Coatings World - November 2010

Editor’s Page

Industrial paint drives demand; raw materials remain a challenge for coatings industry

Suppliers of paints, chemicals and other products have reported dramatically stronger results in recent quarters after suffering losses during the recession when manufacturers slashed production, the auto sector ground to a halt and the housing and construction markets languished.

Paint firms have benefited from restructuring efforts along with the continued gradual industrial recovery. It is also clearer now than ever before that the companies willing to invest in broadening their geographic footprint are ahead of the game.

The world’s three largest paint makers—AkzoNobel, PPG and Sherwin-Williams— all recently announced revenue and profit gains in the third quarter.

Charles Bunch, chairman and chief executive of Pittsburgh-based PPG Industries,
touted the company’s strategic initiatives in high-growth emerging regions. He said
PPG’s record results were achieved despite “persistent raw material cost inflation and
anemic construction markets in the developed economies of the world.”
PPG saw its profit climb 65 percent in the third quarter because of greater demand for its
industrial coatings. The company reported net income of $262 million compared with $159
million a year ago. Revenue rose seven percent to $3.46 billion from $3.23 billion. Revenue
from its performance coatings business rose three percent to $1.1 billion, and industrial coat-
ings revenue grew 13 percent to $927 million. Architectural coating sales fell however.

“Our record third quarter earnings reflect the benefits of the strategic initiatives we’ve undertaken to broaden our geographic footprint, especially in high-growth emerging regions, and the diversity of the end-use markets we serve,” Bunch said in a statement.

AkzoNobel said its third quarter net profit rose by 20. 8 percent due to strong demand at its chemicals business, but cautioned that construction and housing markets remain soft. The Netherlands-based company posted a net profit of €238 million ($332 million) for the quarter, compared with €197 million a year earlier.

Sales rose 12. 9 percent to € 3.87 billion due to growth in emerging markets and a stronger dollar, but profitability at Akzo’s paint and coatings units was pressured by higher raw material costs and lower volumes in Europe, as housing and construction markets in the U.S. and Europe showed no signs of a recovery. Excluding currency effects, revenue rose five percent, said the company.

“Although there is reason for caution in mature markets, we are confident that we are in good shape to benefit from our geographic spread and leading positions,” said AkzoNobel’s chief executive Hans Wijers.

The strong performance by Akzo’s chemicals operations echo news from BASF SE, the world’s biggest player in the sector, which reported a 23 percent rise in third quarter revenue. Demand for chemicals has outpaced supply, in part because some producers shut plants temporarily during the economic crisis and were offline when demand snapped back—leaving them unable to respond quickly enough to the rapid rebound in orders.

Revenue at Akzo’s paint business was up eight percent. Higher sales in emerging markets were offset by a decline in mature markets, particularly in Europe where volumes declined by three percent. Revenue at Akzo’s performance coatings division, which makes coatings for products ranging from furniture to cell phones, was up 18 percent, due to acquisitions, currency effects and five percent higher volumes.

Sherwin-Williams posted flat earnings for the third quarter as an 8. 8 percent increase in revenue was offset by higher raw materials costs. Earnings missed Wall Street expectations and the company cut its earnings forecast for the fourth quarter.

Chairman and CEO Christopher Connor said the timing of price increases also headed off an earnings improvement that might have resulted as house painting contractors and DIY jobs drove up revenue in the third quarter.

“We remain cautiously optimistic about the stability of end market demand and
are working hard to mitigate the effect of rising raw material costs,” Connor said.
“Raw materials remain a challenge for the foreseeable future.”
The Cleveland-based company reported net income of $175.3 million for the third
quarter. It earned $175.2 million a year ago. Revenue rose to $2.17 billion from $2 bil-
lion a year earlier.

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