Akzo Nobel, the world's biggest producer of paints, posted forecast-beating fourth-quarter results on Thursday, boosting its shares as its coatings business grew despite the U.S. housing market crisis.
Earnings before interest and taxes (EBIT) from continuing operations, excluding extraordinary items, was 174 million euros ($264.2 million) compared with an average analyst expectation of 157 million euros in a Reuters survey of seven analysts.
Akzo said it would increase its dividend to 1.80 euros per share from 1.20 euros and that it intends to pay out at least 45 percent of net income excluding incidentals from 2008.
The Dutch chemical group said it would return a previously announced 3 billion euros to shareholders through share buybacks, with a 1 billion euro buyback starting mid-March.
"Akzo Nobel knows exactly what shareholders want," said Petercam analyst Jan van den Bossche. "Share buybacks, dividend and clarity. That's why shares are up."
Akzo said ongoing pressure created by raw material prices, volatility in major currencies and a slowdown in overall growth in North America and Europe will make for a testing environment but it still expects to outgrow its markets.
In January U.S. peer paint maker Sherwin-Williams forecast a profit decline in the first three months of 2008 due to a sagging new home market but Akzo's Chief executive Hans Wijers is not as pessimistic.
"We only have an exposure of 7 percent of revenue to the U.S. housing market," he said, adding that he expected markets in Asia, South America and Central Europe to offset negative effects on the U.S. paint market.
Fourth quarter revenue at its coatings unit was up 2 percent, reassuring analysts who had been worried after the unit failed to match growth expectations in the third quarter, pressured by the U.S. housing market crisis.
Akzo said the integration of Imperial Chemical Industries (ICI) was well on track and said it was pretty confident it would realise expected annual cost savings of 280 million euros.
Akzo Nobel Chief Executive Hans Wijers said he will give a more detailed upgrade of synergies in April.
"The outlook is typically Akzo; conservative," said Collins Stewart analyst James Knight, adding that ICI's performance in 2007 in the U.S. market for decorative paints should give the market more confidence.
Pro forma 2007 EBIT, including ICI which Akzo bought in January for 8 billion pounds ($15.8 billion), was 1.4 billion euros, Akzo said.
Pro forma net profit including ICI but excluding one-off items was 942 million euros.
Fourth quarter volumes at the coatings unit were up 3 percent, offset by a 2 percent negative currency effect. Acquisitions such as Sico, which was bought in 2006 contributed 1 percent to revenue growth, Akzo said.
Akzo shares trade at 11.8 times expected 2008 operating profit compared to a ratio of 6.5 and 5.8 for its peer paint makers Sherwin Williams and PPG Industries respectively.
Akzo shares closed 9.1 percent higher Thursday.