Car-Market Slowdown Hits Paintmaker Akzo Nobel

(Bloomberg) -- Akzo Nobel NV Chief Executive Officer Thierry Vanlancker came under renewed pressure to raise profit margins to match rivals like PPG Industries Inc. after the Dutch paintmaker’s first-quarter earnings missed estimates on higher costs.

The manufacturer of Dulux household paint incurred an extra 77 million euros ($86 million) in input charges in the three-month period that weighed on earnings, and warned inflation will continue to be a burden through June. The shares fell as much as 3.2 percent.

After selling a chemical division for $12.5 billion last year to focus on coatings, Vanlancker now needs to deliver on a savings program to meet his return-on-sales target of 15 percent by 2020. It’s looking like a late dash to meet that goal as the measure was little changed at 9.1 percent in the first quarter from the prior period. The CEO said savings, higher prices and improving operations will get the company over the line by the end of next year.

“This is a bicycle race with multiple stages, where the flowers are only given at the end,” Vanlancker said in an interview. The company is “fully on track” to meet the 2020 goal, he said.

Akzo Nobel shares traded 3 percent lower at 77.52 euros as of 9:21 a.m. in Amsterdam, paring gains for the year so far to 16 percent.

Chemicals Costs

Earnings before interest and taxes were 163 million euros, versus an analyst prediction of 181.9 million euros. Investors underestimated the impact of the cost of chemicals such as white pigment titanium dioxide, according to the CEO. A slowdown in China and the automotive market also had an impact.

Like European consumer-goods makers, Akzo Nobel has had to push through price increases while battling against a dip in customer confidence and lower spending on home renovations and paint. While Nestle SA and Unilever managed to improve both pricing and volumes, Akzo Nobel walked away from some low-margin customers and exited operations in smaller cities in China. Its revenue was flat at 2.19 billion euros in the three months through March.

Vanlancker, who is cutting an additional 200 million euros in costs, said the outlook for raw-material prices could improve slightly in the second half of the year.

©2019 Bloomberg L.P.