Q4 2025 Earnings Call — February 10, 2026
Chris Parkinson (Wolf Research): Could you just give us the status of global refinance markets? And I'd love to focus on you know, three different facets. Number one, just where we stand with, you know, destocking trends. I don't want to name names, but it seems like things should arguably be coming to an end in terms of large customers. Number two, you know, just how you see claims data conversion with actual collision data as we progress through 2026, you know, just given some of the updates that we got towards the end of 2025. And then number three, just, you know, where we stand with, you know, share gain potential, iris launches, you know, penetration in Europe and U.S. versus excitations. We can just kind of hear your updates and how those presumptions are factoring in your 2026 guidance. It would be particularly helpful. Thank you.
Management: Good morning, Chris. I'll take this one. So, starting with destocking, I think, you know, this, if I look at our Q4 performance and a little bit of Q1, it's a perfect, you know, representation of what happened associated with destocking. Three of our foreign markets, so when we look at South America, Europe, and Asia, all three grew. So this was really a geographic mix issue, and this was just primarily related to destocking. And what I would say is destocking came in slightly worse than where we expected. And as you know, with the margin performance that we have and how strong our North American business is, that's what kind of drove a little bit of the impact. Sales, I would say, for Q4 were primarily almost flat to slightly lower, I would say, in line. It was just the pure performance of how strong North America and how the stocking obviously impacts us in this region. If I play that into Q1, we're essentially pulling that weakness through. And as I've always said, the stocking started or this consolidation of our largest distributor acquiring FM started in Q2 of last year. And we expect that to end as with all our conversations and what we're tracking in Q2 of this year. So as you play that out, that's why we expect that to come back. And if you look at the expectations of performance, we just have to hit what we did last year in Q2. So from that perspective, that's what gives us confidence as we play this forward.
In terms of claims, as you think about the slide that Carl went through on the guidance, I think there's a lot of green shoots that really build confidence into what we see in Q26. I would say, you know, claims are down 1% to 2%, which is, you know, what's been the average. On top of that, you can start seeing miles driven is still picking up the right way, 1% to 2%. And on top of that, the great news is certainly what's happening with the insurance rates. Insurance rates, if I go back to 23 and 24, were, you know, just going up at like 18%. And what we can certainly see in the back half of 25 and 26 is we can start that coming back to the normalized levels we saw, let's call it pre-pandemic or mid-pandemic, which is a really good sign here. Consumers are starting to really shop their insurance premiums and they're starting to add back collisions. So we're certainly seeing that benefit as well as obviously new car pricing going up and used car pricing going up is also going to be a positive trend. And for all of us on the East Coast, all the weather also helps. So I would say, you know, the overall trend as we predict into Q2 is it's trending the right way. I think there's a ton of green shoots that's certainly giving us a little bit more confidence as we get into Q2.
And then your last question around share gains. Nothing's changed in our perspective. We've had four pillars that we're absolutely focused around, you know, net body shop wins, going into adjacencies, moving into the economy space, as well as M&A. And all of those have an And if I look at net body shops as one example, we had a great year in 2025. 2,800 body shops is higher than we have done in most years. Normally, we do around 2,200 to 2,500. So it's been a really strong year, even in a challenging macro and with a lot of competition. So we feel really, really good. Even in North America, we grew 400 body shops. So it's been a great story. And then as the slide points out, we grew in adjacencies by 25 million. We obviously did the CoverFlex acquisition. So we grew by about 400 basis points. And we have no different expectations as we go into 26, even with the merger. So I would say from a growth perspective, we're right on plan and everything's playing out as we expect.
And just as a quick follow-up, just shifting over our attention to the deal, you know, obviously there's been a lot of back and forth and you've been communicating with, you know, both sides of the, you know, shareholder community over the last several months. What else do you believe that you and Carl can do in particular to further underscore or gain, rather, the conviction of the buy-side communities, you know, conviction in terms of hitting the $600 million in synergies? Is it because of, you know, regional differences? Is it because of procurements, procurement aspects? Just anything you could add in terms of what your team can do to lead the buy-side community to further embrace that number would be particularly helpful. Thank you.
Management: Sure, Chris. I'll start off with a little bit of perspective on the investor sentiment, and then I'm going to turn it over to Carl. On the investor sentiment, I would say it continues to improve, and it's been largely positive. We've been talking to all our large investors on both sides, Greg, Rakesh, myself, Carl. We've spent a lot of time working with our investors, our long-onlys, and we've also seen new folks come into the story. So overall, the sentiment is moving. We still have, obviously, a lot of work to go do as we head into the vote. But at this point, you know, our conversations are trending the right way. And I would say I'm very pleased with where we're going.
Carl (Title): Yeah, Chris, just to add to that, I think as we have talked to the investor community, you know, a couple points that are really beginning to resonate, if you think about the overall merger. One, we are creating the largest global performance coatings company. We're creating the second largest paints and coating company. We are going to have three times the revenue, three times the EBITDA, and greater than three times the free cash flow on a combined enterprise. So we are very excited about what this does, not only for the financial aspects, but also as we think about our customers. You know, we're going to be operating in seven different end markets from refinished to marine to industrial to aerospace. And we have leading positions in our products and all the customers we serve. So I think that will be the message. I think the synergies, as Chris articulated, we feel very, very strong and very comfortable with. And we also believe there's an upside as we think about the revenue synergies that this deal provides. Thank you.
Chris Parkinson (Wolf Research): Thank you. We'll move on now to Grandsham Punjabi of Baird.
Josh Vesely (Baird): Hey, everyone. Good morning. Maybe if I could just start off on the performance coatings side of things. Chris, you mentioned that it came in a little bit below your expectations. It sounds like a lot of that was focused on refinish, but maybe if we could just focus on the industrial side of the aisle and just how that performed relative to your expectations. And then just your current thoughts on that business and just trends on a regional basis. That'd be great. Thank you.
Management: Sure. Sure. Absolutely. So I would say from a performance coding perspective, sales came in lower. So industrial sales were also lower, primarily all of them, as we look at Q4 driven by the markets. But as I look into, let's call it 2026, again, we're starting to see some green shoots as Carl has on his guidance slide. Obviously, what's happening with PMI and our expectations from a policy perspective, with insurance, sorry, with interest rates, as well as anything that's done to spur construction, residential, or commercial, I believe will be a positive trend, which is why we expect the back half of the year to pick up here.
So industrial is probably one of the few businesses that we're counting on a bit of market, specifically in North America. But in terms of green shoots in this business, as I said in my presentation, prepared remarks, Asia for us has been very, very good. We've actually grown 5% in that space, even as we look in Q4. And this is really driven around what we do in that business. We have a lot that we do specific to EV and what we do for battery case coatings, as well as impregnating resins for motors. So we see those businesses really driving growth, and we certainly see that also being a positive trend. So Asia is working out well. I would say North America and Europe seem sluggish, but our expectation is a lot of the policy actions would drive some improvement into the back half of the year. But setting all that aside, the one thing that I'm absolutely proud of that team is what they've done, which is an amazing job of driving the margin. If you look at the margin performance, even if we look at Q4, we talked about sales being away from our expectations, but overall company margins being up 50 basis points. In the industrial business, we had a target of 400 basis points of margin improvement. Those guys are about 200 basis points above that target. They are just kicking butt on that front. So, you know, that team has done a great job of really driving, let's call it, cost performance, operational excellence, and really growing where they can get accretive margin.
Josh Vesely (Baird): Great. Thank you very much.
Management: You're welcome. Thank you. We'll now move on to Laurent Favre of BNP.
Laurent Favre (BNP): Yes, good morning all. I guess I've got a question around margin assumptions for the year. So you're guiding, I guess, sales are below single digits, sales are below single digits. I'm a bit surprised, I guess, by the comments around productivity and also pricing. So I'm just wondering, what are you baking in in terms of margin of safety around margin? Is it around raw materials? Is it around pricing? Thank you.
Management: Yeah, good morning, Laurent. So yeah, I think as we look at just maybe I'll start with revenue and then how that will kind of step down into EBITDA and our assumptions. I think from a price mix perspective, you know, we do see that up for the full year about low single digits. That will be kind of coming through. Volumes, we're kind of planning for a flattish volume environment. There is a difference between the first half being down and that begins to increase in the second half. And then I think FX most likely, at least on the revenue side, should be probably a very low single digits. Low single-digit tailwind as well.
And if you think about what that then means for overall EBITDA and the margin kind of guide that we said is last year we did 22% EBITDA margin. I think next year we're planning to be above 22%. And I think that does break down. We will convert on the incremental revenue that does come through. In addition, we also have, you know, cost actions that will benefit in 2026 as well. So there is some carryover cost actions that we have from some of the previously announced execution items that we've done. So I'll call that about $30 to $40 million of improved benefit from that. And then we also will continue to drive a little bit more on productivity, not only in the plants, but also with our purchasing team.
Laurent Favre (BNP): Thank you. And then just on the follow-up on the Finnish side, can you talk about regionally what you're seeing? Kelly, you were disappointed in the U.S. I'm sensing. I'm just wondering whether, for instance, in Europe, you're also seeing a deterioration of your top line, and is that something that you're also carrying into the guidance for 26?
Management: Sure. So as we look at it from a regional basis, I would say, looking at Q4, South America, Europe, and Asia grew. So I think, you know, from our perspective, those came in just as we planned and as expected. We actually had a great story even in Europe with, you know, the weakness. And as we play out into next year, into 2026, and how we've set up the guidelines, we obviously show Q1 volumes being down because of the pressures associated with destocking and a little bit of volume weakness, very little in North America. But with the exception of that, we're showing Q2, Q3, and Q4, sorry, Q2 volumes being flat and Q3 and Q4 volumes coming up slightly. So net-net, if I look at the whole here, Laurent, for refinish volumes. We expect it to be flat to slightly up.
Laurent Favre (BNP): Okay. Thank you.
Management: You're welcome. Thank you. We'll now move on to Kevin McCarthy with Vertical Research Partners.
Kevin McCarthy (Vertical Research Partners): Yes. Good morning. Chris, can you discuss how your refinish strategy may evolve through the MOE? I've thought about Exalta being focused on penetration of the economy segment, moving into adjacencies, evaluating distributor acquisitions in selected markets. Which of those elements will remain the same? And what do you think will change as you look to stabilize and hopefully grow this business in the combined company?
Management: That's a great question, Kevin. Good morning. And as I think through this, that is one of the great stories of the combinations of the companies. Obviously, if you think about the merger of both companies, and this has obviously been looked at before, the greatest aspect of these two companies coming together is the complementary nature of it. And if you really look at the perspective, whether it's in refinish or in mobility or a little bit in industrial, we're absolutely complementary. And it's just a great story. So I'm going to pick the one that you hit on, which is refinish. You know, in refinish, we're stronger in premium. They're stronger in economy. And so I think at a very, very high level, you know, the technology that we can provide and enable them to grow their capabilities in distribution, as I think about you know, the Middle East, and especially, you know, more that we can do with them in Africa and Asia, and then what we can do with bringing our capabilities and then across the board with our joint distribution with, let's call it the adjacencies products with putties, fillers.
That's the opportunity to the point that Carl made about 1% to 2% revenue opportunities what we can provide our customers, you know, the ability to have, you know, one point of sale to bring together the products that they're getting from two different folks at this point is just a great story. And so that I think, you know, especially regionally, there is so much opportunity, whether you think about the Middle East and Africa or whether you think about Latin America. And then when you come into the two strong geographies of Europe and North America, we have complementary products that I think really enables us to grow. So that's refinish as one data point.
On the mobility side, they're more into, let's call it interior plastics or APC. We're more on the exterior. Again, the combination gives us the ability to really drive product innovation, let's call it, enhanced value to our customers. So again, we're extremely complimentary, which is a great story when you put these two companies together for not only our customers, but also our employees. It creates the least amount of disruption. And I think this is why, as Greg and I looked at this, of obviously many options that both companies had, this is a great story of why these two things belong to, or do these two companies belong together.
Kevin McCarthy (Vertical Research Partners): Thank you for that. And then secondly, with the turn of the calendar page into January, we've seen some of the commodity chemicals that we track start to percolate higher. Can you discuss what you're baking into your guide for the raw material basket in the first quarter and for the year, please?
Management: Yeah, thanks, Gavin. For raws, we're assuming overall that it's going to be flat on a year-over-year basis at this point. I think you know, I think second half, you may see that tick up a little bit, but that'll be offset by maybe some of what we're seeing kind of real-time in the first half. So, overall, what's embedded in our guide is a little bit of a flat environment for raws. I think as I look at the team and what we're being able to look to drive, you know, we will have additional productivity above and beyond that. So, on a net basis, we still expect to outperform on a year-over-year basis in total for our raw materials.
Kevin McCarthy (Vertical Research Partners): Thanks very much.
Management: Thank you. We'll now move on to Matthew Dio of Bank of America.
Matthew Dio (Bank of America): Good morning. Hakeem on for Matthew Dio. In terms of your 100 to 200 base points of revenue synergies, where do you expect to achieve them, and what is the margin assumption on that? Thank you.
Management: Yeah, I think, you know, I think about the revenue synergies opportunities we'll be providing, you know, probably much more detail as we get closer and closer in this process. So I don't want to lean out too far as relates to the implication on that. I would just say on a combined basis, if you look at the companies, you know, kind of coming together, we do expect overall margins to be in that 19, 20% type of range. Again, just enormous opportunities that we think we'll be able to accomplish on synergies. We have very detailed plans across all of the different cost actions there, whether it's on SG&A, whether that's on our plants and from an operation perspective, whether it's on purchasing. So we feel very, very confident in our ability to deliver that, which will affect and drive and be one of the best performing margin companies on a combined basis. So more details to come as we progress.
Matthew Dio (Bank of America): And as a quick follow-up, there have been discussion on keeping the dual listing for a period of time, but I see your slides are saying New York Stock Exchange only listing. Is that like the certain path going forward and kind of, can we get more color on that decision? Thank you.
Management: Yeah, I think the intent of the slide was the New York Stock Exchange will be the primary listing. There probably will be at least maybe 12 months where there'll be dual listing, but eventually the combined company will be just listed on the New York Stock Exchange.
Joshua Spector (UBS): Good morning. This is Lucas Beaumont for Josh. So sort of going to go back to the first quarter outlook, if we could. I mean, it seems to imply that the organic expectations are probably down mid to high single digits, depending on what you're sort of assuming on effects there. I mean, backing up the current rates, it looks like it'd be more in the kind of high single-digit decline range. So I guess just what's underlying that for each of the businesses? Is it similar to what happened in the fourth quarter with refinish down double digits, industrial down high single, and mobility down low single? Or what are you assuming there? Thanks.
Management: Yeah, thanks. You know, as we think about the quarter and then maybe for the full year as it relates to kind of that question, I think – As we look at refinish, it does all in, will be very similar to what we saw in the fourth quarter as far as at least on a year-on-year comparison as it relates to overall volumes at this point. I think our industrial business also, as we think on a year-over-year basis, will also be down probably into that mid-to-high single-digit percentages as well. And again... Mobility would be probably roughly flat as we think about on a year-over-year basis specifically for the first quarter. And then we start seeing inflection as we get a little bit in the second quarter. But as we said in our prepared remarks, you really start seeing that come through in Q3 and Q4 really across most of our businesses. And that's how we put together the overall guide for the year.
Lucas Beaumont (UBS): Great, thanks. And then you said you highlighted, I guess, where you thought – The EBITDA could have been for the year in a steady state if macro was better in the $1.3 billion range. It's about $150 million higher than where you're kind of pointing to for the guide. So I was wondering if you can kind of just talk us through where do you sort of see that earnings gap amongst the businesses? I would assume refinish is probably a large chunk of that. being kind of mid-single digits below trend. But also, I mean, industrial is an example. Volumes there have been down four years in a row and are down roughly 25% cumulatively. So maybe if you could kind of frame out for us where you think the different parts are and how we can see that come back in a recovery startup.
Management: Sure, Lucas. I think you hit two of them. Just one missing, which is the commercial vehicle. But just let me go through it. I think refinish, for example, if we look back over the last two years, I would call it down mid-single digits as an average. If you look year-on-year, 24, 25. So that's certainly one. But then beyond that, as I look at the next one, it's really commercial vehicle. Commercial vehicle is down about 30%. where we predicted. And even if you play it out, it's an incredibly cyclical business. 26 was supposed to be a historic high because we were going to have the pre-buy driven by the emissions change. So we were supposed to be, let's call it on that 350 to 360 range. And replacement is actually 275. And we're, let's call it around that 240 to 250 range. So we're significantly below even replacement. We do see that trend ticking back up. So to answer your question of where do I see recovery, for me, where do I see recovery is certainly in CV. I think, you know, based on just the cyclicality of that business and watching it for over 20 years from my past, I expect that to return to at least replacement levels in 2027. So that's one.
The other element of this is obviously as you think about refinish, we have a specific issue with destocking, and I've always said this is not a V-shaped recovery. This is going to be something that's U-shaped, and we expect this to recover into Q2. And even if we get back to the numbers that we had when we had destocking in 24 Q2, that's essentially what our guide is in pretty much in simplistic perspective as I look at 26. So I think that coming back will certainly be helpful. So those are the two. And then finally, in industrial, we're counting on a little bit of, let's call it, just a return through some of the interest rate reductions and a little bit of maybe policy changes that would drive in the back end. But again, we're not counting on much. This is really 2% to 3%. It's nothing significant. And all that said, you know, as you can think about the cost actions we're driving, we obviously have plans to mitigate some of this if everything doesn't come back up.
Lucas Beaumont (UBS): Yeah, and Lucas, just one other point on that. I think the very simple way to think about it on every incremental dollar of revenue, we think we're going to contribute close to 40% to EBITDA as we move forward based off all the actions that we've executed over the last several years.
Ryan (KeyBank Capital Markets): Thanks. Good morning, guys. You got Ryan on for Alexey. Just wanted to kind of level set maybe a bridge from 1Q kind of through the balance of the year. I think looking at it, it's about maybe down high single digits kind of in 1Q, what you guys are kind of pointing to. And then, you know, is the right way to think about it on an EBITDA basis, maybe flat kind of in 2Q and high single-digit growth in the back half, kind of as refinish and industrial normalize a little bit, or just kind of any thoughts there would be helpful.
Management: Yeah, Ryan. Yeah, I think that's a good way to think about it. If you think about where we start in the year for Q1, you can kind of see what we did last year in Q2 being in that, you know, low 290s. And then we kind of ramp as we get a little bit further in the second half. So, think about it from a forecast and a model perspective.
Ryan (KeyBank Capital Markets): Okay, great. Thank you. And then just, I actually wanted to ask a little bit more about kind of CV. I think the last couple months worth of class eight orders in North America have actually shown like fairly positive growth. So is there maybe some like inventory that kind of needs to be worked through the chain before we kind of get back to a better build rate in the back half? We're just trying to understand some of the dynamics there. Thank you.
Management: No, I wouldn't say that. I think if I look at – and it's a fair assessment. You know, one of our large customers just, you know, announced recently, and you can see the positive trends as they look at 26. On top of that, ACT, to your point, Ryan just released and took it up to 270. But, you know, we obviously haven't seen that, you know – reflect in FTR. We're just being a little bit cautious here. Don't want to jump ahead of the gun, but that's a fair assessment. I would say, you know, there is probably more positive momentum in CV, which is a great story for us. Just, you know, as you think about it, that it comes in at a higher margin, almost performance coatings margin in our mobility business. So, you know, there's probably some upside there, but again, we're going in with a realistic guide and want to make sure that we first see that improvement come through. But in terms of inventory level, I would say inventory levels are probably at, you know, standard levels at this point. There's nothing that's driving, let's call it excess inventory sitting at OE retail footprint at this point.
David Begleiter (Deutsche Bank): Thank you. Good morning. Chris, on refinish, can you discuss just on pricing alone, what you got in 25, what you expect to get in 26, just pricing, no mix?
Management: Yeah, no change in the strategy, David, but we got 2% in 2025, and the target is for 2026 is to stay consistent with what we've done historically. So it's just 2% net is what we work towards, and that's essentially what we're doing. Last year, we went out with we priced twice to hit the same target. This year, we're just going to do our standard one pricing.
David Begleiter (Deutsche Bank): Very good. And on the combination, Chris, if you look at DECO, any updated thoughts on the role of DECO in the combined portfolio? And could we see some DECO divestitures down the road? Thank you.
Management: Well, I think really that's a call for Greg and the AXO team to make. Obviously, that's not a, let's call it an end market that we're in. Again, as I look at it, and I think Carl hit on it, the best part of this combination is really the three elements that Carl talked about, which is scale, innovation, and synergies. And I look at it as, you know, when you think about the scale, it's not the $17 billion of complete revenue. It's the fact that we approach seven different end markets and the complementary nature of where we do have, let's call it, an ability to service our customers better. I think that's just incredible. But underneath that, the scale is really around the financial strength that the combined company provides. You know, the joint free cash flow is just great. And the leverage ratio is at a great spot that, you know, the leadership has the ability to then invest in certainly in parts that they define as growth vectors. And it could be DECO. It could be refinish. It could be any of the seven end markets that, you know, strategically makes the most sense.
And then beyond that, I look at the innovation capability, a joint company that has over 3,500 patents with almost 3,000 engineers, just the scale and, you know, what this organization can do in the future to create the best in class coatings for not only our customers, but for just changing the world forward. It's just for me, it's just the joint strength of the combined company, and obviously the last one being synergies, is just the incremental value that automatically provides for our shareholders. And I think it's great.
Carl (Title): And, I mean, Carl, anything to add?
Carl (Title): Yeah, and David, just as you saw from Axel Nobel, they had a really, really phenomenal transaction when they sold their India Deco business. If you look at the multiple they received on that, I think it was mid-20s. So I do know there's some opportunities that the team is continuing to evaluate in Southeast Asia as well, Enteco. But again, I think that's something that, you know, is kind of, you know, all part of their strategy as this thing goes forward.
Edwin Rodriguez (Mizuho): Thank you. This is Edwin Rodriguez for John. Chris, quick one for me when we finish. Do you have a good sense of when claim activity should start to improve? And most importantly, what will be the key drivers of that improvement? Is it the consumer doing better? Is it something else? What's going to be the catalyst for that change in there?
Management: Yeah, I think this is the big question. From our perspective, to me, I think it's pretty straightforward. It is a lot to do with the consumer associated with really what happens with insurance claims or insurance rates and just getting the entire inflationary impact that they have faced, I think that abating over time. And this is, there's two elements to this. Obviously, just purely what's happening with insurance costs, which again, the green shoot is it's coming down to where we're not seeing increases as significant as what we saw in 23 and 24. But that doesn't take away from we, you know, to drive this, we should expect this to continue to improve as we get into the second half of the year.