(Bloomberg) -- Akzo Nobel NV said higher costs and softer demand in China will continue to drag on profit at Europe’s biggest paintmaker this year.
The company now sees adjusted earnings before interest, tax and amortization of around €1.5 billion ($1.6 billion) for the year, according to a statement Wednesday. It had already tempered its outlook in July to the low end of a €1.5 billion to €1.65 billion range.
Shares fell as much as 5.7%, the most since April, and were trading 2.6% lower at 12:33 p.m. in Amsterdam. The stock is down about 19% this year.
The maker of Dulux Paints has kicked off a restructuring plan which involves cutting 2,000 jobs to boost profitability and offset rising labor costs. The company also last year announced a plan to increase efficiency of its manufacturing and supply chain targeting €250 million in savings.
Sales in the paints division were flat during the third quarter, amid ongoing weakness in China, which accounts for about 14% of the company’s overall sales, Chief Executive Officer Gregoire Poux-Guillaume said during an earnings call.
Akzo Nobel’s coatings business, which is used for industrial applications across cars, ships and construction, showed some volume growth in China during the quarter. But a decline in sales of decorative paints dragged on results.
“That business is down because consumer confidence in China right now is low,” Poux-Guillaume said in an interview. “It’s bottomed out but it’s only showing timid signs of rebound.”
Akzo Nobel is in the midst of a review of its portfolio and plans to explore options for its decorative paints business in South Asia. The company highlighted India, where it is profitable but has a limited market share, as a market that is ripe for consolidation.
The move is designed to redeploy capital toward expanding its core coatings business, Akzo Nobel said earlier this month.
The company’s third quarter adjusted earnings before interest, taxes, depreciation and amortization fell to €394 million. That’s below the €403.3 million estimated by analysts in a Bloomberg survey.
“Given further deterioration in some markets, we expect flat volumes” in the fourth quarter, the CEO said.
(Updates with CEO interview in seventh paragraph.)
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