- Dutch paint giant blames destocking in Europe
- Companies raising prices at the expense of volumes
- Travis Perkins reports signs of slowdown
In its third-quarter trading update, Dutch coatings and paint maker Akzo Nobel (AKZA:AMS), which owns well-known brands such as Dulux, Hammerite and Cuprinol, withdrew its profit guidance for the year due to the ‘ongoing deterioration in the macro-economic environment’.
The firm singled out weaker sales of decorative paints in Europe, which have seen volumes fall sharply due to de-stocking by distributors as the DIY market normalises after the pandemic-driven surge in activity.
WHY IS AKZO IMPORTANT?
The Amsterdam-based company is the world leader in coatings and decorative paints, supplying all manner of industries in over 150 countries across the world, so it has an unparalleled view of what’s going on.
In the three months to September, the firm recorded a 19% increase in sales to €2.86 billion driven by a 15% increase in average prices across coatings and paints.
In paints specifically, growth was 15% led by price increases of 11% on top of which there was a 6% gain from acquisitions and a 2% contribution from favourable exchange rates.
However, volume sales were down 6% mainly due to destocking in distribution channels in Europe and lower demand in China due to continuing Covid-related lockdowns.
At the operating level, EBITDA (earnings before interest, taxes, depreciation and amortization) for the third quarter was 13% lower than last year at 4283 million while for the first nine months it was 17% lower at €937 million.
As a result, the firm pulled its full year target of €2 billion of EBITDA citing ‘significant disruptions’ in its end markets due to the worsening global economy.
WHAT ABOUT THE UK?
The company didn’t specifically mention UK sales, but what we do know from the monthly data from the ONS (Office for National Statistics) is sales of paint, timber and other DIY products have been falling at a double-digit rate in value terms all year.
When we take into account the increase in prices which the DIY stores and builders’ merchants have pushed through, the fall in volumes is even more stark.
In its third quarter trading update, the UK’s largest building supplies distributor Travis Perkins (TPK) revealed volumes in its merchanting business were down 6% but it still whacked up prices by 17.5% in order to claw back what it called ‘elevated levels of input cost inflation’.
At the same time, the company flagged slower demand in the smaller trade segment - which is typically the first area of the market to show signs of weakness when the economy is contracting - and cited ‘limited visibility’ in general meaning it expected earnings to be roughly in the middle of the current range of expectations.
