Akzo Profit Beats Estimates as Efficiency Drive Gains Traction

Akzo Nobel NV (AKZA), the Dutch maker of chemicals and Dulux paint, reported third-quarter profit that beat analysts’ estimates as costs to improve its household paint business eased and planned savings began to trickle in.

Earnings before interest, taxes, depreciation and amortization gained 7 percent to 456 million euros ($623 million), the Amsterdam-based company said today in a statement. Analysts in a Bloomberg survey estimated 444 million euros, on average.

Six years after the $17 billion purchase of Imperial Chemical Industries, Akzo is tackling the resulting overlaps and inefficiencies that have led cash generation to lag behind peers such as PPG Industries Inc. (PPG) While Chief Executive Officer Ton Buechner is marking his second year with programs to boost savings and streamline operations, Akzo is having to shoulder extra costs as construction markets are still struggling.

’’The trading environment behind these results has not changed in that demand remains soft,’’ Chief Financial Officer Keith Nichols said in the statement. “Nevertheless, the actions we have taken to address the challenges our businesses are facing are starting to have a positive effect.”

Shares of the maker of chlorine, cosmetics and coatings for Airbus A380 planes, has declined almost 3 percent this year, giving it a market value of 11.7 billion euros. By contrast, Pittsburgh-based PPG has added 30 percent, buoyed by recovering construction markets in the U.S. and the integration of Akzo’s U.S. decorative paint operation, bought for $1.05 billion in December 2012.

Efficiency Drive

The so-called profit improvement program is expected to yield an Ebitda boost of 500 million euros by the end of this year. Buechner has replaced senior managers to help accelerate a companywide efficiency program, expected to cost 300 million euros this year. Akzo said it’s budgeting for 160 million euros in expenses in the fourth quarter, reiterating that annual operating profit is unlikely to exceed 908 million euros.

Pockets of growth, such as airplane coatings, haven’t been sufficient to counter weakened construction, automotive and marine markets. Akzo has also suffered from inflated raw-material prices as well as currency costs in markets including Latin America and India.

To contact the reporter on this story: Andrew Noel in London at anoel@bloomberg.net

To contact the editor responsible for this story: Simon Thiel at sthiel1@bloomberg.net

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