The Performance Coatings segment generated Adjusted EBIT of $122.8 million in the third quarter compared with $133.9 million in Q3 2020, with associated margins of 15.8% and 19.6%, respectively, led by continued volume recovery and growth as well as positive price and product mix, more than offset by a step down in temporary cost savings and a significant increase in cost inflation versus the prior year period.
Mobility Coatings Results
Mobility Coatings net sales were $309.4 million in Q3 2021, a decrease of 10.1% year-over-year, including a 1.5% positive currency translation benefit. Constant currency net sales decreased 11.6% year-over-year, driven by a 15.2% decrease in volume, including notable customer supply constraint impacts, offset partially by a 3.6% price-mix tailwind, principally from price improvement, including benefit from raw material index contracts, partly offset by modest mix headwinds.
Light Vehicle net sales decreased 14.8% to $235.4 million year-over-year (decreased 16.5% excluding foreign currency tailwinds), driven by continued customer supply shortages, which continued relatively unabated in the third quarter and with an increased impact to net sales volumes sequentially. Such production impacts are now expected to continue through 2022, and Axalta is estimating that approximately 11 million fewer vehicles will be produced in 2021 relative to initial industry forecasts from February. As such, we expect 2021 global light vehicle production to be relatively flat versus 2020 compared to the initial industry forecast of 13.4% growth.
Commercial Vehicle net sales increased 9.0% to $74.0 million versus Q3 2020 (increased 8.2% excluding foreign currency), driven by ongoing global production rate recovery versus the prior year quarter and supported by strong continued global demand across most vehicle end-businesses served, especially in truck and recreational vehicle. Average price and product mix was a moderate tailwind in the period driven by pricing improvement implemented to offset inflation. Overall Commercial Vehicle demand remains healthy, with new truck order trends remaining historically strong and supporting strong ongoing production rates globally, excluding China.
The Mobility Coatings segment generated Adjusted EBIT of negative $2.7 million in Q3 2021 compared with Adjusted EBIT of $48.5 million in Q3 2020, driven by substantial global volume headwinds in Light Vehicle, coupled with notable headwinds in both variable cost and operating expense against the prior year period given persistent inflation and the absence of temporary cost savings, offset partly by tailwinds in average price and product mix.