What happened
Shares in coatings company Axalta Coating Systems (AXTA +1.23%) were down by 10% as of midday today. The move comes after a disappointing second-quarter earnings release in the morning.
Not only did its sales miss analyst estimates for the quarter, management's guidance for adjusted diluted full-year EPS of $1.40-$1.45 also fell short of analyst expectations for $1.57.
NYSE: AXTA
Key Data Points
It was a mixed earnings report, in which solid volume growth (up 12.8%) in mobility coatings (light vehicle and commercial vehicle) was offset by an 11.1% decline in volume in performance coatings (refinish and industrial), leading to a 3.7% volume decline overall. However, an improving pricing environment led to a 4.8% increase in sales.
The mobility segment volume is being driven by increased light vehicle production as automakers recover from production difficulties in previous years.
However, the performance coatings segment had a miserable quarter, with a 15% decline in industrial volume caused by slower industrial production and a softening housing market. To cap it all, refinish volume (largely auto-related) had lower volumes due to operational delays caused by implementing an enterprise resource planning (ERP) system in North America.
So what
Management acknowledged that the ERP implementation had hurt volumes and sales in the quarter but claimed "notable stabilization in June" and delivered "a sales performance for North America in June that was one of the strongest in our history," according to Chris Villavarayan on the earnings release.
Image source: Getty Images.
Now what
The global implementation of the ERP system will concern investors following the disruption in North America, and industrial-focused sales could come under further pressure. However, ongoing strength in the performance coatings segment and a bounce in refinish volume will likely improve Axalta's performance. The stock will interest value investors looking for a recovery story.
