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Why Axalta’s Transportation Coatings Segment Grew Marginally

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Axalta’s Transportation Coatings segment in 4Q16

Axalta Coating System’s (AXTA) Transportation Coatings segment reported revenue of $420.6 million in 4Q16. That’s a 1.3% rise compared to $415.0 million in 4Q15. The segment represented 41.1% of Axalta’s total 4Q16 revenue.

In 4Q16, the segment reported adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $88.0 million. That was a 7.4% rise compared to $82.0 million in 4Q15.

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Driving factors

Higher revenue for the Transportation Coatings segment was primarily driven by strong growth in the light vehicle business in the Asia-Pacific and North American regions. However, the EMEA (Europe, the Middle East, and Asia) region witnessed a weakness in this business. Volume growth in the segment is directly linked to sales of light vehicles.

Axalta also caters to coatings for commercial vehicles. In 4Q16, business in this area fell 12.8% year-over- year due to a declining trend in commercial vehicle sales across the regions.

EBITDA for the Transportation Coatings segment rose, mainly due to cost-saving measures. However, as we saw in the previous part of this series, foreign exchange adversely impacted revenue and EBITDA.

Outlook for the segment

Axalta expects its Transportation Coatings segment to grow 1.0%–2.0%, primarily driven by growth in the light vehicle business from Asia Pacific. However, it expects a slowdown in North America and EMEA. The commercial vehicles business could be under pressure due to expected continued lower demand in this space.

You can indirectly invest in Axalta by investing in the iShares US Basic Materials (IYM). IYM has 1.0% of its portfolio in Axalta as of February 8, 2017. The fund’s top holdings include Dow Chemical (DOW), DuPont (DD), and Monsanto (MON), with weights of 10.9%, 10.7%, and 7.7%, respectively.

In the next part, let’s see what analysts are recommending for Axalta after its 4Q16 earnings release.

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