Quarter 1
Q1 2026 Earnings Call — April 30, 2026
Analyst Name (Firm): Gansham Punjabi (Baird) Executive Name (Title): Chris (Executive)
Thank you, operator. Good morning, everybody. Good morning. Good morning, Chris. You know, I guess just given the abrupt spike in the raw material costs, has that dynamic changed the destocking dynamics impacting auto refinish, especially in North America? And could you just update us on your view for that timeline for volumes in that business, just like tire, and, you know, just broader question as it relates to whether that dynamic might start to intersect with just a broader economic slowdown given the spike in inflation and the impact on the consumer, et cetera? Thank you.
So I'll start and maybe I'll turn it over to Carl. But, you know, as we see it right now, we're certainly seeing stabilization. And, you know, as April is closing and as we look at Q2, I would say, you know, we're showing a bit of an increase in volumes in Q2 or let's call it sales in Q2. And we're certainly seeing that come through. So I would say the market is pretty stable and we're heading towards a recovery. And if you look at Carl's last slide, if you look at all the indicators, they're all positioning the right way. Miles driven is up. Insurance costs are starting to abate, and we can start seeing that flat line. And also, the used car pricing is trending the right way. So all of this dynamic is heading the right way. For us, the incremental benefit here is also what's happening with destocking. The stocking is starting to abate, and you can start seeing that in our results in Q2 or our guide for Q2. We're essentially seeing price mix start to turn markedly positive, and it's really driven by that.
Yeah, and Gansham, just to add, I think in addition to all that, especially as we think about the second half on price mix, Chris said, that will inflate positively second half, and you probably will see that in the second quarter as well. And we're also seeing the benefit from some of the more recent M&A transactions come through as well for the full year.
Analyst Name (Firm): Mike Sison (Wells Fargo) Executive Name (Title): Management
Hey, good morning. Nice start to the year. Just curious, when you think about the second half of the year, third quarter, fourth quarter, you have more headwinds with raw material costs and such. And to get to the midpoint, you're going to need a much stronger second half versus first half. So can you sort of walk us through how you get that ramp into the third and the fourth and how you think the raw material situation gets sort of handled during that time period?
Sure, Mike. I think it's a very good question. If I look at Q1, you can see that, you know, we had a good quarter. We had pockets of improvements across all three businesses. You know, if you look at industrial, we had strong performance in Asia. We actually saw Europe return, which was good news. Again, one quarter doesn't certainly set a standard here going forward, so we're seeing positive momentum even as we look at April in industrial. And now moving to refinish, again, we're starting to see sales inflect and our performance, especially with the stocking coming out, is positive here too. And in mobility, the real story here is the return of CV. As you look at, and our performance also in CTS, the commercial vehicle market, if you look Q1 to Q1 of this year, was actually down 26%, but we're only down about 6%. And it's really our performance in the growth on the CTS side.
So now if you project that forward, what's driving the benefit, it's three or four things. The first thing is we've already gone through with pricing across all three businesses. And then if you look at how we're normally structured, it's usually 48% in the front half and about 52% in the back half. If you look at us now, it's like 45, 55. What's the difference? It's really three things. The first one is with destocking coming out, we expect that positive price mix in refinish to inflect and continue through the back half. The next element of this is really the CV volumes coming back. Again, with commercial vehicle coming back in the back half, that strengthens us in the back half, really drives good margin performance. As you know, those margins are higher and closer to our refinish margin. And the last element that we have here is a little bit of a pickup in REV, or let's call it markets. So we expect industrial to be up slightly and also refinish to continue to inflect through the back half. So those are the three things that are driving the positive momentum in the back. Again, the offset is certainly the inflation, which we have already priced for.
Analyst Name (Firm): John Roberts (Mizuho) Executive Name (Title): Edwin Rodriguez (Executive)
Thank you. This is Edwin Rodriguez for John. Good morning, everyone. Chris, you talked about the 50% of mobility revenue that's tied to the World Materials Index. Can you talk about any lag, if there's any in there? And also for the remaining 50%. Will prices come on time to not have any negative impact in the second half of the year?
Yeah, that's a great question. And it's, you know, reflective of what I would say the team has performed. If you look at the last three years, as you know, this isn't the first time we've been here. I mean, if you look through the tariffs, if you look through the Iran-Russia conflict, if you look through hyperinflation, this team over the last three years has had to deal with this many other times. And I think this is the innate muscle that we've changed at Exalta. And it's really about driving that pricing discipline when we see it. And so I would say, you know, in terms of mobility on the other 50%, we've already gone out with pricing. There is a three to six month lag with indexes, but you also get the positive on once this starts inflecting the right way. But overall, as you can see our margins and what we're laying out as our guide for Q2 and the rest of the year, it shows the positive performance because we absolutely believe we can capture this not only through pricing, but also the cost actions from a productivity and a purchasing initiative standpoint that we have out there. You put all that together, the whole company will be running at about almost 22 points of margin, but this business will be running at 17 to 18, probably some of the best performance we've seen in the last five, six years.
Analyst Name (Firm): David Begleiter (Deutsche Bank) Executive Name (Title): Emily Fusco (Executive)
Good morning. This is Emily Fusco on for Dave Begleiter. Just kind of turning back to refinish and the trends you're seeing, your competitors that have already reported have suggested share gains. So just kind of how would you characterize your positioning today or any more color you could give? Thank you.
Yeah, I think I've obviously stayed away on commenting with what our competitors do. Maybe I'll give you about three or four perspectives here. The first one is specific to, I think, some of the commentary that have come out in the last, in this quarter, you know, it's easy to show an improvement from double digits down to ups double digits. So maybe it's net zero, but moving from that and being more specific to us, we measure net body shop wins. And as I described it in our Q1 performance, We saw that go up 10% and that is a record, record quarter for Exalta. And so how are we growing? And if you look at this data also over a three to four year look, you'd notice we went from about 85,000 body shops to close to north of 95,000 body shops. So we continue to grow and we can see that. Conceptually, one of the things that we are growing more is in the economy space and mainstream space. This was obviously driven by our CoverFlex acquisition, which we did almost a year ago. That's really enabling us to grow in this region or this area. We used to have about 9% market share. We moved north of 11%. So this has been a good story for us.
And as I look to the rest of the year, we believe, especially with MSOs in North America, where we can also start seeing that we're expanding. We already have nine out of 12 MSOs. But with those MSOs, we continue to win more body shops. And on top of that, as I look at the economy mainstream, I believe this is going to be a very strong year for us.
Analyst Name (Firm): John McNulty (BMO Capital Markets) Executive Name (Title): Caleb (Executive)
Hey, good morning. This is Caleb on for John. Just given some of like how much like the chemical spot rates have moved this year, can you help us understand a little bit better like why the inflation headwind is only like mid-single digits this year and not higher like many people thought and maybe just kind of like what you're what the raw material headwind will be as you're exiting Q4? Thank you.
Sure. Good morning. I'll start and maybe I'll hand it over to Carl. I would say there are probably about three or four things that maybe were similar or differentiate us from others or peers than what we're seeing. I think the first one is geographic mix. If you look at the impact, which is more European and Asia, from an Asian impact, China is about 10% for us. Asia is, you know, let's call it just north of 15% for us. So in terms of impact, it's less for us from a geographic perspective. The second part of this is if you think about our buy, 60% of our COGS is VCOGS, and of that, about 40% to 50% are tied to oil. So we're slightly better in this case as well compared to some of our peers. The third element of this is something that we've been working on for quite a while, for the last three years, is really our purchasing initiatives and how we've driven our material buys. We used to be 60% on spot buys. We're now 60% on contracts. And so we have a natural hedge here based on indices and the ability to manage this at least with some visibility through the full year. So I think those are three. The incremental benefit we also have is the inventory levels.
We're sitting on 115 days. That puts us at around four months. And if you really think about it, it's different by business. And it gives us the ability to manage to push forward pricing faster or a little bit slower. But in terms of a Q2 impact, we're seeing this to be low single digits and increasing through the back half of the year. And I would say, you know, as we get through the back half of the year, this might feel like high single digits, but we will certainly be out there with pricing when we see that effect come through. Maybe I'll turn it over to Carl.
Yeah, and just maybe to add to that, you know, if you look at just 2026, obviously first quarter we performed better, so we were low single digits. That benefit, as we think about a raw material performance, be mid-single digits. And it's really going to be a focus and more of where we're going to be going as it relates to what oil is going to be doing a little bit longer term. So whether it's mid-single digits or potentially a little bit higher than as we're exiting the year, as we look at the business, we expect to continue to drive productivity within how we manage a purchasing spend, as well as other cost measures that we look to deploy.
Analyst Name (Firm): Matt Deyo (Bank of America) Executive Name (Title): Management
Hi. I have been on for Matt. I think your slides had called out mid-single digit pricing for refinish. Is that a full year comment or a 2Q to 4Q comment? And how can I kind of square that away with the negative price mix you saw in 1Q? Also, any updates on the IRS fixing rollout would be helpful as well.
Yeah, sure. Thanks for the question. Yeah, so I think at the first quarter, pure price was about low single digits up about 2% on a year-over-year basis. Most of what you saw as far as in the quarter related, the negative impact was on mix. And as we look forward, some of the pricing actions the team is putting into place here in the second quarter as well as in the second half. So, those numbers would be for what the full impact would be with the total gross pricing that we're going after, specifically for our refinish business. Really, as it relates to Iris Mix, we're pretty excited about that. The teams are executing very, very well. I think we're nearing 1,000 in total installations, and it will continue to be a big focus for our refinish team as we look to get that out more broadly here in North America.
Analyst Name (Firm): Mike Harrison (Seaport Research Partners) Executive Name (Title): Management
Hi, good morning. I was hoping that, Chris, maybe you could give us a little more detail on what you're seeing in commercial vehicle, just some thoughts on the timing of this big swing in Class 8. And then maybe some more detail on what's going on in commercial transportation solutions. I assume that that's kind of the fruit of several quarters or years worth of effort to build out that business. But maybe give us some more detail on the momentum you're seeing and any specific customer wins or markets or applications you would call out.
Sure. Thanks, Mike. Great question. I'd love to. So, you know, as we look at commercial vehicle and obviously, you know, coming from my past, it's certainly very cyclical. And as it goes down and goes below a replacement demand, you always expect it in a few, let's call it a few quarters later to always pick up. And we can certainly see that pick up. So Q1 was very weak. And as you can see from many of the OEs that have reported, if you do a Q over Q comp, you can see the decline. But as we get into Q2, we can already see those numbers pick up in terms not only from a forecast perspective, but also what we see in April. One of the things that we did is, you know, as we got into the business and certainly a credit to the mobility team, you know, in terms of we were, we had such a strong presence and such leadership on the OE side of Class 8. And we wondered, the team wondered why we could take that technology and certainly match it in everything that's CTS. And if you think about this space, it's really what we do in specialty, what we do in off-highway, what we do in military, and also whatever we do in RVs or the recreational space. So they set a plan to really grow in this space.
And just to give you a perspective, the overall market is about three and a half billion, and we only have about 7% market share. So we saw this as a great opportunity to grow. And that's certainly the fruits of all that work is what you're seeing coming through in Q1. And it will certainly continue to come through as we go through the rest of the quarters. I'm not here to probably provide what our targets are going to be for the rest of the year, but I just want to point out you can see the performance again, as I said earlier, coming through in Q1. The market's down 26 points. We're just down six points. So that offset really happened from all the wins that we had on the CTS side. Now, going forward, the additional space opportunities here is this isn't just focused in North America. We're also looking at how we can really expand this globally. And this is certainly, I think, something that's a bright star in our mobility business. The incremental difference we also made here was add capacity. Our CTS and our refinish business actually come out of our refinish lines and our refinish plans.
So we needed to add capacity and really make sure that we were ready once we took this volume to that once CV returned that we can ensure that we can protect and perform for those customers. And we've certainly done that. You know, the record capital investments that you have seen, part of that was to ensure that we're structurally in the right place for this business. So I think there's far more upside here in this business as we go forward, and I look forward to tell you more about it as the rest of the year progresses.
Analyst Name (Firm): Patrick Conningham (Citi) Executive Name (Title): Rachel Lee (Executive)
Hey, guys. Good morning. This is actually Rachel Lee on for Patrick. So I know that you're still guiding to greater than $500 million for a full-year free cash flow. So given the potential for mid-single-digit inflation and working capital requirements, how are you managing inventory levels and receivables through the balance of the year?
Yeah, thanks Rachel for the question. So I think maybe we'll start in the first quarter. You know, we were pleased with the performance. If you think about our cash conversion cycle, we improved by about six days year on year in the first quarter. And as I think what is in front of us for the rest of the year, as Chris said, we are pricing, and so if I look at kind of what the impact is going to be on DSOs, we're going to get out in front of that a little bit. So I think even with the mid-single-digit inflation kind of running through and getting into inventory, we still feel very, very confident in our ability to deliver on free cash flow. We're going to have lower interest expense this year on a year-over-year basis, and we continue to look to improve overall cash conversion cycles for not building off what we did in the first quarter, and I'm hoping that we will be able to improve that even a little bit more on a year-over-year comparison as we move throughout the year. I just wanted to add to a few more comments. I think I really want to add to the performance that we saw in Q1, really a credit to the finance team and Carl for just driving tailwind for the rest of the year.
Analyst Name (Firm): Chris Parkinson (Wolf Research) Executive Name (Title): Management
Great. Thank you so much. I realize you can't necessarily jump the gun in terms of the AXA deal, but in terms of your own cost execution and just navigating what I think most of us would characterize as fairly difficult markets over the last few years, is there any kind of update in your thoughts or the trajectory of the synergy target with the companies? Presumably, you've still been in touch with them. You've been executing on your own. Just any quick update there would be very helpful. Thank you.
Yeah. Good morning, Christopher. Good question. Certainly, you know, I think on both sides, we're managing costs, but I would say, you know, Greg and I have been working with a clean team environment. We've had two exceptional teams on both sides work on this, especially as we get closer to the vote and also start heading towards close to really define what is the work streams with the help of some external consultants so that we can keep this very clean and also look at what actions and the more and more time both of us spend on this, we can really get comfortable with the actions and be able to reiterate that the $600 million is just the floor. And I would say, you know, as we get past the vote, we're going to spend far more time on really driving the action so that we can hit a gate running when we close. But I would say, you know, every day we spend and we're on calls weekly, we get more and more comfortable with the fact that this will create enormous value. And I mean, you think about all the different multitude of buckets that we can focus on in terms of scale in purchasing. We go from $2 billion to $6.5 billion plus.
There's an enormous ability here from scale, what we're doing right, what they're doing right, what the overall scale can provide. And then from that, you can move to supply chain synergies, what we can do jointly from the fact that between the two of us, we have almost 400 warehouses and locations and how we could improve all of that and drive utilization, how we're approaching the same customers. And then you go into the duplicity of everything that you have in SG&A. And finally, you know, even beyond that, the incremental opportunities when you look at indirect and all the other cost buckets. I would say there's just a basket that provides a great opportunity to work on once we become together as a combined company.
Analyst Name (Firm): Kevin McCarthy (Vertical Research Partners) Executive Name (Title): Matt Hetwer (Executive)
Hi, this is Matt Hetwer on for Kevin McCarthy. What are you seeing in the demand function for your industrial business? Sales look like they're stronger in Asia and Europe than domestically. Could you take us through how the business is doing regionally? And then finally, what are your thoughts on whether rising input costs for your customers in that business will lead to incremental demand weakness in the back half of the year?
Sure, I'd love to. I think maybe I'll first give you a perspective, again, to the two bright spots. Asia continues to grow. We've seen, let's call it, five quarters of growth. And as we project forward, it still looks strong for us. And again, this is primarily in our energy solutions business, where everything that we provide, whether it's impregnating resins for battery, sorry, for motors or all the coatings that we provide for battery enclosures. All of that is on a positive trend and so certainly a tailwind that we see there. In Europe, that inflected last quarter. Again, business that we gained here in ECODE and we continue to see positive signs in volume across even powder and architectural extrusions in this region. So that's a positive inflection for us. Again, the positive here is also probably coming into the spring buying cycle. Now moving to North America, this continues to be weak. Again, I think interest rates being higher for longer has been an impact here. But we feel at some point this will inflect. And just to add to that, for industrial in total, we're not, for the full year, we're seeing it really flattish on a year-over-year basis. And so if you think about even in the second half on your demand question, we're not seeing an aggregate in getting that much better through the year, and that's already reflected in our guidance numbers that we put forward.
Analyst Name (Firm): Joshua Spector (UBS) Executive Name (Title): Lucas Bowman (Executive)
Good morning. This is Lucas Bowman. I'm Josh. It seems like there's kind of been a shift amongst, I guess, both you guys and the rest of the coatings peers towards like greater index linking of pricing to raw material shifts. So I guess that's probably happening more in the coatings businesses that seem to have less pricing power compared to those with more. And I guess while this sort of might reduce shorter-term earnings volatility at the front of the cycle, I mean, it then seems like it's set up to kind of give the pricing back on the back end and might like reduce the net price-cost benefit that you're capturing over the full cycle. So, I mean, I probably would have said this was like a feature as opposed to a bug in the sense that you're getting more price costs over time and it's helping kind of drive your earnings growth in the medium term. So do you think this shift is one, maybe just give us your view on how you see this shifting or not shifting overall? And then, I mean, would you, how do you think that supports or I guess impairs medium term earnings growth over the cycle?
Well, maybe I'll start and then hand it over to Carl. I would have to disagree with that a bit, primarily because of my view on what the indexing provides. What the indexing provides is more visibility and control so that you can price. And as I look at our business model in two out of our three businesses, let's call it the indexing is not tied to that. So when we talk about our refinish business and when we talk about our industrial business, the best part of what we do is we see the visibility from a purchasing aspect, and then we are able to go right in and price. And as you can see with what we have already defined in terms of pricing, both in our industrial and refinish business, we've already done that.
We've already priced in Q1. That's why we can already target almost 22 points of margin for Q2. Now, moving into our mobility business, that's where there's indexing top indexing and here your comment is valid with the exception of the fact that you do get it through on a lag basis on the rest of the business we are able to price and we have done it consistently through what I would call it through the last three risk factors that we have faced in the last three years you know whether it's the inflation that we saw because of the tariffs whether it was just the pure hyper hyperinflation that we saw in North America or whether it's the Iran conflict or, for that matter now, the Middle East conflict. My simple perspective here is we set a target that was 300 to 400 basis points higher than where we were just three years ago. In our A plan, we set a target of 21 points of margin, and we have been performing at that margin even through all these four crises at north of 21 to 22 percent for the last and certainly years. But now I'll turn it to Carl if I missed something.
I didn't think you missed anything, but just
as a reminder, during this whole time period when we really started to increase the overall RMIs we had in place in our mobility business, we more than doubled the margin during that time period.
And if you look back over the last probably four or five years, the overall margin profile of Exalta has expanded 600 basis points. So when we have best margins in the business, in the coatings business. So we feel very good with our strategy and how we're executing.
Executive Name (Title): Chris Villavarayan (Executive)
At this time, we have reached our allotted time for questions.
I will now turn the call back over to Chris Villavarayan for closing comments.
Well, to everyone, thank you for calling in and certainly for your interest. I certainly want to start by congratulating the team for a good Q1, a solid Q1. We're certainly looking forward to Q2, and we believe that we have great plans to execute here. including working with Greg and the AXO team towards our merger. And with that, thank you.
Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Quarter 2
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.