UPDATE 2-AkzoNobel paints gloomy outlook after Q1 beats forecasts

Thu Apr 19, 2012 7:44am EDT

* Q1 sales volumes fall, results beat analysts' forecasts

* CFO warns of economic uncertainty, raw material costs

* Shares up 0.6 pct after initial gain of more than 3 pct

By Sara Webb

AMSTERDAM, April 19 (Reuters) - AkzoNobel NV, the world's largest paints maker and owner of the Dulux brand, warned that economic uncertainty - even in some emerging markets - as well as high raw materials prices posed challenges this year.

The Dutch firm reported better-than-expected first-quarter results on Thursday but painted a cautious picture for the rest of 2012, citing the weak state of the mature U.S. and European economies, as well as slower growth in China and Southeast Asia. The company didn't give a full-year profit forecast as a result.

"The macroeconomy is the biggest headwind," said Keith Nichols, chief financial officer, noting that growth in emerging markets, while still relatively strong, had "cooled somewhat."

AkzoNobel said demand has slowed in China, where the government is taking steps to curb an overheated property market, and in Southeast Asia as a result of economic uncertainty.

The firm, which also makes performance coatings for cars, aircraft and ships, as well as specialty chemicals such as those used in the pulp and paper industry, said sales volumes at all three divisions fell in the first quarter, reflecting economic uncertainty and the effect of higher prices.

AkzoNobel was able to pass on the rise in prices for raw materials to its customers last year, and said it expects higher prices for oil and titanium dioxide, a paint pigment, this year.

"The oil price has gone up, titanium dioxide is still going up and expected to go up further," Nichols said.

The escalating cost of materials such as titanium dioxide and oil-related resins and solvents was particularly painful last year for paintmakers.

AkzoNobel said the cost of titanium dioxide, an essential ingredient in some of its paints, doubled last year. It declined to give a forecast for the cost increase this year, but ING analyst Fabian Smeets said he expects the price to rise another 30 percent.

SHARES OUTPERFORM

AkzoNobel shares were up 0.6 percent at 1050 GMT, after rising more than 3 percent to an intraday high of 44.9 euros. The stock has risen 15.5 percent over the year-to-date, outperforming the underlying AEX index. Smeets has a "buy" rating on the stock and a 48 euro price target.

First-quarter earnings before interest, tax and depreciation (EBITDA) were 423 million euros, down 3 percent from a year ago. Analysts polled by Reuters had forecast EBITDA of 385 million euros, and have a full-year forecast of 1.894 billion euros.

The company reiterated its medium-term target for annual revenue of 20 billion euros, as well as its ambition to increase EBITDA each year while maintaining a 13 to 15 percent margin.

It reported a first-quarter net profit of 70 million euros from continuing operations, and revenue of 3.97 billion euros compared to forecasts from a poll commissioned by Reuters of 67.3 million euros net profit on revenue of 3.88 billion euros.

AkzoNobel's cautious note contrasts with the bullish outlooks issued recently by its U.S. peers - chemical-maker PPG Industries Inc and top U.S. paints maker Sherwin-Williams Co.

"AkzoNobel has a very weak position (in the U.S.) and it is not so easy for it to increase prices there" because of its contract to sell its products at Wal-Mart Stores, ING's Smeets said.

PPG Industries forecast first-quarter profit above Wall Street expectations on April 5, although it said it would lay off 2,000 workers, mostly in Europe, due to weak demand.

Sherwin-Williams on April 9 raised its earnings outlook for the first quarter, helped mainly by strong sales at its retail business segment.

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