(Updates with dividend in fifth paragraph, cost savings in 10th.)
Oct. 20 (Bloomberg) -- Akzo Nobel NV, the world’s largest paintmaker, plans an overhaul of household coatings businesses in the U.S. and Europe and other units to help cut costs and boost earnings by 500 million euros ($684 million) by 2014.
The maker of Dulux and Glidden paints will also reorganize wood finishes and adhesive operations to strengthen its competitiveness, it said in a statement today. Third-quarter earnings before interest, taxes, depreciation and amortization fell 12 percent to 507 million euros. Analysts predicted 514 million euros. Sales increased 5 percent to 4.05 billion euros.
“The restructuring program is very ambitious and more extensive than I expected,” Mark van der Geest, an analyst at ABN Amro, said by phone. He had estimated the company would seek to boost Ebitda by 300 million to 400 million euros in its latest phase of restructuring.
Akzo abandoned a goal to hold earnings steady this year that was pinned on markets holding up. The probability of meeting that goal is now “extremely low,” Chief Financial Officer Keith Nichols said on a call. The company is battling a slowdown in construction markets in Europe and the U.S. as well as Asia, at a time when the cost of titanium dioxide and other raw materials has soared.
Shares of Akzo, which also makes ingredients for cosmetics as well as amine derivatives, rose as much as 3.7 percent in Amsterdam, where the company is based. The shares were up 3 percent at 35.92 euros as of 1:14 p.m. Akzo pledged to raise the total dividend by about 5 cents per share to 1.45 euros this year.
Prior to today, shares had declined 25 percent this year, valuing the business at 8.16 billion euros. Analysts at Royal Bank of Scotland Plc and Commerzbank AG are among those which have downgraded the stock or lowered estimates this month.
“Akzo in the end is a healthy company and they are taking decisive actions to deal with the current headwinds,” said Tom Muller, an analyst at Theodoor Gilissen. “The fact they increase the dividend shows they’ve got confidence.”
Chief Executive Officer Hans Wijers, who is scheduled to retire in April, said he doesn’t see any quick recovery in the economic situation. That’s leaving the 60-year-old spending his final months at the helm pushing through the efficiency drive, armed with the advice of former employer Boston Consulting Group.
“We are in a perfect storm, with unprecedented raw- material price increases and sluggish demand,” Wijers said at a press conference. Total cost savings should amount to 450 million euros, as the company reduces the number of IT-systems, cuts the number of raw materials used in its products and tries to improve manufacturing technologies. Performance, particularly at Decorative Paints, needs to improve further, Wijers said.
The 500 million-euro profit boost should mean Akzo widens margins to the top end of its 13 percent to 15 percent range.
The cost-cutting will result in an as yet unspecified number of job losses, Wijers said, adding that it’s too early to say what the exact impact will be on the workforce. The CEO said factory closures may follow. From the total savings, about 40 percent will come from supply and sourcing programs, and half of the savings should come from margin management and business restructuring, the company said.
The Dutch company eliminated about 3,500 positions, saving 642 million euros, in the wake of its $16.5 billion acquisition of Imperial Chemical Industries in 2008.
Wijers, who will hand the baton to the former CEO of Swiss pumpmaker Sulzer AG Ton Buechner, is battling swollen raw- material costs, with little relief in sight.
Prices for titanium dioxide, used as a whitener in paint, are poised to climb 15 percent to 20 percent further this year, Deutsche Bank AG analyst David Begleiter wrote in a note. Western makers of TiO2 include DuPont Co., Tronox Inc. and a joint venture between Rockwood Holdings Inc. and Kemira Oyj.
--Editors: Andrew Noel, Robert Valpuesta
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