CRH shares fall 12.7% as firm warns of lower profits

SHARES IN building materials giant CRH fell by 12.7 per cent in Dublin yesterday, as investors reacted to the group’s announcement that pretax profits for 2008 might show a high single-digit percentage decline.

CRH’s pretax profit for 2008 is now expected to be some €1.72 billion, down from €1.9 billion in 2007. This is some 5 per cent less than analysts’ expectations. The announcement marks the group’s first profit warning in many years.

The firm blamed the continuing weakness of the dollar as well as slowing demand for its projected dip in performance.

In a trading report for the six months to the end of June 2008, CRH said it expects profit before tax in the first half of the year to fall by 10.5 per cent to €600 million, compared with €670 million in 2007.

In the United States, operating profit is expected to fall by 18 per cent on the first half of 2007 to $300 million. The materials division was particularly affected by exceptionally wet weather in May and June, while its products division is suffering from the ongoing decline in US residential construction, combined with moderation in non-residential activity.

The group’s European business remains resilient and CRH expects an increase of approximately 5 per cent in operating profit to €519.8 million for the first half of 2008, with strength in central eastern Europe together with acquisition contributions more than offsetting declines in Ireland, Britain and Spain.

Moreover, the group expects a lower fall in earnings per share (EPS) than profits due to its share buyback scheme and an expected lower percentage tax charge.

Following the announcement, brokers lowered their EPS forecasts by some 5 per cent.

Stephen Taylor, an analyst with Dolmen, said that the fall in CRH’s share price was “excessive”.

“The company trades at a significant discount to its European and US peers. We feel that, given the group’s strong track record and strength of management, CRH will be able to get through this difficult operating environment,” he said.

Analysts say the difficult operating environment is likely to continue. Dolmen predicts no earnings growth from CRH during 2009, while Davy has reduced its profit forecast for 2009 to €1,655 million and EPS to 245 cent, 16 per cent and 13 per cent below its current forecasts.

The group also announced that it spent €700 million in the first half of 2008 on acquisitions and development initiatives, including its acquisition of British firm Ancon and investment in Indian firm My Home Industries in May.

CRH conducted 35 development initiatives during the first six months of the year, including four in its European materials division valued at €27 million and 13 in its Americas materials division at €67 million.