PREVIEW-AkzoNobel Q2 to benefit from cost cuts, demand uptick

* AkzoNobel Q2 results

* Friday, July 23, 0500 GMT

* Profit growth driven by cost-cutting, recovery

By Aaron Gray-Block

AMSTERDAM, July 22 (BestGrowthStock) – Margins at Dutch chemicals
company AkzoNobel (AKZO.AS: ) will again be in focus on Friday
when the firm is seen reporting an 11 percent rise in second
quarter core profit on cost cuts and improving paints demand.

The world’s largest paints maker is seen reporting earnings
before interest, taxes, depreciation and amortisation (EBITDA)
excluding incidentals of 563 million euros according to the
average forecast from a Reuters poll. [ID:nLDE66J1EW]

The company has slashed costs to boost margins after its 8
billion pound acquisition of British paints firm ICI and to
battle the recession, while improving volumes and exposure to
higher growth emerging markets in Asia and Latin America should
help strengthen its earnings.

“Although it is clear expectations for the second quarter
are high, we believe there is still room for AkzoNobel to
outperform these expectations,” Rabo Securities analyst Fabian
Smeets said.

But in a research note titled “Heads or Tails”, ING analyst
Jan Hein de Vroe warned AkzoNobel shares have moved up or down
considerably more than the market after the past six quarterly
results, suggesting consensus estimates are a difficult gauge.

He stressed further, however, that the company gets little
credit for its ability to pass on increases in raw materials
costs and contain margins.

And confidence in AkzoNobel’s prospects is growing, with UBS
analysts upgrading the company to “buy” from “neutral” on July
1, stressing the decorative paints maker will likely benefit
from structural growth in emerging markets.

“The recovery in mature markets will likely be bumpy, but
volumes are about 20 percent below pre-crisis levels and we
believe a significantly improved cost base should underpin
leverage to any recovery,” UBS analysts said.

United States-based rival PPG (PPG.N: ) beat estimates with
its second quarter earnings, boosted by economic growth in Asia
and Latin America and the company said it expected a continued,
gradual, global economic recovery. [ID:nN14154610]

In the traditionally seasonally strong second quarter,
another U.S. peer, Sherwin-Williams (SHW.N: ), will report its
results later on Thursday.

AkzoNobel’s acquisition of ICI gave it greater exposure to
emerging Asian markets and the company said last month it aimed
to double its sales in China to $3 billion by 2015, the first
time it gave a quantitative guidance for that country.

Having underperformed the European Stoxx chemical index
(.SX4P: ) this year, shares in AkzoNobel have fallen 5.4 percent
since its first-quarter results on April 23, in line with a 5
percent fall in the European index over the same period, while
PPG and Sherwin-Williams shares have fallen more than 9 percent
and 12 percent respectively.

Taking into account the potential weakening of the economy
over the next year, the Rabo analyst said the potential for more
cost savings will support margins in a low growth environment.

“Additionally, we believe AkzoNobel’s large exposure to
emerging markets will result in above average growth for the
foreseeable future,” he said.

Stock Investing

(Editing by Samia Nakhoul)

PREVIEW-AkzoNobel Q2 to benefit from cost cuts, demand uptick