Ladies and gentlemen, thank you for standing by. Welcome to Axalta's Fourth Quarter and Full Year 2019 Earnings Call. All participants will be in a listen only mode. Today's call is being recorded and replays will be available through February 6th. Those listening after today's call Should please note that the information provided in this recording will not be update and, therefore, may no longer be current.
I will now turn the call over to Chris Macrae. Please go ahead, sir.
Thank you, and good morning. This is Chris McCray, VP of Investor Relations. We appreciate your continued interest in Agalta and welcome you to our fourth quarter full year 2019 financial results conference call. Joining me today are Robert Bryant, CEO and Sean Lannon, CFO. Morning, we released our quarterly financial results and posted a slide presentation to the Investor Relations section of our website at Axalta.com, which we will 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 the potential effect on Axalta'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 statements. The 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. Separately, Axalta's review of strategic alternatives is ongoing. We do not have news on that front to share with you, but we will provide updates as warranted. We will not be addressing the strategic review process any further during this call, and we thank you for your ongoing patience. I'll now turn the call over to Robert.
Thank you, Chris, and good morning, everyone. We appreciate you joining us on our call to review our fourth quarter full year 2019 results, as well as our patients and our free cash flow well exceeded our targets, also producing a record annual cash flow result. Despite fundamental demand headwinds in some end markets linked to an uneven global industrial economy, I'm proud to say that Exalta team executed very well, closing out the year by meeting or exceeding key aspects of our financial goals. Exalta's vision as a reminder for our investors and shareholders is to be the preferred coatings partner for customers seeking the most innovative products and services delivered by the most talented team in the industry. I'm proud to note that the results we saw this year fully reflect that commitment and hard work by the people of Axalta that our vision lays out.
And I want to thank our team for the passion for performance they exhibit every day that enables our innovation, and fosters the industry's leading coatings technologies. Turning to Slide 3, let's take a look at some of our 2019 highlights in more detail. 2019 was not an easy year with demand pressure in global vehicle markets and weakening global manufacturing activity resulting in volume pressure for the coatings industry. Despite that, Axalta's net sales held very stable, decreasing just 0.5% in the aggregate compared to 2018 before negative foreign currency and divestiture related impacts. For Axalta, Growth engines and Performance Coatings continue to offset other more cyclically impacted end markets.
4th quarter net sales decreased 2.5% year over year, excluding the impacts of foreign exchange and the China joint venture sale. Net sales continued to benefit from strong pricemix tailwinds for the 9th consecutive quarter, Cross Global Industrial Markets. Performance Coatings net sales increased 0.3% before FX and impact from the China JV sale, including the benefit of improved price mix in the period. Volume remained subdued with pressure in industrial coatings, while refinish was stable with essentially flat volume, but strong growth in North America. Transportation Coatings net sales decreased 7.7 percent ex FX due to lower volumes broadly, but pricemix recapture was a positive offset for the 5th straight quarter in light vehicle, enabling higher margins for the segment, even with the volume drag.
Adjusted EBIT of $174,000,000 increased 1.6% year over year, driven by the combined benefits of positive pricemix, moderate variable cost tailwinds and reduced overall operating expense. Notably, 4th quarter results also included a head of approximately $10,000,000 year over year from incentive compensation expense which was driven principally by our exceptional free cash flow results. We elevated free cash flow as one of the primary metrics in our global incentive compensation plan for 2019. We're very pleased that we increased operating margins in a quarter where volumes were pressured decreasing 5% in the aggregate. Adjusted EBIT margins for with notable improvement in Performance Coatings and ongoing recovery in Transportation Coatings.
This was accomplished first through operating discipline, and continued Axalta Way productivity improvement, but also through focused attention on pricing actions across our end markets globally as we seek to recapture lost For the full year 2019, net sales of $4,500,000,000 decreased 4.6% from the prior year. But were down only 0.5% before foreign exchange and the China JV sale impacts. Lower volumes from select end markets were largely offset by positive price mix traction, oriented to cover cumulative variable cost inflation incurred in the last several years. Adjusted EBIT of $706,000,000 for the full year 2019 increased were the main positive drivers Operating expense included a benefit from lower stock based compensation expense of approximately $21,000,000, which was largely offset by We also increased our adjusted of lower volumes from Refinish net sales growth in the fourth quarter of 3.5 percent ex FX remained strong, driven principally by positive pricemix in all regions, with strong growth contribution from both North America and EMEA. We continue to displace competitors and key customers, especially within the MSO space in North America.
Refinish demand appeared to remain stable globally, and we showed ongoing success in offsetting inflation with price actions during 2019. We also continue to focus on innovation focused growth, including the continued launch of new value focused clears and primers in North America, and the extended launch of Industrial Coatings exhibited weakening demand during the fourth quarter, in line with broader industrial economy weakness. With net sales decreasing 4.5 percent ex FX and before the China JV sale impact. We saw a more notable negative inflection in North America and EMEA, while China showed some more encouraging signs of stability in the fourth quarter. Price mix continued to display positive trajectory, increasing low single digits in the quarter.
Full year results were also strong. And we held the end market sales nearly flat, down around 1% before foreign currency in the JV sale impacts, against the challenging macro environment in many geographies. Delta's outperformance versus the market rates benefited from new product introductions, In the fourth quarter, this included launching new vehicle wheel related products to expand our presence in that market and the launch of a new high performance top coat for the agriculture and construction market. In our powder business, we developed a new robust anti gassing product for galvanized steel applications and expanded our metallic bonded powder product portfolio. Light Vehicle net sales were down 6.7% for the quarter ex FX.
Volumes were down high single digits with decreases seen in all regions generally in sync with global OEM production patterns. For the quarter, global light vehicle production declined 5.4%, including a 1% increase in China against an easier comparison from the prior year and an 8% decrease in North America inclusive of the impact from a customer strike in the period. In Transportation Coatings, we continue to drive innovation to support long term growth for the sector. In the fourth quarter, we focused on advanced modeling techniques, color development and measurement of coatings for radar transmissivity and lidar reflectivity. This aligns the business with increased sensor usage related to both driver assisted as well as autonomous vehicle adoption.
Commercial Vehicle net sales decreased 11.2 percent ex FX in the 4th quarter. Global truck markets have experienced the downturn in the second half of twenty nineteen, while North America production was also impacted by a customer strike in the period. Price mix was down slightly in the period, inclusive of negative mix impact from euro. Regarding our balance sheet and cash flows, 4th quarter free cash flow of nearly $250,000,000 improved markedly versus the prior year quarter and we exceeded We reprioritized free cash flow at the start of 2019, and we're very pleased by the strong results delivered by our teams. This strong cash flow result resulted in our finishing the year with total cash on the balance sheet of over $1,000,000,000 the first time in our operating history and with a net debt to adjusted EBITDA ratio of 3.0 times.
Which is a significant step down since the end of 2018. Turning now to a few manufacturing highlights. We made significant progress during 2019 on our Belgium site closure and are on track to complete the project in the first quarter of 2020. The Belgian plant was closed during the fourth quarter and the resin production transfer will be completed around the end of the first quarter. We are now starting to see some of the productivity benefits of this project after a tremendous which is designed to broadly lower our cost structure in the region We continued our sustainability efforts focused on environmental protection, social performance, human rights, and good governance.
In the fourth quarter, we completed the rollout of our new safety commitment, which we call driving perfect performance to all remaining Axalta sites. Our 2019 global total recordable incident rate was 0.27, a top decile result within the U. S. Paint and coatings industry. We thank all our employees suppliers and industry groups to advance responsible sourcing practices throughout our supply chain Finally, we are proud to have been recognized as a top 50 ESG company by Investors Business daily in November.
During the fourth quarter, we reassessed plans that we had begun executing to expand our China operations footprint. We are adjusting these expansion plans and will now focus on shifting production largely within our current site footprint. Which is expected $7,000,000 in return on capital remains front and center in all of our decision making. With that, I will now turn the call over to Sean, who will share some further detail on our financial results.
Thanks, Robert, and good morning. Turning to Slide 5, 4th quarter net sales before FX impacts decreased 4.5% year over year, including a 2.8% decrease from Performance Coatings, and 7.7% from Transportation Coatings. These results included the 2% impact from the sale of a China joint venture interest in the second quarter, meaning that organic net sales decreased 2.5% overall for the quarter. The 5% lower volume for the quarter driven heavily by Transportation Coatings, while the positive price mix contribution came principally from the Performance Coatings segment. That we saw continued strong progress on price in light vehicle in the quarter, which is now the 5th quarter in a row.
FX translation impact continued to moderate somewhat, with a 1.3% headwind reflected in the 4th quarter given ongoing euro weakness coupled with impact from the Brazilian Real, the Chinese Renembi and the Argentine peso. Q4 adjusted EBIT of $174,000,000 was a 1.6% increase versus the prior year adjusted EBIT margins increased 110 basis points to 15.8% in the 4th quarter. The higher income result reflects strong drop through of price and mix benefits as well as positive contribution from lower variable and operating expenses. Partially offset by the impact $10,000,000 from annual incentive compensation expense, primarily associated with our outperformance on delivering a strong free cash flow result. Turning to Slide 6, Performance Coatings Q4 net sales decreased 2.8% year over year, excluding a 1.2% FX headwinds.
And increased 0.3% excluding the impact of the China JV sale. The net sales result was driven by a 3% increase in average price mix Refinish reported 3.5 percent net sales growth ex FX, driven by improved price mix in the period, with product mix being a positive contributor to the results in addition to improved average selling prices. Refinish saw renewed volume growth in North America, offset by a slightly lower volume from the other regions in the period. Industrial net sales ex FX decreased 12.2% year a year with a 4.5% decrease, excluding the loss of sales associated with the Chinese JV. Industrial top line pressure increased in the period with notable impacts in both Europe and North America.
We believe this correlates with broader macro softening in the period for industrial production gauges. By end business, all saw some volume pressure except coil coatings in North America. There also appeared to be broader stabilization of liquid industrial coatings in China. Performance Coatings reported Q4 adjusted EBIT of $118,000,000, a 6.8% year over year increase. With ongoing solid pricemix benefits, offset to an extent by lower volume and slight FX headwind effects.
Q4 segment adjusted EBIT margins of 16.2 percent increased from 14.5% year over year benefiting from price actions, mix improvement and company wide productivity actions as we have worked to offset raw material inflation over the last several years. Turning to Slide 7, Transportation Coatings net sales decreased 7.7% year over year in the quarter before 1.5% currency headwinds. Segment volumes saw more notable pressure in the period, decreasing 9.2% including impacts from both light vehicle and commercial vehicle, offset partly by continued progress and price recapture. Light Vehicle Q4 net sales decreased 6.7% before a 1.6% FX headwind. Volume decreased high single digits due to global production cutbacks and including the strike impact from a North America customer earlier in the fourth quarter.
Average price mix increased low single digits in the quarter as we continue to focus on setting prior variable cost inflation impacts, which are still not fully recovered. Commercial vehicle Q4 net sales decreased 11.2 percent before FX headwinds of 1.1%. This reduction was driven by lower global truck production, which accelerated in the quarter, as well as class 4 through to be down 8.5%, mostly driven by an expected decrease in Class A truck production of 11.5%. Price mix was relatively neutral in the period, inclusive of mix headwinds in EMEA. Despite net sales headwinds in the quarter, Transportation Coatings generated dollars of $26,000,000 equal to the result in Q4 2018, with associated margins of 6.9% compared with 6.4 On slide 8, looking at consolidated 2019 Axalta results, the year was a mixture of very strong new product growth progress, across the business as well as some fundamental demand headwinds that masked otherwise strong execution.
We showed strong realization of price mix recapture, with a 3.2% average increase among the best of the sector. We also continued to expand margins and close the gap that opened the beginning in 2017, the variable cost inflation cycle. Adjusted EBIT margins of Axalta expanded 140 basis points to 15.8% for the full year. On the other side of the ledger, volume headwinds exceeded earlier expectations as the pace of industrial recession in various regions accelerated as the year progressed. While automotive remains of volume headwinds for the 2nd year in a row.
Finally, we saw continued FX pressure and did not see any material M and A benefit with the most meaningful impact transaction during the year from the Chinese JV interest sale, which eliminated low margin volumes in China. So despite some persistent global industrial headwinds and higher than expected FX headwinds, which caused us to miss our original sales growth targets, We produced operating profit and earnings, which both met expectations communicated last April when we began the report on the current basis. Adjusted EBIT of $706,000,000 compared with April guidance of $675,000,000 to 725,000,000 and adjusted EPS of $1.80 compared with guidance of $1.68 to $1.88 given at the same time. The adjusted EBITDA result was reported close to the low end of the beginning guidance range attributable to previously mentioned volume, FX, incentive compensation expense headwinds. Turning to slide 9, cash and cash equivalents totaled point $02,000,000,000 at year end, our first close over $1,000,000,000.
Total reported debt was $3,800,000,000, resulting in a net debt balance of $2,800,000,000 versus $3,000,000,000 at September 30th. Our net leverage ratio was 3.0 times down from 3.2 times the 3rd quarter end and 3.4 times at year end 2018. Free cash flow in the 4th quarter totaled $248,000,000, a significant increase compared to $220,000,000 in the fourth quarter of 2018, driven by increased adjusted EBIT as well as by improved net working capital outcomes. For the full year, free cash flow of $475,000,000 was a significant improvement versus $362,000,000 in 20.18. We would also note 2 other somewhat offsetting items within free cash flows results.
Which included a cash outflow of approximately $26,000,000 in the 4th quarter for retention awards and advisory costs associated with the strategic review but offset by lower than previously guided CapEx, which ended the year at $113,000,000 versus the latest guide of $130,000,000 Our working capital to full year net sales ratio which is an improvement versus prepaid $300,000,000 of our U. S. Dollar term loan to lower our cash interest expense for 2020. Turning to Slide 10, we have provided financial guidance for 2020. Our 2020 guidance construct assumes relatively stable market conditions similar to those seen in the fourth quarter of 2019.
Global auto builds down about 0.5% and global commercial vehicle builds down approximately 8.5%. We also assume a relatively stable macroeconomic and political environment including no year over year inflation in raw material inputs. Like everyone, we are still assessing the impact of the coronavirus outbreak on our businesses inside and outside of China. Therefore our guidance excludes any impacts from this element, which we can't quantify as of yet. Net sales ex FX and M and A is expected to be 1% to 2%.
We expect to see about $30,000,000 of remaining comparison impacts from the second quarter 2019 China JV interest sale until we have fully lapped that transaction. In 2020, core growth is largely into data from Refinish, while other end markets are expected to remain under some cyclical pressure given slower global macro trends for industrial production currently. In transportation, we expect some net sales pressure from commercial vehicle due to slower global truck production, though the segment should see stability relative to 20 19 steep headwinds in light vehicle. We expect price mix to be a positive contributor to net sales. We are committed to offsetting inflation impacts in end markets, where we have not fully recaptured the loss margin from 2017 through 2019 inflation.
Adjusted EBIT is anticipated in a range of $710,000,000 to $750,000,000, which implies margins of 15.8% to 16.6%. Compared to 15 point optimization. Given input pricing during the fall, but we face continued deflation headwinds from sell elements of our input baskets. And we expect full year feedstock pricing at fairly stable levels year over year. The consolidated adjusted EBIT guide includes the add back of step up depreciation and amortization of $105,000,000 versus $120,000,000 in 2019 due to the roll off of aspects of purchase accounting.
That had been established back in 2013. Accelerated depreciation and amortization of $7,000,000 associated with the Belgian plant closure is also added back. And this compares with $24,000,000 in 20.19 as the site is expected to end production in the first quarter of 2020. Overall, D and A guidance is $330,000,000, down from $353,000,000 in 2019, reflecting these differences. Adjusted EPS is expected to be between $1.85 $2 incorporating an assumed tax rate of around 22% assumes no incremental share repurchases for our normal guidance practice.
Both adjusted EBIT and adjusted EPS include headwinds from stock based compensation, which we anticipate at $28,000,000 in 20.20 versus $16,000,000 in 20 19. CapEx is assumed to increase to $160,000,000 in 20.20. This incorporates spending associated with core operations including productivity projects, the Belgian plant move completion and substantive ERP system conversion costs. We launched a global SAP upgrade project in late fourth quarter 4 year initiative with associated investment of around $170,000,000 over the period. This program will ultimately enable substantial future savings which we believe will more than offset the upfront investment by catalyzing business process productivity at a foundational level in the company.
We expect to provide incremental updates as we progress through this project. Free cash flow is expected to be between This is inclusive of our range of operating earnings We also assume approximately $75,000,000 in severance outflows embedded in the free cash flow range or about $20,000,000 incremental to 2019 actuals. Dictated largely by the timing of our Belgium closure and fully departures. Regarding phasing of earnings in 2020, We expect the first quarter to reflect approximately 22 percent of total adjusted EBIT, again, before any quantified impact from the coronavirus outbreak. We expect the second half of twenty twenty broader net sales performance to exceed the first half given normal first quarter seasonality as well as anticipated demand improvement as the year progresses.
I'll now turn the call back over to Robert for concluding comments.
Thank you, Sean. In summary, we're very pleased with our financial and operational performance for the fourth quarter and the full year 2019. Despite volume softness, we were able to achieve our profitability targets through cost management and price increases. We executed on several key projects to competitively position Axalta for the future, including footprint adjustments in Europe and China as well as the launch of our SAP S4HANA upgrade. We continue to innovate in our products, services, and go to market strategies, including ongoing R And D And Technology investment of approximately 4% of net sales, the highest in the coatings industry.
Our innovation success was well recognized by our customers and the industry at large as evidenced by several key innovation, quality and sustainability awards we received in 2019. As we look forward to 2020, we will remain focused on pursuing sales growth opportunities, offsetting past inflation with appropriate actions to recover value, adjusting our cost structure to market conditions with additional Axalt Way efforts, leveraging innovation to create value for our customers, generating significant free cash Finally, I'd like to note that none of our existing progress and growth would be possible without the hard work and dedication of our global team. The Axalta team collectively delivered in 2019, and I'd like to express my sincere appreciation for the hard work of our teams around the globe make this possible. This concludes our prepared remarks. We now be pleased to answer any questions So operator, would you please open up the lines for Q And A?
A question Our first question is from David Begleiter with Deutsche Bank. Please proceed.
Hey, it's David Huang here for David. I guess first question just on price versus raw in terms of your four segments, where are you still seeing a gap. And when do you expect that gap to close?
As far as all the segments, as we've, I think previously stated, as far performance coatings, we are fully caught up as far as the price cost gap. Light vehicle is still lagging a bit. I think we we've made a lot of progress in 2019. We got about 2.2% in price over the course of the full year, about 1.9 in fourth quarter. We are still lagging there and that continues to be a focus, for the company.
And then just in terms of the cost saving program, how much is still left in the accelerated program and a student additional cost saving programs in 'twenty to achieve your target?
Yes. So when we announced the Axalta Way 2 back in 2018, we said about $200,000,000 it was going to come in ratably. So we're about $100,000,000 into the overall project. So we would anticipate another $50,000,000 coming through for 2020.
Our
next question Jim is from Robert Koort with Goldman Sachs. Please proceed.
Hi, guys. This is Anthony on for Bob. You guys mentioned an expectation for improvement in the second half of twenty twenty relative to the first half. Can you just talk through what gives you confidence in our recovery into H and what businesses or geographies you might be seeing some green shoots today?
So, I mean, a lot of our guidance is following industrial production trends. As well as we're seeing recovery as far as IHS data on like vehicle. Certainly, there are our elements around stability of refinish. Our business performed extremely well for 2019. In the Refinish end market, we continue to see volume stability for 2020 and we continue to see expect pricing in that business.
But that's by and large kind of how we're seeing 2020.
Okay. And then just as a follow-up to that, how should we think about your ability to recapture price in transportation in light of the volume headwinds you're expecting. And can you segment your price expectations between light vehicle and commercial, just given the 8.5% decline amount you're expecting for the year? Thanks.
As we look at the light vehicle end market, our goal of course always to lower our cost structure, continually in that line of business internally to maintain margin. However, an increased margin. However, with the light vehicle customer base. They do recognize, the value that we are creating from them, from a new product innovation, as well as from a service component We have a number of, of products that will continue to roll through in that business that just by virtue of the new product, introductions as well as additional business we've picked up that are at more current raw material pricing baselines. You know, we should see some some natural, pick up there that would offset, we believe any any softness So overall, as we think about it, we're looking for a fairly flattish to low single digit year in terms of pricing in that end market
Our next question is from Mike Siva with Barclays. Please proceed.
Good morning.
I guess first question on the China footprint decision. I think in the release, you pointed to evolving market conditions driving your decision. So I guess from when you initially started the engineering work to today, has demand in the region just not developed as you anticipated? Because I guess I'm assuming the capital cost control wasn't the issue?
Correct. As we've looked at, forecast in that region, you know, we had, I think we're overall, optimistic, on China and the growth that will occur there over the, over the long term. However, in the shorter term, projected bills have pulled back, have pulled back quite a bit. And therefore, we have a our CapEx planning there accordingly to essentially put in and build out additional capacity at our existing facilities in order to meet market customers
in that
will be a major player in China 30 years from now as well. However, in the short term, we did consider it prudent to put in some of the required capacity expansion to meet the market demand that will still grow in a more modular fashion just given the development of projected builds in the country.
Got it. That makes a lot of sense. And then bigger picture question just on refinish. I guess when I think about that business, I've always thought of refinish being this steady at a 3% to 4% annual grower. But if I look at your revenue in the past few years, it seems refinished is kind of stuck in this $17,000,000,000 to $1,800,000,000 range.
So I guess, can you maybe just talk about the underlying profit growth you've seen in this business over the past few years versus the flat top line? And just how you think about structural growth going forward there?
We continue to believe that the Refinish market, over the medium and the long term will grow and is an attractive market. We actually saw in the 4th quarter some more favorable trends than we saw, for example, in the 3rd quarter. And that's not uncommon that see quarter to quarter variation in the business. As we've highlighted previously though, the global market shift from solventborne 2 waterborne products does create structural volume reduction since the waterborne products do require less product to apply. And there's also a mix effect from the growth of MSOs who are more efficient with paint usage and who mostly use waterborne products.
Now that being said, we did see refinish volumes a little bit more subdued globally, despite the growth that we saw in the peer in North America that we've highlighted. And we believe that that relates mostly to economic conditions, which have been a little bit more challenged globally.
Thank you.
Our next question is from Arun This is Wanton with RBC Capital Markets. Please proceed.
Hi. Sorry about that. Excuse me. I'm just curious, you know, has has any of the recent developments in China far as coronavirus and and everything, entered into your thoughts. And if so, what do you assess as potentially the the impact And then secondly, as far as the price cost relationship goes, I understand that you're, largely caught up.
Just curious about potential for further price initiatives in case inflation does crop up.
So here's what we know so far. As you know, this morning, there are approximately, I think, 7700 confirmed cases and about 170 deaths. We were expecting most business in China to resume around January 31st before the coronavirus outbreak. As of yesterday, the government has pushed out the resumption of business activities to February 3rd for a large number of provinces in cities and that includes our Northern China plant. In February 10th, for a smaller group of provinces and cities that includes our Shanghai plant.
Now we have seen many of our light vehicle customers that have pushed out their production schedules by between 1 3 weeks at this point. And we've also heard that some car dealerships are expected to remain closed until well after the Chinese New Year ends. We've also seen some of our customers in Refinish Industrial and the light vehicle, notify us of their intention to delay or push out their their order somewhat. I'd say at this point, perhaps the the biggest unknown is the impact on logistics. Roads in and out of some of the major cities are closed.
And the impact on product movement, shipping and in doubt raw materials is not yet clear. However, above all, you know, our primary goals are our employee safety and taking care of our customers. And we've taken a multitude of steps to ensure that we're doing the best for both of them. Like others, we will continue to monitor the situation closely and be in a position to provide a better update, on any potential impact on the business as we know more. And on your second question, I'll let Sean answer that one.
Yeah. So currently the construct top line assumes we're going to get price and refinish and modest price in light vehicle. That's a assuming that, you know, it's relatively flat raw material backdrop. I think if things were to change on us and, you know, we were to see oil spikes and some of the supply demand dynamics to change. And we quickly have to react and look at our industrial business for pushing price like we've done in past years.
Great. I'll turn over. Thanks.
Our next question is from Josh Spector with UBS. Please proceed.
Yeah, hey guys. Just a question on Refinish. Wondering if you could provide some more context about what you're seeing maybe specifically within Europe and maybe how far down that was in the quarter in you see anything changing over the next couple of quarters here?
Refinishing in
Europe, remains relatively stable. We did see some softness, some softness in some markets indicative of the overall global, the overall economic conditions, in that market, but overall, it remains fairly stable for us.
So then if North America was up, where was the major offset or is North America only slightly up?
So North America was only slightly up. Volume were down slightly in Europe, but it was a relatively flat performance. I mean, we wouldn't we're not talking big numbers here. And that's why you're ending up with a net result, you know, of about down 0.3% globally.
Okay. Thanks. That's helpful. And just on your CapEx guide for 2020, I was wondering if you could just kind of put that into some larger buckets just from the standpoint of what you would consider kind of base maintenance growth, the ERP spend? I mean, I know timing was an impact on your 2019 number.
But just wondering kind of what's the flex within that $160,000,000 as you look at 2020?
Yes, so certainly the biggest aspect is SAP. As for Hana of about $40,000,000 maintenance typically runs $40,000,000 to $50,000,000 and then growth in productivity is the difference.
Thank you.
Our next question is from Christopher Parkinson with Credit Suisse.
Hi, this is Harris Fine on for Chris. Thanks for taking my question. On Refinish, can you discuss what you're seeing in terms of pace of MSO consolidation and maybe how you're framing the share gain opportunity, and maybe any differences you're seeing between Europe and the U. S?
MSO consolidation, as you know, in terms of the number of body shop that were that were acquired by major MSOs. We've seen that really, excuse me, peak in terms of the activity of all the major MSOs in the 2016, 2017 time period in terms of just pure acquisition activity. What we're seeing now more is there are still acquisitions, but we're seeing more brownfield and greenfield investment by many of the of the MSO players in, in North America. We do expect that MSO players will continue to grow and represent a larger portion of the market over time. We did see, of course, more recently the merger of a couple of the largest MSOs in the North America space, which of course was a major consolidation event.
But in terms of each one of the MSOs, the sheer number of individual body shops that they're acquiring, that has slowed down from the pace it was a few years ago. In terms of in terms of Europe, I'd characterize it as overall market conditions and then more, Exalta specific opportunities. From an overall market perspective, as we highlighted, the market has been relatively flat. We believe that's heavily linked to just the global economic activity that that we're seeing in the region and also impacted, somewhat by some of the more countries specific situations in Europe such as such as Brexit. For Axalta, we have a very strong market position in several of the larger markets within the region.
However, we have a lower market share in some of the periphery countries in the region and also Eastern Europe and Russia. So that's a nice growth opportunity for us and our global refinish team and EMEA Refinish team are both very focused on that growth opportunity.
Our next question is from Steven Haynes with Morgan Stanley. Please proceed.
Hi guys. Thanks for taking my question. I could just ask a quick one on the SAP project. You know, it's in early innings, but Any idea of, I guess, maybe how to quantify the future savings and you're saying in excess of the investment, but kind of any early learnings and how we should be thinking about how to quantify the benefits? Thanks.
Yes. So we're extremely early into the project. Just kicking it off in December formally. We are gonna provide incremental updates as we progress through the project. You know, we can't help you with exactly how to quantify.
But when we think about the underlying productivity, it's going to be extending from all the way around pricing practices to back office support all the way through working capital improvement. And we would expect, you know, one time benefits as far as working capital and then sustainable savings as it relates to back office and productivity. Across the number of the functional areas.
And I would just add to what to what Sean said. Many ERP upgrades do not generate the benefits that they're projected to. However, I would remind you that in Axalta's case, were using an instance of SAP that's more than twenty years old and that was highly customized, by DuPont. So we believe the benefits that we will achieve are actually very
Our next question is from Steven Byrne with Bank of America Merrill Lynch. Please proceed.
Hi, this is Luke Washer on for Steve. Wanted to ask, did you see any market share shifts in Refinish, either in the fourth quarter or kind of throughout 2019? And if so, did any kind of technological advances propel that either from yourself or competitors?
There's not a regularly updated, reliable refinish market share study. Essentially to have a keen view on that. You have to commission a market study and go out and, conduct surveys and pull together statistically reasonable enough sample to really have a keen, a keen view on that. However, we do, through shop management software as well as other tools that we have have a pretty good view on the number of shops that we service and any ads and drops And so from a net shop count, we have seen a shop count increase. As we highlighted in North America, we have increased our penetration of some of our largest existing MSO customers.
So I think we feel fairly confident that in North America, we have, we have continued gain share. We also look at shops and body shop activity in other regions of the world. And that also indicates that we're performing quite well. I would highlight from a product technology perspective that our speed hacker waterborne product is the most productive in the industry and that continues to enable us to win market share, especially with customers who value high degrees of productivity in their operation.
Our next question is from Mike Sison with Wells Fargo.
Hey, guys. Nice end of the year. In terms of your guidance for Q1, I think you said 22% of either earnings or EBIT would be in Q1. And if I just did that off EBIT, it does seem like you'll be able to generate double digit growth, kind of 160 versus 144. It's pretty good growth.
So can you maybe walk through why Q1 starts off pretty, pretty Sean.
Yeah, one of the bigger, biggest elements is purely raw materials. So if you recall, at the end of 'eighteen, we were sitting on 3 months of high dollar inventory, which all turned back in the first quarter. That's probably the biggest element from a loss perspective. And then we'll continue to see price realization coming through, as it relates to the refinished side of the business.
Got it. And
Our next question is from Gransham Panjabi with Baird.
I guess, I'm sorry if I missed this, but can you touch on how you're thinking about the weighting of EBITDA or earnings or whatever metric you want to use for 2020 on a quarterly basis? And then specific to 4Q, what was cost inflation year over year, raw material cost inflation during the quarter? How are you thinking about the next, on the first half of twenty twenty? Thanks.
Let me take the second part of your question and I'll let Sean take the first part of your in Ghansham. In terms of raw material and inflation, we did see some tailwinds as came into the as we came into the end of the year. And on a full year basis, at a COGS level, there was less than 1% than 1% benefit. What we expect to see is some benefit, in the in first quarter from a raw material perspective. However, given the most recent projections that we have, we expect, those prices to go up during the course of the year, but perhaps not dramatically.
Hence, our projection that raw material inflation will be flat to relatively down for the full year 2020, at least in terms of how we're thinking about our guidance construct.
Yeah. And as it relates to sequential EBIT and EBITDA contribution, so the first quarter, we're estimating a 22%. And then the next three quarters, essentially pro rata with a slightly heavier weighting towards the second half of twenty twenty.
Our next question is from Jeff Zekauskas with JP Morgan. Please proceed. Good morning. It's silica Cook for Jeff. How are you?
Good morning, silky. How are you?
Good. I wondered if you could quantify how much of raw material benefit you did realize in the fourth quarter? And how much of a restructuring benefit did you realize in the fourth quarter in dollar terms?
Yeah. So we historically have not quantified all those elements. Certainly productivity is partially offsetting inflation that we saw in 2019. The 4th quarter as it relates to raw materials, we did see an inflection point So from a quarter over quarter, that was, you know, the first quarter that we actually saw a benefit, it was fairly modest. But it's giving us some comfort as we head into 2020.
And looking at more of a flat environment for the year.
Our next question is from P. J. Zavanger with Citi. Please proceed.
Hi. Good morning. This is Eric Petrie on for P. J.
Good morning, Eric.
In a subdued volume environment, how do you view M and A or bolt ons versus continuing to improve your net ratio to target of 2.5 times?
2019 was a little bit of a pause year for us in terms of completing, acquisitions, which we believe is partly due to, obviously focus on other matters, including our our strategic review, and a slower, M and A environment in 2019 for larger coatings assets, which is where, you know, we are trying to focus more. That being said, we haven't seen any transactions, come to market recently that we really viewed as critical targets, for Axalta. Now we continue to believe that the long term consolidation trend is is here to is here to stay. And we have many identifiable targets, of of interest in we will continue to to pursue those. As we think about capital, capital allocation, you know, our goal is, to continue to pay down, to pay down debt to opportunistically, repurchase shares and then to Destin an appropriate amount of capital, to M And A.
And as I mentioned, you know, we've been focused more on medium size to larger size, M and A targets that can really move the needle, for the for the company during the course of this year and as we come into 2020.
Our next question is from Mike Harrison with Seaport Global Securities. Please proceed.
Was wondering if you could reference the 250 new products that you introduced in 2019 Can you talk about the top line contribution of those and maybe help us understand what portion of those would break out into, to refinish industrial, and light vehicle. And then also, give a sense of the selling cycle? How long would we typically expect it to take from the time you introduce a product to the time that it sees more widespread customer adoption? Thank you.
That's always a difficult question to ask. Because you get into the or difficult question to answer, I should say, because you get into the question of what exactly, is a is a new product. So you may have an existing product if there's a new color development, do you actually count that as a new product? And there's not really from what we've seen in our industry a consistent, a consistent definition of that. We think about targeting more than 250 new product, new product innovations, which we consider as more significant variations or modifications to our products as our as our definition and new product development occurs in all 4, all 4 of our end markets.
Perhaps in terms of actual number of new product developments, industrial is the end market where we have the greatest number of new products introductions because of the sheer number of end markets that the industrial business actually serves. In terms of how long, how long it takes a product to, to get up to speed and really contribute, that, that varies But you could think about a time horizon of 6 to 12 months, in most cases, depending upon whether the product is going direct to a particular customer or whether it's going through distribution initially.
Our next question is from Laurent Farb with Exane. Please proceed.
Yes, good morning guys. I just have one question. I was wondering, I mean, the last time we had a couple of years of, disinflation or pressure, we ended up with a bit of lack of pricing discipline, especially in autos OEM, so I guess back in 20 17. I was wondering if you could talk about the risk of that happening again this year, in particular, thinking about some of your key competitors who may not be as disciplined and as focused on pricing and margins as you are.
With regard to the raw material cycle, that happens in coatings and how different companies, different companies react to that, think all of us as key players in the coatings industry focus on creating the most value possible the most value possible, for our customers. And when there is inflation, we're trying to offset that, inflation with cost cutting. Internally so that we can don't have to pass on, too much of that to our customers, but there are instances where the inflation inflationary cycle is so quick or so large in total magnitude where coatings players have no choice but to pass on price the end to the end customers. So I think that's how most players in the industry think about it.
This concludes our question and answer session.
It's Chris McCray. Thank you all for joining us this morning. We, we appreciate your interest and are available, through the day and going forward if you have any questions. Thanks again. Have a good day.
Thank you. This concludes today's conference. You may disconnect your lines at this time and thank you for your participation.