CRH predicts headwinds in Europe offset by progress in Americas in H2 2013
By Finfacts Team
May 8, 2013 - 11:55 AM

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CRH, the global building materials group, was formed through a merger in 1970 of two leading Irish public companies, Cement Limited (established in 1936) and Roadstone Limited (1949). About 90% of CRH's shares are held outside Ireland. CRH's has a payroll of 75,000 and less than 2,000 are located in Ireland. It moved its primary stock exchange listing to London in 2011 and is a FTSE 100 company.

CRH plc, which is headquartered in Dublin, Ireland and is the second-biggest building materials supplier in the world, and the market leader in the United States, today said in a trading update in advance of its Annual General Meeting later Wednesday morning, that it expects earnings in the second half of the year will reflect the headwinds in Europe being outweighed by progress in the Americas, "contributions from acquisitions and the net benefits of our cost savings measures similar to 2011."

Trading to date in Europe has been affected by prolonged winter conditions which extended through March and up to mid-April.  Combined with a challenging economic environment, this had a significant impact on construction in our major markets. As a result, most of our operations experienced lower activity and cumulative like-for-like European sales to end-April were 12% (approximately €0.3bn) behind the first four months of 2012.

CRH said in the United States many regions experienced wet and cold conditions which impacted activity in the first four months of 2013 - - this was in contrast to the very benign weather conditions experienced throughout the country in the early months last year.  As a consequence, and despite the improving trend in overall construction activity, like-for-like sales to end-April for the Americas operations were 2% (approximately €0.05bn) lower than 2012.

The building materials giant added that "in the United States, the underlying economic and business environment remains positive.  Residential construction continues to advance; we see more positive trends emerging in our non-residential markets, and activity in infrastructure is expected to benefit from measures in several states to enhance revenue streams for transportation projects. In Europe however, where significant trading pressures continue, we are focused on implementing further measures, in addition to the initiatives already announced, to reduce our cost base and counteract market weakness.  Assuming no major financial or energy market dislocations, we expect the headwinds in Europe to be outweighed by progress in the Americas, contributions from acquisitions and the net benefits of our cost savings measures;  accordingly,  overall second-half EBITDA should be ahead of the corresponding period of 2012."

Robert Eason of Goodbody commented: "In a trading statement this morning CRH has guided that first half EBITDA would be circa €0.4bn, which is behind our forecast of €0.5bn and down on last year’s €523m. In the second half it expects the positive trends in the US to offset trading pressures in Europe. As a result “second half EBITDA should be ahead of the corresponding period of 2012”. Given this backdrop, at first glance we expect to be downgrading EBITDA forecasts by circa 8%, which is based on circa 9% growth in the second half.

As expected weather has had a larger part to play in the first four months with US lfl sales down 2%, driven by the materials business with aggregate volumes declining 10% and asphalt -23%. US Products and Distribution performed better (helped by on-going recovery in residential markets and improving non-residential markets) with sales up 2% and 6% respectively in Jan-Apr. Europe has been a lot more challenging than our expectations with Materials sales -17%, Products -13% and Distribution -9%.

Given this backdrop, management point to further initiatives being worked on and so we expect the previous incremental cost savings target of €450m for 2012-15 will be increased. In addition the acquisition spend of €385m in the ytd is robust and represents a pick-up in activity.

Following this statement we expect consensus forecasts for CRH to be downgraded to reflect the shortfall in the first half of the year. Such revisions underpin our cautious stance on the stock given that it already trades on 20x trough earnings. We also expect downgrades to materialise across the sector in the coming months as unchanged guidance from companies implying much of a catch-up in the second half of the year."

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