Demand for Akzo Nobel products outpaces supply despite price hike

(Reuters) -Dulux paint maker Akzo Nobel offset first-quarter supply chain issues with a “vigorous” 17% price hike yet demand for its products still outpaced supply, it said on Thursday.

FILE PHOTO: Cans of Dulux paint, an Akzo Nobel brand, are seen on the shelves of a hardware store near Manchester, Britain, April 24, 2017. REUTERS/Phil Noble

“Customers have accepted (the increases),” CEO Thierry Vanlancker told Reuters.

“For the bigger industrial customers, they understood exactly what was happening. They weren’t happy about it, but they understood it,” he said.

The Dutch company beat expectations with an adjusted operating income of 230 million euros ($249 million) versus an analysts’ forecast of 216 million.

That was down from 307 million euros a year earlier but came as the company grappled with a 334 million euro rise in raw material and other variable costs. It did not provide a baseline figure.

Its revenue increased 12% to 2.52 billion euros.

Chemical groups such as Akzo Nobel and PPG Industries have seen costs boosted by supply chain disruptions caused by the pandemic and further exacerbated currently by war in Ukraine and a resurgence of the coronavirus in China.

Vanlancker said demand was still “pretty strong” across all segments, with Akzo Nobel’s order backlog amounting to around 120 million euros.

That includes orders which the paints and coatings maker cannot fulfil due to a raw materials shortage.

“We have orders of customers in hand, and we can simply not supply it because we do not have the raw materials,” Vanlancker said.

The group continues to expect cost inflation to ease in the second half of this year.

Akzo shares were up 6.9% at 1133 GMT as analysts applauded the results beat and pointed to the “heavily corrected” share price, which, despite Thursday’s jump, has still lost around 13% this year.

The negative impact of the war in Ukraine on Akzo Nobel’s first-quarter operating income was around 5 million euros ($5.4 million), it said.

The Amsterdam-based firm said last week its business in Russia represented about 2% of revenue before the war. It added that its aerospace coatings activities, new investments and marketing activities in Russia were suspended.

($1=0.9230 euros)

Reporting by Valentine Baldassari; editing by Jan Harvey and Jason Neely