UPDATE 2-Assa Abloy posts sales rebound but warns on costs

(Adds CEO, analyst comment, updates shares)

STOCKHOLM, April 28 (Reuters) - Sweden’s Assa Abloy , the world’s biggest lockmaker, reported profits above market expectations on Wednesday, but warned it may not be able to compensate for higher material prices this year.

Having risen around 25% so far this year, shares in the firm, which competes with Allegion and Stanley Black & Decker, fell 4.6% at 0947 GMT.

Assa CEO Nico Delvaux said that it would probably not be possible to fully compensate for rising material prices in 2021, citing prices for nickel, zinc and aluminium.

“There’s a limit to what you can do. If it’s 100% up you cannot fully compensate it,” he told an investor call, adding material prices had risen to “unprecedented levels” in the last three months.

Barclays analyst Lars Brorson said investors disliked the “shift in message”.

“Now the message is price/cost will be a headwind in 2021,” he said in an e-mail.

Assa said there were positive signs stemming from eased pandemic restrictions in the United States and predicted its non-residential aftermarket business would gradually normalize from current low levels and add to already strong demand in the residential sector.

First-quarter operating profit before items affecting comparability at the company rose to 3.19 billion crowns ($380.3 million) from 2.75 billion a year earlier, beating a mean forecast of 3.07 billion, according to Refinitiv data.

Quarterly organic, or like-for-like, sales growth came in at 4%, boosted by 11% growth in Entrance Systems, its biggest division. Sales fell organically by 5% in the previous quarter and by 3% in the year-ago quarter.

However, Assa said market conditions for parts of its Global Technologies division, which in part supplies industries hard hit by the pandemic, such as hotels, were still “very challenging”.

“We do not expect the travel-exposed segments to return to pre-pandemic volumes in the near future,” Delvaux said.

$1 = 8.3881 Swedish crowns Reporting by Helena Soderpalm; editing by Niklas Pollard and David Evans