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Paintmaker Akzo Nobel warns of weak 2Q earnings

Paintmaker Akzo Nobel warns of weak 2Q earnings

June 27th, 2011 in News

AMSTERDAM (AP) - Akzo Nobel NV, the world's largest maker of paint, warned Monday that second-quarter earnings will be hurt by commodity price rises, weak business in some regions and maintenance delays at some plants.

The company forecast second quarter operating earnings before depreciation and amortization of goodwill, or EBITDA, of (euro) 550 million ($777 million) in the second quarter, down from (euro) 614 million in the same period a year earlier.

In addition, the company said it expected the same measure to be flat for the year as a whole "assuming no further deterioration," That's down on its prediction made in April, when it forecast a 5 percent increase.

Akzo's shares dropped 7 percent to (euro) 42.515 in early trading in Amsterdam.

Akzo Nobel is due to report second quarter earnings July 21.

A key reason behind the warning was a 20 percent increase in raw material prices.

Outgoing chief executive Hans Wijers said the company is taking "actions to mitigate raw material price inflation (including) companywide cost containment actions."

Earlier this year it said it planned to fully pass commodity cost rises on to customers but that appears no longer to be the case.

Wijers said the company's improving performance in the United States, and continued growth in emerging markets will "help mitigate the weaker-than-expected market conditions."

Earlier this month Akzo Nobel named 45-year-old Ton Buchner, previously CEO of Swiss industrial conglomerate Sulzer AG, to replace Wijers in 2012.

About a third of Akzo's sales are decorative house paints, including names such as Dulux and Flexa. It has recently become Wal-Mart's paint supplier, leading to a 31 percent increase in sales volumes in the U.S., as it began selling there under the Better Homes & Gardens and Glidden brands.

The company is the second Dutch blue chip to hit markets with a profit warning in the past week, after Philips Electronics said margins in its lighting business were eroding and it would miss targets.