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Paint, Currency Scuff Akzo’s Q3 Gloss

Tuesday, October 22, 2013

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Tanking currency rates knocked the wind out of AkzoNobel's third quarter, flattening architectural revenues and driving down revenues companywide by 5 percent.

In its Report for the third quarter, released Monday (Oct. 21), the Netherlands-based paint, coatings and specialty chemical giant also noted continuing weak demand in Europe and a revenue hit from divestment of its Chemicals Pakistan business.

The third-quarter report also tempered expectations for the fourth quarter, predicting higher restructing charges, "continued weak markets," and impact from AkzoNobel's newly completed Business Adhesives divestment.

Images: AkzoNobel

Revenues were flat in Decorative Paints as a whole and dipped 3 percent in Latin America (pictured).

The good news: Operating income was "significantly higher" than the prior-year period, due mainly to lower restructuring charges and higher volumes in most markets, the company said.

Adjusted earnings per share (EPS) remained stable at €0.74 ($1.01 USD), and the company's two-year-old performance improvement program remains "on track," AkzoNobel said.

Financial Highlights

Third-quarter revenues were flat in Decorative Paints (architectural coatings) and declined in both Performance Coatings and Specialty Chemicals. Volumes increased slightly in Performance Coatings, but gains were offset by weak demand in Europe and adverse currency effects in many regions. Construction segment sales in Specialty Chemicals declined.

The company noted that it was investing more than €50 million ($68.3 million USD) in China to build two new Powder Coatings and Decorative Paints facilities "to meet growing demand."

Lower restructuring costs helped boost operating income in all three main business divisions, and the company said average raw material costs should be stable for the rest of the year.

AkzoNobel spent €75 million ($102.5 million USD) in restructuring costs in the third quarter, and €144 million in the first nine months of the year. The company expects to spend an additional €160 million ($218.8 million USD) on restructuring in the fourth quarter.

AkzoNobel Q3

Overall third-quarter revenues declined by 5 percent companywide.

Segment results were reported as follows.

Decorative Paints

The architectural coatings business includes paints, lacquers, varnishes, adhesives and floor leveling compounds, as well as specialty coatings for metal, concrete and other building materials.

The business reported flat revenues, with overall sales volume improvement offset by adverse exchange rates that took a 7 percent bite compared to the third quarter of 2012.

Revenue in Europe was up 1 percent, with stronger sales in Greece, Spain and Italy helping to offset weakening demand elsewhere in the region. Revenue declined 3 percent in Latin America and increased 2 percent in Asia, as "China saw healthy growth in all segments" and belt-tightening increased profits.

Performance Coatings

The segment consists of marine, protective, automotive, aerospace, powder and industrial coatings.

Marine coatings continued to take a hit from the declining newbuild market, but protective coatings gained, especially in the oil and gas sector. Exchange rates dinged growth in the automotive and aerospace coatings business.

Regionally, volumes grew in the U.S., Latin America and Eastern Europe, while Northern and Southern Europe struggled and Asia was mixed.

AkzoNobel aerospace coatings

Exchange rates offset improving sales in aerospace, powder and protective coatings.

Powder coatings sales volumes improved. Industrial coatings grew in Asia Pacific but struggled in Europe. By sector, packaging coatings "remained challenging," coil coatings improved, and wood finishes were flat.

Specialty Chemicals

Revenues were down in functional chemicals, surface chemistry, and pulp and performance chemicals; industrial chemicals increased slightly.

Overall, revenue in the Specialty Chemicals group dropped by 10 percent, due to the divestment of Chemicals Pakistan (6 percent) and adverse exchange rates (4 percent). Total third-quarter volumes were flat compared with the prior-year period.

Ranks Down, Outlook 'Challenging'

AkzoNobel's global workforce declined slightly in the first nine months of the year, with 1,050 employees laid off in restructuring actions and 860 employees added as new hires or because of seasonal activity.

The company's outlook was sober.

"The economic environment remains challenging, and we do not expect an early improvement in the trends faced in our end-user market segments," the report said.

With the restructuring charges anticipated in the fourth quarter, "full-year operating income before incidental items is unlikely to exceed €908 million" ($1.2 billion USD).

   

Tagged categories: Acquisitions; AkzoNobel; Architectural coatings; Earnings reports; Marine Coatings; Market share; Paint and Coating Sales

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