Axalta Coating Systems Ltd.

Ladies and gentlemen, thank you for standing by and welcome to Exalta's second quarter 2019 earnings conference call. All participants will be in a listen-only mode. A question and answer session will follow the presentation by management. Today's call is being recorded and replays will be available through August 1st. Those listening after today's call should please note that the information provided in the recording will not be updated and therefore may no longer be current. I will now turn the call over to Chris McRae. Please go ahead, sir.

Good morning. This is Chris McRae, VP of Investor Relations. Thank you for joining the call today to review our second quarter 2019 financial results and for your interest in Exalta. Joining me today are Robert Bryant, CEO, and Sean Lannan, CFO. We released our financial results this morning and posted a slide presentation to the Investor Relations section of our website at exalta.com, which we'll be referencing during this call. Both our prepared remarks and discussion today may contain forward-looking statements reflecting the company's current view of future events and their potential effect on Exalta's operating and financial performance. These statements involve uncertainties and risks, and actual results may differ materially from those forward-looking statements. Please note that the company is under no obligation to provide updates to these forward-looking statements. This presentation also contains various non-GAAP financial measures. In the appendix, we've included reconciliations of these non-GAAP financial measures, to the most directly comparable GAAP financial measures. For additional information regarding forward-looking statements and non-GAAP financial measures, please refer to our filings with the SEC. I'll now turn the call over to Robert.

Thanks, Chris. Good morning, and thanks for joining us to review Exalta's second quarter financial results. We're very happy to report a quarter with stable top-line sales growth, XFX, expanded consolidated margins, and strong operating profit and earnings performance, supplemented by excellent corresponding cash flow. Underlying drivers remain broadly consistent with our first quarter results, notably including acceleration and average price-cost gap closures, as well as ongoing progress with Exaltaway productivity savings, which remain on track for our 2019 targets. As you are aware, Exalta's Board of Directors announced in June that we are conducting a review of strategic alternatives. The board and management remain committed to maximizing value for our shareholders. As I'm sure you can appreciate, we're not prepared to share any incremental information regarding that review at this time, and we thank you for your patience until we can share any conclusions. Shifting to operating highlights for the quarter, as you can see on page three, consolidated constant currency net sales were stable in Q2. A reported 4.5% decline included a 3.5% negative foreign exchange impact as well as a 0.9% negative M&A impact driven by the sale of our interest in a previously consolidated joint venture in China, which we noted on our April earnings call and included in our updates to our four-year guidance. The flat organic net sales included lower volumes offset by equally strong price mix effects. Performance Coating's net sales were flat before currency effects and increased 1.2% before M&A related impacts. Transportation coatings net sales decreased 2.4%, XFX, driven by lower light vehicle global production volumes. Price mix in light vehicle showed solid and encouraging positive acceleration as we continue to work with customers to adequately compensate for the ongoing raw material inflation experience over the last two years. We reported second quarter consolidated EBIT of $197 million, a 9% increase compared to the $182 million in the same quarter a year ago, driven by strong price mix drop-through to earnings, as well as including benefit from productivity efforts across the business, which included year-over-year benefits from stock-based compensation in the quarter. Volume effects were a notable offset to profit growth, while ongoing variable cost inflation and FX also weighed on results, though to a lesser extent than Q1 is anticipated, given the overlapping sequential headwinds seen during 2018. Adjusted EPS for the quarter was $0.52 per share, which compared with $0.46 per share in the prior year quarter, with drivers consistent with those just mentioned at the operating level. Looking at our end markets briefly, Refinished net sales increased 3.6% XFX in the quarter. We grew net sales XFX in the mid-single digits across North America and EMEA, while other regions appeared to exhibit more tepid economic business conditions. We continue to efficiently offset variable inflation with appropriate price management to sustain the broader margins of this business. In volume terms, we continue to see moderate pressure from the North America region, which we attribute to ongoing distributor channel destocking and continued adoption of our more efficient premium paint systems. We remain on track for full year expectations for both net sales and profit bolstered by continued share gains and stable and market body shop demand. Our industrial coatings and market saw a net sales decline of 1.1% in the quarter XFX and before negative M&A related impacts from the China JV sale. Drivers of the slight pullback in net sales XFX include low single-digit net sales decreases in North America and EMEA, offset by solid growth in Asia Pacific, excluding our JV disposition impacts. Overall volumes were down mid-single digits, while average price mix increased low to mid-single digits. The contraction correlates broadly to global industrial production indicators, which remain slow and appear to accelerate negatively somewhat in the period. Looking ahead, we've somewhat reduced our volume assumption for the balance of the year, though offset largely by better than expected price mix outcomes and additional cost control across the company. We also continue to invest in business and introduce many new products as per our plan. Light vehicle net sales declined 4.3% XFX for the second quarter, reflecting lower production rates for our OEM customers in most regions. and more severe ongoing demand weakness persisting in China. IHS production forecasts for 2019 have been further reduced several times in recent months, now calling for a 3.7 global production decline versus a 1% lower assumption as of March end. The updated global production guidance now includes a 4.7% reduction from EMEA, a 2% decline in North America, and a 4.1% decrease for Asia-Pacific. including a negative 6.9% in China. Commercial vehicle net sales increased 4.5% XFX in Q2, including ongoing strong production of commercial trucks in the Americas, and continued solid demand for non-truck customers across our business. Price mix was down slightly in the period, but margins for commercial vehicle have seen continued improvements due to volume contribution. Regarding our balance sheet and cash flows, Second quarter free cash flow was solid, and we reconfirmed our full year free cash flow targets of $430 to $470 million. We finished the quarter at 3.5 times net leverage versus 3.6 times net leverage at March quarter end. We repurchased 1.6 million shares for a total consideration of $39.5 million in the second quarter at an average price of $24.90. In terms of innovation investment highlights, in Refinish, we continued the launch of several new products in EMEA, including a new ultra-high productivity primer sealer and a new waterborne base coat performance additive. We also launched our new premium Refinish STANDOX product line in China. In our industrial market, we have partnered with a robotics company to introduce a real-time, in-line monitoring solution to optimize a process related to coating electrical motors, which enhances customer quality and productivity. Finally, in transportation coatings, Exalta continued its focus on harmonized coating technologies with the first commercial launch of a direct-to-plastic low-bake base coat clear coat system, which significantly reduces overall cycle times for customers. Regarding our 2019 execution priorities, We remain firmly focused on meeting our objective of generating profitable growth. The back half of 2019 is expected to be moderately challenging, given ongoing lower automotive OEM production rates in key markets we serve, as well as somewhat subdued industrial coatings demand in North America and Europe. Further, we remain committed to actively managing our cost structure to ensure broad margin stability, regardless of the volume backdrop. and our Exalta Way planning remains highly engaged and an integral part of our goal achievement. I'll now turn the call over to Sean for further review of our financial results.