Akzo Nobel Profit Better-Than-Estimated as Savings Kick In

Akzo Nobel NV, Europe’s largest paintmaker, reported better-than-estimated profit in the second quarter, as demand in Asia and parts of Europe offset tough economies in countries such as France and Brazil.

Operating profit rose 10 percent to 353 million euros ($475 million), the Amsterdam-based company said today in a statement. Analysts had estimated 340 million euros. Shares of the coatings maker climbed as much as 5.4 percent, the biggest jump since February.

Akzo Nobel’s return on sales improved for a fourth straight quarter, a sign that Chief Executive Officer Ton Buechner’s efficiency drive is gaining ground at a time when demand is improving in some markets. The company reiterated it’s on course to reach 2015 targets, amid a “continued fragile economic environment” and a strong euro.

“On the whole, you see that due to the costs savings in the past years it’s improving slightly,” Tom Muller, an analyst at Theodoor Gilissen Securities, said by phone. “It’s going into the right direction.”

Akzo Nobel stock gained 3.5 percent to 54.01 euros at 4:13 p.m. in Amsterdam, valuing the company at about 13.1 billion euros.

The return on sales rose to 9.5 percent in the second quarter from 8.3 percent a year earlier, while profitability measured by return on investment improved in the first half to 10.1 percent from 7.7 percent. Akzo Nobel reiterated that costs related to restructuring will total at least 250 million euros, after 89 million euros in the first half.

Divesting Units

The maker of Dulux paint is selling less profitable divisions to bring profitability in line with peers including PPG Industries Inc. It divested a paper-chemicals division to Kemira Oyj for 153 million euros.

“We are operating in a volatile market, but we managed to increase volumes in all three business areas,” Buechner said. Akzo has three broad categories: decorative paints, performance coatings and specialty chemicals.

“France, Brazil, Turkey, South Korea and Russia are contracting today in their industrial environment,” Buechner said during a press conference.

Akzo Nobel mostly experiences economic weakness in France in the trade segment of the decorative paints business, the CEO said, adding that its competitors aren’t doing any better. “France seems a bit later in the crisis situation than many other countries.”

French Stores

Akzo is making changes to stores in France, including in sales techniques and employee training, and is already seeing growth return to those outlets, he said.

Total sales dropped 4 percent in the quarter to 3.71 billion euros, weighed down by currency effects.

Functional chemicals, which includes additives for detergents, cosmetics and food, showed “strong growth” in the quarter, with higher demand in Europe.

“Many of the emerging markets and growth markets have seen significant reductions of their currencies,” Buechner said on a call with journalists. “So in the end it’s really the strength of the euro that is a factor.”

Akzo Nobel has too much exposure to Europe and would benefit from an increase in its global spread, Theodoor Gilissen’s Muller said.

Buechner has challenged the company to achieve 9 percent return on sales, 14 percent return on invested capital and a net debt to Ebitda ratio lower than 2.0 in 2015.

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