AKZONOBEL, the world’s largest paint company, warned yesterday that core second-quarter profit will fall due to a sharp rise in raw material prices and weak demand in key European and US construction markets.
The profit warning sent AkzoNobel shares tumbling to their lowest level since December and weighed on other chemical producers such as Clariant, Kemira and BASF.
Global chemicals groups have looked to raise prices to customers to offset rising costs for input materials such as titanium dioxide, used as a paint pigment, and oil-related products such as resins and solvents.
In April, AkzoNobel said it expected to be able to pass on higher costs this year, after it reported strong first-quarter results.
But yesterday the Dutch company said it had been hit by more rises in materials costs, which its estimates to be around 20 per cent higher than a year ago, and second-quarter margins were expected to be unchanged from the previous quarter as a result.
Investors have questioned AkzoNobel’s ability to pass on higher costs to consumers. Finance chief Keith Nichols said it was a “tough” environment to raise prices, but the company still had price hikes in the pipeline.
Nichols said he expected the increase in raw materials prices to ease off near the end of the third quarter.
The company said weak demand in mature markets such as Europe and the US would also hurt results in the second quarter, compounded by prolonged maintenance stops within its specialty chemicals unit.
It now expects group second-quarter earning before tax of around €550m (£491m), down from the €614m reported in the same period last year.
City A.M. Reporter