CRH earnings forecast to come in below expectations

Building materials giant rapples with energy costs and Texan downpour

‘CRH’s trading update is largely as expected, with third-quarter trading impacted by wet US weather,’ said Davy analyst Robert Gardiner. Photograph: Brenda Fitzsimons

‘CRH’s trading update is largely as expected, with third-quarter trading impacted by wet US weather,’ said Davy analyst Robert Gardiner. Photograph: Brenda Fitzsimons

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CRH forecast on Tuesday that earnings would reach an all-time high of €3.35 billion this year but analysts are likely to lower their estimates, as the building materials giant grapples with a spike in energy costs and its most important market, Texas, suffering massive rainfall in September.

The group projected that earnings before interest, tax, depreciation and amortisation (Ebitda) would increase by 6.4 per cent this year to €3.35 billion, on the back of acquisitions, continuing underlying growth in the Americas, improving momentum in Europe, and early signs of a turnaround in its troubled Philippines market.

However, the forecast is some 2 per cent below the consensus figure pencilled in by analysts before CRH published its latest trading update.

CRH and rivals have also experienced a lag in passing on spikes in the cost of energy and bitumen, a key ingredient in asphalt, to customers this year.

The company, led by chief executive Albert Manifold, also announced on Tuesday that it planned to press ahead with the third phase of a €1 billion share buyback programme, having spent €700 million repurchasing its own shares on the stock market between May and the middle of October.

“CRH’s trading update is largely as expected, with third-quarter trading impacted by wet US weather,” said Davy analyst Robert Gardiner, who had already cut his full-year estimates for CRH ahead of the trading update. “The fact that the share price is down circa 20 per cent year-to-date does not make sense in the context of either its guidance or long-term strategic plans.”

Shares in the company oscillated in Dublin, swinging between a fall of up to 1.1 per cent and gains of as much as 1.1 per cent, before closing the session down 0.3 per cent.

Mr Manifold has spent €13 billion on acquisitions over the past four years, while selling off €4 billion of unwanted and underperforming assets. He has set his sights on boosting its Ebtida margin by three percentage points by 2021 from 12 per cent reported last year.

Against the backdrop of solid demand and continued favourable market conditions, like-for-like nine-month sales in the Americas grew by 4 per cent in the first nine months of 2018, while Ebitda improved by 3 per cent. However, the division was hit during the third quarter, losing 23 working days in September in Texas, the group’s biggest profit generator, as the state suffered one of its wettest months on record.

Earnings

In Europe, like-for-like sales for the nine months rose by 1 per cent, while earnings advanced 2 per cent. CRH had pushed through cement price increases in 12 of its 15 markets in the region by the end of September, and Mr Manifold told analysts on a conference call that he was “confident” the company would continue to hike pricing in Europe, which has trailed the US in terms of recovering from the downturn.

The group’s loss-making Philippines business, inherited in 2015 through its €6.5 billion of assets globally from European peers Lafarge and Holcim, is showing early signs of stabilisation, with like-for-like sales up 3 per cent over the first nine months.

However, Ebitda in the country fell 44 per cent, as margins were squeezed by higher fuel and price costs.

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