AMSTERDAM (Reuters) – Dutch chemicals group DSM NV is expected to have better weathered the economic downturn in the second quarter than peer Akzo Nobel.
Both report earnings on Tuesday and investors will scrutinise the results for any impact of the economic slowdown.
Akzo is expected to report a 5.6 percent decline in second quarter core profit and DSM a 9.3 percent rise.
The results come a month after the Dutch chemical industry board VNCI said domestic demand was slowing, making it harder to pass on input costs and suggesting margins may come under pressure.
Akzo Nobel’s earnings before interest and taxes (EBIT) from continuing operations, excluding exceptional items, are expected to be 369 million euros ($579.4 million) according to the average estimate in a Reuters poll, with forecasts ranging from 342 million euros to 412 million.
The average of 11 analyst’s expectations for DSM’s EBIT from continuing operations is 248 million euros, with estimates ranging from 220 million euros to 350 million. Both Akzo Nobel and DSM face higher input prices such as oil, which has reached record highs at more than $147 a barrel, but both have tried to be less vulnerable to the economic cycle.
In 2003 DSM acquired the vitamins division of Swiss firm Roche, while Akzo Nobel sold its pharmaceutical unit last year and bought British peer Imperial Chemical Industries (ICI).
Analysts believe DSM has better chances during the economic slump. “The 40-45 percent earnings contribution from pharma/nutrition should offer significant resilience to a typical cyclical downturn,” Petercam analyst Jan van den Bosche said in client note.
However pressure on the firm will rise, he said, as DSM must now show its portfolio really is more resilient.
PAINT MARGINS
Akzo Nobel has always said its 8 billion pound purchase of ICI would help it become more diverse.
JP Morgan analyst Neil Tyler said the paints industry in recent years has succeeded in protecting margins better than many other specialty chemical areas.
“However, the recent acceleration in input costs (…) will test the pricing model at a time when demand is increasingly uncertain,” he noted.
Akzo’s decorative paints business, which accounts for a third of Akzo’s revenue and includes household brands such as Dulux and Flexa, is facing soft market conditions in the United States and Europe due to weakening housing markets.
SNS Securities analyst Danny van Doesburg doubts if Akzo can maintain its 2008 EBITDA outlook of at least 1.87 billion euros, given profit warnings already this year from U.S. peers like Sherwin Williams, PPG and Rohm & Haas.
Should Akzo keep its outlook however, shares would go up.
Akzo shares have lost 20 percent in the past three months compared to a 8 percent loss for the DJ Stoxx European chemical index <.SX4P>, while DSM shares rose slightly.
(Additional reporting by Tineke van der Struik)