US Axalta lowers Q3 earnings guidance on chip shortage, inflation

HOUSTON (ICIS)–Axalta Coating Systems lowered on Monday its Q3 earnings guidance because a shortage of computer chips has lowered demand for paint from its automobile customers and because of rising costs for raw materials.

For the third quarter, Axalta expects to report $130m-140m in adjusted earnings before interest and tax (EBIT).

Its earlier Q3 guidance called for $138m in adjusted EBIT. That figure was based on taking about 20% of its full year guidance.

In regards to sales, Axalta said it “expects net sales for the third quarter to decrease by approximately $40m relative to volume levels assumed in previously communicated guidance”.

Axalta has withdrawn its full-year guidance, which it released on 26 July.

Since then, the company’s sales volumes have continued to suffer from the disruptions in the supply chains of its customers, especially in light vehicles.

Automobile producers have shut down production lines because of shortages in semiconductor chips. These shortages should continue into 2022.

As a result, Axalta expects the shortages will reduce automobile production by 11m vehicles in 2021. That compares with Axalta’s earlier estimate of 7m.

Meanwhile, hurricanes in the southeastern US global as well as constraints in logistics and raw materials have caused Axalta’s costs to rise above its expectations.

Axalta noted that underlying demand remains strong for its Performance Coatings segment. This segment sells paint and coatings to auto-refinish shops and to industrial customers.

Customer inventory levels remain below normal, Axalta said. The company expects sales volumes for the segment’s refinish and industrial businesses to remain consistent with the guidance it issued on 26 July.

Shares in Axalta fell by 1.54% in after-hours trading.

Axalta is the third major US paints and coatings producer to issue a profit warning.

Sherwin-Williams lowered its Q3 sales guidance earlier in September.

PPG expects Q3 sales volumes to fall short of expectations because of the ongoing supply chain disruptions.

Paints are important end markets for titanium dioxide (TiO2), a white pigment.

Solvents used in paints and coatings include butyl acetate (butac), butyl acrylate (butyl-A), ethyl acetate (etac), glycol ethers, methyl ethyl ketone (MEK) and isopropanol (IPA).

Blends of aliphatic and aromatic solvents are also used to make paints and coatings.

Additional reporting by Stefan Baumgarten

Thumbnail image shows paint. Image by Shutterstock