Executive Summary / Key Takeaways

• Operational Excellence Driving Record Profitability: Axalta Coating Systems has achieved record adjusted EBITDA and adjusted diluted EPS for Q2 2025, with adjusted EBITDA margins consistently at or above its 21% "A Plan" target for five consecutive quarters. This performance is a direct result of rigorous cost management, including a 6% reduction in operating expenses and $40 million in transformation savings by Q2 2025, well ahead of schedule.
• Technological Innovation as a Core Moat: The company's significant investment in R&D yields differentiated solutions like the Irus Scan and Irus Mix for refinish, and NextJet digital paint technology for OEMs, enhancing customer efficiency, color accuracy, and sustainability. These innovations are critical in securing market share and driving profitability.
• Strategic Market Share Gains Despite Softness: Axalta continues to gain significant market share, notably adding 1,600 net new body shops in Refinish year-to-date 2025 and outperforming global auto production in Mobility, particularly in China and Latin America. This growth offsets broader industry volume declines in key end markets.
• Strong Balance Sheet and Capital Deployment Flexibility: With net leverage at 2.5x, Axalta has achieved its 2026 leverage target ahead of schedule, providing substantial financial flexibility. The company is accelerating capital deployment through share repurchases ($65 million in Q2 2025) and opportunistic bolt-on M&A, while also on track to meet its 2026 interest expense target a year early.
• Cautious Yet Confident Outlook: Despite revising down full-year 2025 net sales guidance to a 1% decline at the midpoint due to persistent macro softness and tariff impacts, Axalta maintains its adjusted EBITDA and EPS outlook, projecting an 80 basis point margin expansion. This reflects management's confidence in its ability to control costs and drive profitability even in a challenging demand environment.

Setting the Scene: A Legacy of Innovation Meets Modern Imperatives

Axalta Coating Systems Ltd. (NYSE:AXTA) stands as a venerable titan in the global coatings industry, boasting a heritage stretching back to 1866. This deep history has forged a company renowned for high-performance coating systems, recognized brands, and market-leading technology. Operating across North America, Europe, the Middle East, Africa, Asia Pacific, and Latin America, Axalta's expansive global footprint includes 42 manufacturing facilities, four technology centers, and 45 customer training centers, serving a diverse customer base in over 140 countries.

The company's strategic evolution has been marked by a blend of organic innovation and targeted acquisitions. Historically, the acquisition of DuPont Performance Coatings significantly bolstered its capabilities. More recently, the July 2024 acquisition of The CoverFlexx Group strategically enhanced its foothold in North America's rapidly expanding economy refinish segment, with initial results surpassing expectations. This strategic foresight is encapsulated in Axalta's "A Plan," a comprehensive transformation initiative launched in February 2024. Designed to simplify the organizational structure, reduce costs, and enhance financial performance and cash flow, the A Plan is proving to be a robust framework for value creation, even as the broader macroeconomic environment presents persistent headwinds across all four of Axalta's end markets.

The coatings industry itself is dynamic, influenced by global economic cycles, automotive production trends, and evolving consumer behaviors. For instance, the refinish market, a key segment for Axalta, has seen collision frequency decline by only low single digits, yet claims reported remain meaningfully lower due to elevated repair costs and rising insurance premiums. This has discouraged consumers from seeking repairs. However, signs of stabilization are emerging, with insurance premium inflation abating and total repair costs increasing by only 1% in Q1 2025 year-over-year. The increasing age of the car park and a rise in leased vehicles (24% in 2024, up from 16% in 2022) also suggest a future inflection point for repair demand, as dealers are incentivized to fix dings on traded-in vehicles.

The Technological Edge: Fueling Performance and Efficiency

Axalta's competitive moat is deeply rooted in its differentiated technology and relentless pursuit of innovation. The company is one of only a few suppliers with the capability to provide precise color matching and highly durable coatings systems, a critical advantage in both automotive and industrial applications.

A cornerstone of its refinish technology is the Axalta Irus ecosystem. This includes the Irus Scan, the first handheld color measurement device for the collision repair industry. It captures color sparkle, hue-shifting pigments, and gloss to provide an accurate color match for vehicle repairs, significantly reducing human error and improving efficiency. Complementing this is the Axalta Irus Mix machine, a game-changing digital color mixing technology. Axalta has installed 300 Irus Mix machines to date and expects to nearly double this number in 2025, primarily in Europe. When combined with Irus Scan and the cloud-based Nimbus digital platform (expected to roll out to 40,000 body shops by 2026), these tools deliver a full suite of cutting-edge solutions that measure and mix color faster and more accurately. Nimbus empowers customers with data-driven insights to improve profitability and performance, seamlessly connecting with Axalta Irus to streamline supply chain and sales processes. The Fast Cure low energy system further enhances efficiency, reducing energy usage and boost time by 50% in refinish applications.

In the Mobility Coatings segment, Axalta is at the forefront of innovation for original equipment manufacturers (OEMs). The company is set to launch its next-generation waterborne basecoat in 2025, a breakthrough technology designed to enhance efficiency and expand color capability, particularly for high chroma finishes that are increasingly in demand. Another standout is NexJet digital paint technology, a maskless two-tone application system developed in collaboration with Dürr (DURR) and Xaar (XAR). This technology is already being piloted with a top global OEM and is expected to deliver significant benefits, including the ability to apply two-tone finishes or specific logos directly on the main paint line with negligible overspray, offering both customization and sustainability advantages.

For industrial applications, Axalta's Voltatex wire enamel improves the reliability and efficiency of electric vehicles and other high-performance electrical systems, demonstrating strong momentum in areas like conductivity and heat reduction. The company also launched Cerulean, an extension of its water-based platform for interior finishes like cabinets, offering smoother coatings from a visual and tactile perspective. These innovations have earned Axalta numerous accolades, including multiple Edison Awards and a BIG Innovation Award for Voltatex, totaling 24 innovation awards over the last five years. This consistent recognition underscores Axalta's ability to convert R&D investments into differentiated solutions that deepen customer partnerships and drive market leadership.

Operational Discipline and Financial Resilience

Axalta's recent financial performance underscores the effectiveness of its A Plan and its ability to "control the controllable" in a challenging macro environment. For Q2 2025, Axalta delivered a record adjusted EBITDA of $292 million and a record adjusted diluted EPS of $0.64. This was achieved on net sales of $1.305 billion, a 3.4% decline year-over-year, primarily due to lower volumes in Performance Coatings and unfavorable foreign currency translation.

Despite this top-line pressure, gross margin improved by 100 basis points to 35%, driven by favorable cost dynamics and operational efficiency. The company's disciplined cost management is evident in its 6% year-over-year reduction in operating expenses in Q2 2025, with SG&A expenses declining 2% (nearly 6% excluding acquisitions and FX). The transformation initiative has already yielded approximately $40 million in cost savings by Q2 2025, contributing to this efficiency. Variable costs declined 2% year-over-year in Q2 2025, slightly better than expected, and are projected to remain approximately flat for the full year 2025, with productivity programs offsetting any raw material inflation.

Segment-wise, Mobility Coatings demonstrated exceptional strength, with Q2 2025 net sales increasing 1% to $469 million and adjusted EBITDA surging 35.1% to $92 million, resulting in a robust 19.8% adjusted EBITDA margin. This marks 11 consecutive quarters of year-on-year adjusted EBITDA margin expansion for the segment. Performance Coatings, while facing headwinds from lower North America volumes, maintained a strong 23.8% adjusted EBITDA margin in Q2 2025, supported by cost discipline.

Axalta's balance sheet is robust, providing significant liquidity and capital deployment flexibility. Total net leverage stands at 2.5x, aligning with the company's A Plan target well ahead of the 2026 schedule. The company's 2024 debt refinancing initiatives have already reduced operating interest expense by $5 million (a 10% improvement) in Q2 2025, and Axalta is on track to achieve its 2026 interest expense target of $180 million for the full year 2025, a year early. Cash flow from operations increased 25% year-over-year in Q2 2025, contributing to $101 million in free cash flow. This strong cash generation supports increased capital expenditures ($88 million in H1 2025) aimed at boosting productivity and efficiency, as well as share repurchases ($65 million in Q2 2025). Return on invested capital (ROIC) expanded by 110 basis points to 14.3% in Q2 2025, nearing its 15% A Plan target.

Strategic Growth Pillars and Competitive Positioning

Axalta's strategic playbook, the "A Plan," is designed to drive growth and expand profitability across its diversified portfolio. The company's competitive positioning is a blend of market leadership in niche segments and strategic expansion into underserved areas.

In the Refinish segment, Axalta is the undisputed leader in the premium market, holding over 40% market share. Its value proposition is compelling: by providing advanced coatings and digital tools, Axalta helps body shops significantly reduce labor costs (which account for approximately 40% of total repair costs) and improve efficiency. This enables the company to consistently win new business, adding 1,600 net new body shops year-to-date in 2025, building on 2,800 net wins in 2024. This consistent outperformance, even as the industry faces softness, is a testament to the value Axalta brings. The company is strategically expanding into the mainstream and economy segments, where its market share is significantly lower (9%-11%). The CoverFlexx acquisition is a key enabler of this strategy, allowing Axalta to capture growth in a more value-driven consumer environment.

The Mobility Coatings segment demonstrates Axalta's ability to outperform global auto production trends, having done so in nine of the last ten quarters. This is driven by strategic customer mix and new business wins, particularly in high-growth regions like China and Latin America. In China, Axalta has achieved double-digit volume growth by partnering with leading EV and internal combustion engine (ICE) players, embedding its teams within customer facilities to ensure quality and service, and leveraging its expanded plant capacity. In Commercial Vehicle, despite a 17% decline in Class 8 production in Q2 2025, Axalta mitigated the impact through strong momentum in its Commercial Transportation Solutions (CTS) business and expansion into new geographies.

Comparing Axalta to its key publicly traded competitors, PPG Industries (PPG) and The Sherwin-Williams Company (SHW), reveals distinct competitive dynamics. While PPG and SHW generally boast larger scale, broader diversification, and often higher overall gross and net profit margins (SHW's TTM Gross Profit Margin: 48%, Net Profit Margin: 12%; PPG's TTM Gross Profit Margin: 42%, Net Profit Margin: 7%), Axalta's TTM Gross Profit Margin of 17.03% and Net Profit Margin of 8.58% reflect its focus on operational efficiency within its specific niches. Axalta's technological advantages, such as its Irus ecosystem and NexJet, provide a qualitative edge in performance and efficiency that can translate into stronger customer retention and pricing power in demanding applications. Axalta's strategic focus on accretive growth in Industrial, particularly in electrification-related applications, positions it to capture high-margin opportunities that may not be as central to its more diversified peers.

Axalta's relatively smaller scale compared to PPG and SHW can lead to higher operating costs in some areas, but its focused approach allows for deeper specialization and quicker innovation in its core segments. While AkzoNobel (AKZA) may lead in global sustainability initiatives, Axalta's legacy expertise in high-performance systems offers superior resistance to wear in industrial settings. Axalta's customer and supplier dynamics are managed through local-for-local manufacturing (90% of products manufactured and sold within the same region), significantly reducing exposure to international tariffs and supply chain disruptions. This strategic positioning allows Axalta to maintain its competitive edge by delivering highly specialized, efficient, and technologically advanced solutions to its targeted customer base.

Outlook and Future Trajectory

Axalta's management has provided a clear outlook for the remainder of 2025, reflecting a prudent assessment of persistent macroeconomic softness while maintaining confidence in its operational capabilities. For Q3 2025, net sales are expected to decline low single digits year-over-year, in line with Q2, with positive price-mix in three of four end markets helping to offset anticipated volume softness, primarily in Performance Coatings. Adjusted EBITDA is projected between $290 million and $300 million, with adjusted diluted EPS between $0.63 and $0.67.

For the full year 2025, Axalta has slightly revised down its net sales guidance to a range of $5.2 billion to $5.275 billion, representing an approximate 1% decline at the midpoint versus 2024. This adjustment acknowledges that the softer demand environment observed in the first half of the year is expected to persist longer than initially anticipated, and prior assumptions of easing tariff uncertainty and a rebound in consumer confidence have not materialized at the expected pace. Despite the revenue adjustment, the company's adjusted EBITDA outlook remains robust, projected between $1.14 billion and $1.165 billion, translating to adjusted EBITDA margins of approximately 22% or above—an expansion of about 80 basis points year-over-year at the midpoint. Adjusted diluted EPS is expected to be in the range of $2.45 to $2.55, a 6% increase at the midpoint compared to 2024.

This ability to maintain earnings despite revenue pressures is underpinned by Axalta's disciplined execution and cost management. The transformation initiative is expected to drive an incremental $30 million to $40 million in benefits in 2025, mitigating headwinds from labor inflation. Raw material costs are projected to remain approximately flat year-on-year, excluding the direct impact of tariffs. While new U.S. tariffs could cost approximately $25 million in 2025, Axalta is confident in its mitigation strategies, including in-sourcing, local raw material sourcing, product reformulation, strategic inventory management, and selective pricing actions.

The company's A Plan targets are being achieved ahead of schedule, with four out of five financial objectives on track to be met a full year early. This strong foundation provides the flexibility for accelerated capital deployment, including continued share repurchases and opportunistic bolt-on M&A, particularly in the Refinish and Industrial segments where market volatility is creating new opportunities. Axalta also anticipates a reduction in interest expense in 2025, achieving its 2026 target of $180 million a year early.

Conclusion

Axalta Coating Systems stands at a pivotal juncture, having successfully transformed its operational and financial profile under the disciplined execution of its "A Plan." The company's consistent delivery of record profitability and strategic market share gains, even amidst a challenging global macroeconomic backdrop, underscores a fundamental improvement in its resilience. Its deep-rooted technological leadership, exemplified by innovations like the Irus ecosystem and NexJet digital paint technology, provides a distinct competitive advantage, driving efficiency and value for customers while reinforcing Axalta's market position.

While external headwinds, particularly in the Refinish market and from global trade tensions, necessitate a cautious near-term revenue outlook, Axalta's robust cost management and strategic initiatives are poised to sustain margin expansion and earnings growth. The company's strong balance sheet and proactive capital allocation strategy further enhance its ability to create shareholder value through share repurchases and targeted acquisitions. Axalta's journey from a legacy coatings provider to a technologically differentiated, operationally agile, and financially resilient enterprise positions it for continued outperformance as market conditions stabilize, making it a compelling consideration for discerning investors.