Akzo Nobel Quarterly Profit Surges on Cost Cuts, Currencies

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Akzo Nobel NV Paint
Akzo Nobel NV manufactured tins of Dulux and Levis paint. Photograher: Jasper Juinen/Bloomberg

Akzo Nobel NV, Europe’s largest paintmaker, reported a 28 percent increase in second-quarter profit helped by cost cuts and favorable currency swings.

Operating profit excluding some items rose to 452 million euros ($489 million) in the second quarter of the year, compared with 353 million euros a year earlier, the Amsterdam-based maker of Dulux paint said in a statement Tuesday. The stock gained as much as 2.6 percent.

The results are a boost for Chief Executive Officer Ton Buechner who has merged plants, sold less-profitable businesses and removed management layers in recent years to raise profit to the levels of competitors such as PPG Industries Inc. Still, the company continues to face difficult conditions in several key markets, he said.

“Russia and Brazil are in clear recession, whereas the market dynamics in China have changed with growth significantly reducing,” Buechner said during a call with journalists. “Going forward, we don’t see that situation significantly changing either.”

Paints markets in Indonesia and Vietnam are strengthening, though not sufficiently enough to offset the China drop, the CEO added. North America is one of the few regions where Akzo Nobel is seeing growth, he said.

European Uptick

“We do see that Europe has the potential to start moderately growing,” Buechner said with regards to 2016. “And moderate growth already has a nice impact on businesses like paints and coatings.” Growth in Europe isn’t expected to outpace gross domestic product, indicating growth of about 1 to 2 percent, he added.

Shares of the paints and chemicals maker rose as much as 1.81 euros to 71.23 euros and were up 1.1 percent as of 12:26 p.m. Before today, the stock had gained 21 percent since the start of the year, valuing the company at 17 billion euros and beating the 19 percent gain of Amsterdam’s AEX-index.

The company said it remains on track to deliver its full-year targets while “the global economy remains challenging and shows a very mixed picture with different dynamics per region and customer segments.” Revenue rose 6 percent to 3.95 billion euros in the second quarter.

While the stronger dollar and other currency swings boosted Akzo Nobel’s sales in its decorative paints and specialty chemicals units in the second quarter, it hurt earnings of U.S.- based rivals Sherwin-Williams Co. and PPG Industries Inc.

Shares of Sherwin-Williams dropped the most in two years on July 16 after the U.S. paint maker cut its full-year earnings forecast citing the effects of a stronger dollar and weaker demand in Latin America. Rival PPG Industries Inc. said the same week that unfavorable foreign-exchange reduced sales in the second quarter by more than 7 percent.

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