Earnings Call Transcript - AXTA Q1 2026

Operator, Operator

Ladies and gentlemen, thank you for standing by. Welcome to Axalta Coating Systems Q1 2026 Earnings Call. A question-and-answer session will follow the presentation by management. Today's call is being recorded, and a replay will be available through May 7, 2026. 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 Colleen Lubic, Vice President of Investor Relations. Please go ahead.

Colleen Lubic, Vice President, Investor Relations

Good morning, everyone, and thank you for joining us to discuss Axalta's first quarter 2026 financial results. I'm Colleen Lubic, Vice President of Investor Relations. Joining me today are Chris Villavarayan, our Chief Executive Officer; and Carl Anderson, our Chief Financial Officer. Before we begin, please turn to Slide 2 for our forward-looking statements and non-GAAP disclosures. We posted our first quarter 2026 financial results this morning. You can find today's presentation and supporting materials on the Investor Relations section of our website at axalta.com. Our remarks today and a slide presentation may include forward-looking statements reflecting our current views of future events and their potential impact on Axalta's performance and with respect to the proposed merger of equals between Axalta and AkzoNobel. These statements involve risks and uncertainties and actual results and outcomes may materially differ. We are under no obligation to update these statements. Our remarks and the slide presentation also contain various non-GAAP financial measures. We included reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures. Please refer to our filings with the SEC for more information. With that, I would like to now turn the call over to Chris.

Chrishan Anthon Villavarayan, Chief Executive Officer

Thank you, Colleen, and good morning, everyone. Turning to our first quarter highlights. We delivered strong results and exceeded expectations across our financial metrics. In the quarter, we generated net sales of $1.25 billion, adjusted EBITDA of $259 million and adjusted diluted EPS of $0.56, which came in 12% above expectations. These results reflect disciplined execution and a focus on the levers within our control. We also set meaningful cash generation records this quarter with $68 million of cash from operations and $21 million of free cash flow, an improvement of $35 million year-over-year. This period marked the 12th consecutive quarter of year-over-year profitability improvement in our industrial business, while Mobility achieved a first quarter net sales record and adjusted EBITDA margin of 17.5% reflecting solid execution and cost discipline, and we saw stabilization in Refinish at nearly $500 million in sales, consistent with the last five quarters. Innovation has always been and remains an important differentiator for Axalta. During the quarter, we received six Business Intelligence Group Innovation Awards and three prestigious Edison Awards. Echo NextJet, a collaboration with DURA and ZAR, enables OE manufacturers to provide next-generation personalized exterior finishes at production scale, shifting from a fixed palette to unlimited customization without sacrificing quality, durability or efficiency. And Alesta e-Pro FG Black, a powder coating engineered for thermal stability and secondary fire protection in electric vehicle battery systems. Echo NextJet and Alesta e-Pro FG Black were both acknowledged with Gold Edison Awards. St. Master AI, which was acknowledged with the Bronze Edison Award, is a breakthrough in intent manufacturing using advanced AI to address the challenge of color variability in paint manufacturing. Edison Awards honor technologies that are redefining industries, solving complex customer challenges and shaping the future. I want to recognize the smart and talented people at Axalta for developing and bringing to market advanced solutions with real-world impact. Let's turn to Slide 4. Against a backdrop of macro uncertainty and elevated volatility, we remain focused on managing through what we can control. While recent developments have increased uncertainty across cost and supply availability, our actions over the past several years have positioned us well to mitigate raw material inflation. We're closely monitoring developments across energy, logistics and the broader supply and demand landscape as it relates to the evolving situation in the Middle East. From a purchasing perspective, we delivered 12 consecutive quarters of year-over-year improvement in variable costs due to strong productivity projects as well as focused implementation of procurement best practices. We now have approximately 60% of our direct spend under contract rather than spot buys. Many of our strategic supplier agreements are stronger and incorporate indexation, which is helping reduce volatility and improve visibility. As it relates to pricing, we plan to move quickly to offset the impact of inflation. We're driving solid discipline across the portfolio. In Refinish, we expect to implement mid-single-digit pricing in 2026, reflecting the value we deliver. In Mobility, more than 50% of our revenue is now tied to raw material indices, which provides a natural hedge against cost volatility. Mobility has delivered six consecutive quarters of positive year-over-year price mix, reinforcing our ability to offset inflation. Across the rest of the portfolio, we are prudent and proactive with the pricing actions and surcharges in place, where appropriate to help protect margins. From a transformation and cost discipline standpoint, we continue to tightly manage our operating expenses. In the first quarter, SG&A declined 7% year-over-year on a constant currency basis and we exceeded our operational productivity targets. Even amid top-line pressure, our adjusted EBITDA margins have exceeded 20% for nine consecutive quarters, underscoring the durability of our operating model. Supporting all of this is our resilient supply chain and cost structure. Approximately 90% of our direct buy is locally sourced, where variable costs represent about 60% of COGS. Inventory levels remain at roughly 115 days on hand, which helps limit the impact of inflation, particularly as we enter the second quarter. Let's turn to Slide 5. We see solid execution across all our businesses. In Refinish, net body shop wins increased 10% year-over-year and generated net sales growth in the first quarter in three out of our four regions. We're also expanding with leading MSOs, which remain a key focus for the business. In Industrial, our most diversified portfolio, the global macro has been the story for the last few years. However, we are starting to see signs of recovery. We delivered five consecutive quarters of net sales growth in Asia, driven by our Energy Solutions business, drove volume growth in Europe during the quarter with share gains in our e-coat business, and we're seeing positive price/mix for seven straight quarters. In Mobility, we delivered record net sales in the first quarter of $452 million and growth in three out of our four regions. Commercial Transportation Solutions, which was a bright spot in 2025, also delivered record first quarter sales, driven by continued success with new business wins. Overall, new business wins and excellent operational performance across the portfolio are helping us offset the headwinds in North America where the macro environment has been tempered by economic anxiety, elevated consumer costs and higher-for-longer interest rates. With that, I'll turn the call over to Carl to discuss our financial results.

Carl Anderson, Chief Financial Officer

Thank you, Chris, and good morning, everyone. Turning to Slide 6. Net sales were $1.254 billion, a 1% decrease year-over-year, primarily driven by lower volumes in Performance Coatings. This was partially offset by favorable foreign currency translation largely due to a stronger euro. These dynamics were expected and contemplated in our first quarter guidance. Gross margin was 33% and down slightly from last year, driven primarily by unfavorable mix from lower volumes in North America. Net income was $91 million, a decrease of $8 million from the prior year period. This was driven primarily by $22 million in transaction costs associated with the pending merger with AkzoNobel. These costs were partially offset by a $17 million discrete income tax benefit and a reduction in interest expense. SG&A was down slightly as we continue to aggressively manage our cost structure. Adjusted EBITDA in the quarter was $259 million, resulting in an adjusted EBITDA margin of 20.6%. While both metrics were lower year-on-year, we did perform above expectations as reductions in operating expenses and variable costs helped to offset lower volumes in Performance Coatings. Adjusted diluted earnings per share was $0.56, exceeding our outlook by 12%, supported by lower interest expense and stronger overall earnings in the quarter. Our momentum in cash generation remains strong. Cash provided by operating activities was $68 million, a company first quarter record. This was an increase of $42 million year-over-year. Free cash flow of $21 million was another first quarter record for Axalta and improved by $35 million versus the prior year period. This was primarily driven by improved working capital and lower interest payments. Performance Coatings first quarter net sales declined 2% year-over-year to $802 million. This decrease was driven by lower volumes, primarily in North America and unfavorable price/mix. These impacts were partially mitigated by favorable foreign currency translation and contributions from our acquisitions and our Refinish business, which we continue to execute as part of our distribution strategy outside of North America. Refinish net sales declined 3% to $498 million, reflecting lower claims activity and shifting customer order patterns as anticipated. Industrial net sales declined 2% year-over-year to $304 million, with volume pressure in North America and Latin America, partially offset by price mix and foreign exchange. Notably, Europe and China delivered volume growth in the first quarter. First quarter Performance Coatings adjusted EBITDA was $180 million, down from $197 million a year ago. Adjusted EBITDA margin decreased by 170 basis points to 22.4% due to lower volumes and unfavorable price mix, which was partially offset by a reduction in operating and variable expenses. We do expect that price/mix will inflect positively beginning in the second quarter and carry on through the rest of the year. Mobility Coatings delivered record first quarter net sales coming in at $452 million, an increase of 3% from the prior year period. Light Vehicle net sales increased $9 million, driven by favorable foreign currency and organic growth in three of our four regions, including continued momentum from new business wins in Brazil. As planned, sales in China declined in line with lower auto production in the region. Commercial Vehicle net sales were also up 3% year-over-year, supported by favorable foreign currency impacts, new business wins, positive price mix and record Commercial Transportation Solutions sales, which together helped offset the effect of lower Class A truck production. Mobility Coatings adjusted EBITDA totaled $79 million in the first quarter compared to $73 million a year ago, reflecting benefits from lower variable costs, favorable foreign currency and reduced operating expenses. Adjusted EBITDA margin increased 100 basis points year-over-year to 17.5%. In the first quarter, we delivered another period of consistent cash generation, which underscores the durability of our operating model. Interest expense declined 14% year-over-year and during the quarter, we repaid $54 million of gross debt and ended with a net leverage ratio of 2.3x. For full year 2026, we expect interest expense of approximately $150 million representing an improvement of more than $25 million versus last year and nearly 27% lower than 2024. For the rest of the year, we are planning on deploying most of our free cash flow to pay down our term loan and expect that our net leverage ratio will be below 2x at year-end. As we turn to our outlook on Slide 10, I'll start with the macro assumptions underlying our 2026 guidance. External forecasts and key performance indicators remain relatively consistent with how we entered the year. That said, geopolitical developments, including the situation in Iran and broader Middle East tensions, have increased uncertainty across global markets, impacting energy prices, inflation and consumer sentiment. While the ultimate duration and economic impact of these developments is unclear, the heightened volatility has the potential to create additional pressure on both demand and cost in the back half of the year. In Refinish, we are seeing signs of a more stable market as destocking trends are abating and claims activity is sequentially expected to improve. Auto insurance premiums have moderated meaningfully. Used vehicle prices are rising and miles driven are trending favorably. At the same time, consumer sentiment and inflation concerns remain challenged. All this being said, we are planning for second half volumes to improve compared to last year. In Industrial, we were encouraged by the results we saw in the first quarter, particularly in Europe and Asia. However, we remain cautious about the pace and timing of recovery in North America this year. Overall, our business is positioned very well for an eventual market recovery in North America as we are performing at record margin levels and have significantly improved our operational efficiency. In Mobility, we are now assuming global auto production of approximately 91 million builds, down from our prior outlook of 92 million units. In Commercial Vehicle, external forecasts for North America Class 8 builds have increased and we now assume approximately 274,000 units, up 10% from previous expectations. With respect to the second quarter, we expect net sales to be roughly flat with adjusted EBITDA in the range of $280 million to $290 million and adjusted diluted earnings per share of approximately $0.65, roughly in line with a year ago. For the full year, we are maintaining our previous guidance expectations for revenue, EBITDA, earnings per share and free cash flow. At this point, we are tracking closer to the lower end of EBITDA and EPS guidance given the demand signals we are seeing at this time. We also continue to expect to deliver adjusted EBITDA margins of approximately 22%, in line with last year, as our pricing and cost actions are expected to help offset the incremental inflation we anticipate. Overall, our outlook reflects disciplined execution and continued focus on margin protection, cash generation and confidence in our ability to perform yet again in any type of environment. Turning to Slide 11, I'll provide an update on the pending merger of Axalta with AkzoNobel. The transaction continues to progress very well, and we remain firmly on track with all of our key strategic work streams. Both teams are highly aligned and are working together seamlessly as we prepare for the shareholder vote, regulatory approvals and day 1 readiness. A critical pillar of this combination is the substantial synergy opportunity we have identified. We remain confident in our ability to deliver $600 million in annual run rate synergies. Integration planning between both companies is well underway with dedicated clean teams established to identify and accelerate these synergies, designed to capture value quickly and deliver a seamless transition at close. On the regulatory front, filings are underway, including in the U.S. and the EU — we have filed a confidential Form F-4 with the SEC and are progressing as planned. In parallel, we are maintaining active and constructive engagement with shareholders and we expect the shareholder votes for both companies to take place by early July. Overall, we are excited and energized and remain confident in our ability to deliver substantial and sustainable value creation through the combination with AkzoNobel. With that, I will turn it over to Chris for closing remarks.

Chrishan Anthon Villavarayan, Chief Executive Officer

Thanks, Carl. We're executing well and delivering consistent performance while maintaining strong operational focus. At the same time, we have made significant progress towards our combination with AkzoNobel that we expect will strengthen our portfolio, enhance our financial profile and create significant long-term value for shareholders. The transformational actions we have taken across procurement, fixed operating costs and network optimization have fundamentally improved the business and protected margins to prepare for the upside. We have built a solid foundation, which has strengthened with the Akzo combination, and we will be ready when the macro rebounds. Thank you for joining us today. I will now turn the call over to the operator to open the line for Q&A.

Operator, Operator

We will now open the line for questions. We will take our first question from Ghansham Panjabi with Baird.

Ghansham Panjabi, Analyst — Baird

I guess just given the abrupt spike in raw material cost, has that dynamic changed the destocking dynamics impacting auto refinish, especially in North America? And could you just update us on your view for the timeline for volumes in that business to inflect higher? And just a broader question as it relates to whether that dynamic might start to intersect with a broader economic slowdown given the spike in inflation and the impact on the consumer, et cetera?

Chrishan Anthon Villavarayan, Chief Executive Officer

Sure, Ghansham. So I'll start, and maybe I'll turn it over to Carl. But as we see it right now, we're certainly seeing stabilization. As April closes, and as we look at Q2, I would say we're showing a bit of an increase in volumes in Q2 — 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. If you look at Carl's last slide, all the indicators are positioning the right way: miles driven up, insurance costs starting to abate, and used car pricing trending the right way. So all of these dynamics are heading the right way. For us, the incremental benefit here is also what's happening with destocking. Destocking is starting to abate and you can start seeing that in our results in Q2. In our guide for Q2, we're essentially seeing price/mix start to turn markedly positive and it's really driven by that.

Carl Anderson, Chief Financial Officer

Yes. And Ghansham, just to add, I think in addition to all that, especially as we think about the second half on price mix with some of the price actions the teams are executing, as Chris said, that will imply a positive 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.

Michael Sison, Analyst — Wells Fargo

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 of raw material costs and such. If you get to the midpoint of the guidance, you're going to need a 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 handled during that time period?

Chrishan Anthon Villavarayan, Chief Executive Officer

Sure, Mike. I think it's a very good question. If I look at Q1, you can see that we had a solid quarter. We had pockets of improvements across all three businesses. If you look at Industrial, we had strong performance in Asia. We actually saw Europe return — that was good news. Again, one quarter doesn't set the standard going forward, but we're seeing positive momentum even as we look at April in Industrial. Moving to Refinish, we're starting to see sales inflect and our performance improving as destocking comes out. In Mobility, the real story here is the return of commercial vehicle. If you look quarter-to-quarter, Q1 of this year was weak for the market, but our decline was much less, and it's really our performance in the growth on the CTS side. Projecting forward, what's driving the benefit are three or four things. First, we've already gone through pricing across all three businesses. Historically, our revenue split is usually about 48% in the front half and about 52% in the back half; right now it's closer to 45-55. The difference is really three things: first, with destocking coming out, we expect positive price mix in Refinish to inflect and continue through the back half. The next element is the commercial vehicle volumes coming back; that strengthens us in the back half and really drives good margin performance because those margins are higher and closer to our Refinish margin. The last element is a pickup in Industrial markets. So we expect Industrial to be up slightly and Refinish to continue to inflect through the back half. Those are the three things driving the positive momentum in the back half. The offset is certainly inflation, which we have already priced for.

Operator, Operator

We will move next with John Roberts with Mizuho.

Edlain Rodriguez, Analyst — Mizuho (for John Roberts)

This is Edlain Rodriguez for John. Chris, you talked about the 50% of mobility revenue that's tied to the raw materials index. Can you talk about any lag, if there is any? And also for the remaining 50%, will prices come on time to not have any negative impact in the second half of the year?

Chrishan Anthon Villavarayan, Chief Executive Officer

Yes, it's a great question, and it reflects what the team has performed. If you look at the last three years, this isn't the first time we've been here. If you look through the tariffs, through the Iran-Russia conflict, through prior periods of inflation, this team over the last three years has had to deal with this many other times. I think this is the innate muscle that we've built at Axalta, and it's really about driving that pricing discipline when we see it. In terms of mobility, on the other 50%, we have already gone out with pricing. There is a three- to six-month lag with indexes, but you also get the positive impact once this starts inflecting the right way. Overall, as you can see our margins and what we're laying out in our guide for Q2 and the rest of the year, it shows positive performance because we absolutely believe we can capture this not only through pricing but also through cost actions from productivity and purchasing initiatives that we have in place. Put all that together, the company will be running at about almost 22 points of margin, and this business will be running at 17% to 18%, probably some of the best performance we have seen in the last five to six years.

Operator, Operator

We will move next with David Begleiter with Deutsche Bank.

Emily Fusco, Analyst — Deutsche Bank (for Dave Begleiter)

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 how would you characterize your positioning today? Any more color you could give?

Chrishan Anthon Villavarayan, Chief Executive Officer

Yes. I think I'll give you three or four perspectives. First, some commentary that came out this quarter can look like a big swing from double-digit declines to double-digit improvements; that can be a bit misleading. More specifically to us, we measure net body shop wins, and in our Q1 performance, we saw that increase 10%, and that is a record quarter for Axalta. Over a three- to four-year look, you notice we went from about 85,000 body shops to north of 95,000 body shops. We continue to grow. We're growing more in the economy and mainstream space, driven by our CoverFlexx acquisition about a year ago that's enabling us to expand in that area. We used to have about 9% market share and moved north of 11%. This has been a good story for us. As I look to the rest of the year, we believe, especially with MSOs in North America where we can expand — we already have 9 out of 12 — we continue to win more body shops. As I look at the economy/mainstream, I believe this is going to be a very strong year for us.

Operator, Operator

We will take our next question from John McNulty with BMO Capital Markets.

Caleb Boehnlein, Analyst — BMO (for John McNulty)

This is Caleb on for John. Given how much chemical spot rates have moved this year, can you help us understand a little better why the inflation headwind is only mid-single digits this year and not higher? What will the raw material headwind be as you're exiting Q4?

Chrishan Anthon Villavarayan, Chief Executive Officer

Sure. I'll start, and maybe I'll hand it over to Carl. There are probably three or four reasons that differentiate us from peers. First is geographic mix. The impact has been more pronounced in Europe and Asia; China is about 10% for us and Asia just north of 15% of our business, so the geographic exposure is less for us. Second, of our COGS, about 40% to 50% are tied to oil, so we're slightly better in this case compared to some peers. Third, we've worked for the last three years on purchasing initiatives and how we execute our material buys; we used to be more heavily spot and now we have about 60% on contracts, which gives us better visibility and a natural hedge. The incremental benefit we also have is inventory levels — we're sitting on about 115 days, roughly four months, which gives us the ability to manage price timing. In terms of Q2 impact, we're seeing this as low single digits and increasing through the back half of the year. As we get into the back half, this might feel like high single digits, but we'll be out there with pricing when we see that effect come through. I'll turn it over to Carl.

Carl Anderson, Chief Financial Officer

Yes. And to add, if you look at just 2026, first quarter we performed better and saw low single-digit headwinds in raw materials. As Chris referenced, for the full year we expect raw material headwinds to be mid-single digits. It really will depend on where oil is trending longer term. We're focused on continuing to drive productivity in how we manage purchasing spend as well as other cost measures that we'll deploy.

Operator, Operator

We will move next with Matt with Bank of America.

Rock Hoffman, Analyst — Bank of America (for Matt)

I think your slides called out mid-single-digit pricing for Refinish. Is that a full-year comment or a Q2-to-Q4 comment? And how can I square that with the negative price mix you saw in Q1? Also, any updates on the IRIS mixing rollout would be helpful as well.

Chrishan Anthon Villavarayan, Chief Executive Officer

Yes. If you think of the first quarter, pure price was about low single digits, up about 2% year-over-year. Most of what you saw in the quarter related to negative impact from mix. Looking forward, the pricing actions the team is putting into place in Q2 and the second half are for the full-year impact we're targeting for Refinish. Regarding IRIS mix, we're pretty excited. The teams are executing very well. We're nearing 1,000 total installations, and that's a big focus for the Refinish team as we get that out more broadly here in North America.

Operator, Operator

We will take our next question from Mike Harrison with Seaport Research Partners.

Michael Harrison, Analyst — Seaport Research Partners

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'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?

Chrishan Anthon Villavarayan, Chief Executive Officer

Sure. As we look at commercial vehicle, it's certainly very cyclical. As volumes go down and then recover, you typically see a pick-up a few quarters later, and we can see that pick-up. Q1 was very weak across the market, but our execution meant our decline was far less pronounced. As we get into Q2, we can already see numbers pick up not only from forecasts but also from what we saw in April. One of the things we did is leverage our strong presence and leadership on the OE side of Class 8 and apply that technology and capability to CTS. CTS covers specialty, off-highway, military, RVs and other transportation segments. The overall market is about $3.5 billion and we only have about 7% market share, so we saw a great opportunity to grow. The results you're seeing in Q1 are the fruits of that work and will continue through the rest of the year. This is not just focused in North America; we are looking to expand CTS globally. Another key element was capacity: CTS volumes have been produced out of our Refinish lines and plants, so we added capacity and ensured we could handle the volumes as CV returns. Record capital investments were part of making sure we are structurally ready for this business. There's far more upside as we go forward, and I look forward to updating you as the year progresses.

Operator, Operator

We will move next with Patrick Cunningham with Citi.

Rachel Lee, Analyst — Citi (for Patrick Cunningham)

I know that you're still guiding to greater than $500 million for full-year free cash flow. 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?

Carl Anderson, Chief Financial Officer

Thanks, Rachel. In the first quarter, we were pleased with performance. Our cash conversion cycle improved by about six days year-on-year in Q1. For the rest of the year, as Chris said, we are implementing pricing and we'll get out in front of that a bit. Even with mid-single-digit inflation and inventory management, we feel very confident in our ability to deliver on free cash flow. We'll have lower interest expense this year on a year-over-year basis and we continue to look to improve overall cash conversion cycles beyond what we did in Q1. I'm hopeful we can improve that further on a year-over-year basis as we move throughout the year.

Chrishan Anthon Villavarayan, Chief Executive Officer

I just want to add a comment: the performance in Q1 was a credit to the finance team and Carl for driving strong performance, including benefits from lower interest expense, and we'll continue to capture that tailwind for the rest of the year.

Operator, Operator

We will move next with Christopher Parkinson with Wolfe Research.

Christopher Parkinson, Analyst — Wolfe Research

I realize you can't necessarily jump the gun in terms of the Axalta-AkzoNobel deal, but in terms of your own cost execution and navigating fairly difficult markets over the last few years, is there any update on the trajectory of the synergy target with the companies? Presumably you're still in contact with them. Any quick update would be helpful.

Chrishan Anthon Villavarayan, Chief Executive Officer

Good question. On both sides we're managing costs and working closely. Greg and I have been working with clean teams. We have two strong teams working on this and we brought in external support where appropriate to keep planning clean. The more time we spend, the more comfortable we are that $600 million is a floor. As we get closer to shareholder votes and subsequent close, we'll spend more time defining the work streams so we can hit the ground running. Every day we spend on this gives us more confidence that this will create enormous value. Think about the combined scale — purchasing from about $2 billion to $6.5 billion plus — there is significant opportunity from scale, supply chain synergies, consolidation of warehouses and locations (almost 400 currently between the two companies), SG&A duplications, and indirect cost buckets. There's a broad set of opportunities to work on once we're combined.

Operator, Operator

We will move next with Kevin McCarthy with Vertical Research Partners.

Matthew Hettwer, Analyst — Vertical Research (for Kevin McCarthy)

What are you seeing in the demand function for your Industrial business? It sounds like they're stronger in Asia and Europe than domestically. Could you take us through how the business is doing regionally? And 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?

Chrishan Anthon Villavarayan, Chief Executive Officer

Sure. I'll give a perspective focused on the two bright spots. Asia continues to grow — we've seen five quarters of growth, primarily in our Energy Solutions business, with demand for coatings used in motors, battery enclosures and other energy-related applications. That remains a positive tailwind. In Europe, we saw inflection last quarter, particularly in e-coat, and we're seeing positive signs in volume across powder and architectural extrusions as spring buying cycles started. North America remains weak, likely impacted by higher for longer interest rates, but we feel it will eventually inflect.

Carl Anderson, Chief Financial Officer

To add, for Industrial overall for the full year, we're seeing it fairly flattish year-over-year. We're not expecting a major improvement through the year in aggregate, and that's already reflected in our guidance numbers.

Operator, Operator

Our next question comes from Josh Spector with UBS.

Lucas Beaumont, Analyst — UBS (for Josh Spector)

It seems like there's been a shift among coatings peers toward greater index linking of pricing to raw material shifts. That may reduce short-term earnings volatility, but it seems like it could give the pricing back on the back end and reduce net price-cost benefit over the full cycle. Do you think this shift is occurring broadly? How do you see it affecting medium-term earnings growth?

Chrishan Anthon Villavarayan, Chief Executive Officer

I would disagree with the idea that indexing is a net negative for medium-term earnings. Indexing provides visibility and control so you can price appropriately. In two of our three businesses, indexing isn't the primary mechanism; in Refinish and Industrial, we have pricing flexibility and visibility from purchasing, and we have already implemented pricing in those businesses with results visible in Q1. In Mobility, about 50% of the business is indexed to raw material indices, and there is a lag, but indexing gives you the ability to capture price moves as they occur. Over the last three years, we've built our capabilities and set a target that is 300 to 400 basis points higher than three years ago. We set a plan to reach about 21% margin, and we've been performing at 21% to 22% through multiple crises. So we believe indexing combined with pricing discipline and productivity drives durable margins.

Carl Anderson, Chief Financial Officer

To add, since we increased RMIs in our mobility business, we've more than doubled the margin in that business over the period. Over the last four to five years, Axalta's overall margin profile has expanded about 600 basis points. We feel very good about the strategy and execution.

Operator, Operator

Thank you. 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.

Chrishan Anthon Villavarayan, Chief Executive Officer

Well, to everyone, thank you for calling in and 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 AkzoNobel team towards our merger. With that, thank you.

Operator, Operator

This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.