Akzo Nobel Third-Quarter Results

Investing.com — Shares of Akzo Nobel (AS:AKZO) (OTC:AKZOY) fell 4.7% on Wednesday after reporting third-quarter results slightly below market expectations.

Key Insights

• Analysts' Commentary: JP Morgan noted that the modest miss was due to foreign exchange headwinds, sluggish inventory reduction, and underperformance in certain segments, raising concerns about the year-end financial outlook.
• Financial Performance: The company’s Q3 revenue was 3% below consensus, and adjusted EBITDA missed expectations by 2%. Sales declined 3% year-over-year, rather than the expected 2% drop, despite a 1% volume increase.
• Guidance: Akzo Nobel maintained its full-year adjusted EBITDA guidance at approximately €1.5 billion, aligning with consensus forecasts. However, a Q3 miss suggests potential downward revision for Q4 EBITDA, projected between €320-330 million, below the current consensus of €332 million.
• Cash Flow: Free cash flow fell 28% below expectations, primarily due to higher-than-expected working capital levels, especially inventory. The company anticipates its 2024 year-end working capital to be around 15% of sales, up from the previous target of 14% or less.
• Leverage Expectations: Net debt to reported EBITDA is now projected at 2.7x by the end of 2024, compared to an earlier estimate of 2.3x.
• Segment Performance: Decorative Paints showed strong performance, with adjusted EBITDA exceeding expectations by 3%. Conversely, Performance Coatings missed forecasts by 7%, affected by currency challenges, and reported EBIT fell 8% below expectations due to higher one-off expenses.

Akzo Nobel reaffirmed its full-year EBITDA target at the lower end of the initial range between €1.5 billion and €1.65 billion. However, lingering inflationary pressures and slower deleveraging raise concerns about meeting financial goals. JP Morgan highlighted that while valuation for 2024 and 2025 is close to historical averages, stock challenges may persist in the short term.