AkzoNobel Q1 profit rises despite lower volumes, raw materials headwinds

LONDON (ICIS)–AkzoNobel’s first-quarter net income rose 5% year on year to €253m as higher selling prices helped to offset lower sales and higher currency and raw materials costs, the Netherlands-headquartered paints and coatings specialist said on Tuesday.

The company’s share price slumped more than 4% as of 9:16 BST as the company forecast that foreign exchange and raw materials headwinds would continue through 2018, and earnings significantly undershot analyst expectations.

First-quarter earnings before interest and taxes (EBIT) pre-incidentals came in at €149m, down 28% year on year and 20% below consensus analyst forecasts of €186m.

Sales for the three months ending March 2018 declined 8% year on year to €2.18bn, the company said in a statement.

Sales volumes fell 3% year on year during the quarter on the back of continued weak demand for marine and oil and gas sector coatings, and revenues fell 8% as a result of currency impacts.

Despite cost base issues for the paints and coatings sectors, AkzoNobel has been successful so far in passing on the higher expenses, with selling prices up 3% year on year during the quarter, and a second wave of price increases planned for the second quarter.

“Headwinds continue for Marine and Protective Coatings, as well as currencies and higher raw material costs. Results were lower compared to an exceptionally strong quarter last year,” company CEO Thierry Vanlancker said.

“We are ramping up our pricing initiatives and have implemented various cost discipline measures to deal with higher raw material prices. Initial savings from creating a fit-for-purpose organisation are also being realised,” he added.

Earlier this year, Vanlancker had been careful to mitigate growth expectations for the first three months of the year compared to early 2017, which he has referred to as a “nirvana quarter”.

Raw materials costs have dogged the company over the last year, with an estimated €300m increase in expenses in 2017.

Adjusted EBIT for specialty chemicals, the division the company is selling to private equity firm Carlyle and sovereign wealth fund GIC for €10.1bn, fell 10% year on year during the quarter to €150m, as positive pricing was offset by currency impacts and lower volumes.

“The transformation is gaining momentum and we are on track for delivering 15% return on sales by 2020,” Vanlancker said.

The company projected a strong market for decorative paints, particularly in Asia, while conditions are forecast to remain challenging for marine and protective coatings, but no new financial guidance was disclosed.

Pictured: AkzoNobel Center in Amsterdam
Source: AkzoNobel

Additional reporting by Pearl Bantillo

(Update adds commentary, detail throughout)