UPDATE 5-AkzoNobel price hikes lift profit, promises more

Thu Apr 21, 2011 10:33am EDT

* EBITDA 437 mln euros vs forecast 416 mln

* Sales up 16 pct to 3.76 bln euros vs forecast 3.56 bln

* Says confident can pass on higher raw materials costs

* Shares up 4.5 pct, hit near 3-yr high

(Adds results of PPG, Sherwin-Williams, updates shares)

By Aaron Gray-Block

AMSTERDAM, April 21 (Reuters) - Paints and chemicals group AkzoNobel NV's (AKZO.AS) first-quarter core profit rose 10 percent and it pledged more price rises to offset higher costs, boosting its shares to their highest in nearly three years.

"We do have pricing power and are able to use our brands and market positions to do this," Keith Nichols, chief financial officer of the Dutch company, whose brands include DuLux, Sikkens, Glidden and Flexa, told reporters.

Global paints companies have battled rising costs for input materials such as titanium dioxide, used as a paint pigment, and have looked to raise prices to sustain margins.

Nichols said raw materials prices were up a more than expected 15 percent year-on-year and he did not see costs easing in the near term, adding the company would continue to cut costs.

AkzoNobel, the world's largest paint company, had said in February it expected at least a mid-single digit rise in raw materials prices in 2011, and Nichols told analysts this was still on the cards. However, he said restructuring efforts in mature markets could achieve between 50 million euros and 150 million of savings in any year.

Measures this year include capacity expansion to boost efficiency and synergies from the firm's November 2009 acquisition of Dow Chemical's (DOW.N) powder coatings business.

ABN AMRO analyst Mark van der Geest said AkzoNobel's results were "very strong", backed by volume growth in decorative paints in Europe and the company's new contract to supply U.S. retail group Wal-Mart Stores Inc (WMT.N).

"Fasten your seatbelts, AkzoNobel has lift off," Van der Geest said, pointing also to higher-than-expected volumes at AkzoNobel's specialty chemicals unit.

STRONG QUARTER

Shares in AkzoNobel were up 4.5 percent to 52.70 euros by 1343 GMT, having risen as high as 52.98 euros, their highest since early June 2008, outperforming a 1.4 percent rise in the STOXX Europe 600 chemicals index .SX4P.

U.S. rivals PPG (PPG.N) and Sherwin-Williams (SHW.N) also reported strong quarterly results on improved demand and price hikes, but Sherwin-Williams, the No. 1 U.S. paints maker, forecast a weak second quarter. [ID:nN20161125] [ID:nL3E7FL2QP]

Dutch peer DSM (DSMN.AS), which supplies resins to AkzoNobel, is also looking to raise prices due to higher energy costs and will report its results next week. [ID:nLDE71M050]

AkzoNobel had 2.2 billion euros in cash on March 31, down from 2.85 billion at year-end due to payments made to cut its pension deficit, and has the firepower to make acquisitions.

Asked whether AkzoNobel would beef up its specialty chemicals unit after Belgian rival Solvay (SOLB.BR) agreed to buy French firm Rhodia RHA.PA this month, Nichols said bolt-on or growth-type deals were possible in all three business units.

AkzoNobel had earnings before interest, tax, depreciation and amortisation (EBITDA) excluding one-offs of 437 million euros, up 10 percent, on sales up 16 percent at 3.76 billion euros. Volumes grew 7 percent, while prices rose 4 percent.

Both EBITDA and revenue growth beat analysts' estimates and the firm's full-year target of 5 percent. Margins were down year on year but up quarter on quarter.

Nichols said the decorative paints business in the Americas was on track to become EBITDA positive this year as efforts to rebrand the Glidden brand pay off and the Wal-Mart contract boosted revenue by more than 50 million euros.

"Wal-Mart will underpin profitability. We've got some good news in the U.S.," he said. (Editing by Sara Webb and Will Waterman)