UPDATE 2-Lafarge says raw material costs hit Q2

Thu Jul 28, 2011 5:48am EDT

Related Topics

* Debt load falls to 14.26 bln eur from 15.16 bln

* Sees full-year market growth of 2 to 5 pct

* Q2 sales flat at 4.416 bln eur

* EBITDA misses analyst forecasts

* Shares down 3.1 pct

(Adds analyst comment, market reaction)

By Christian Plumb and Marc Joanny

PARIS, July 28 (Reuters) - France's Lafarge (LAFP.PA), the world's largest cement maker, said second-quarter operating income fell 16 percent, missing analysts' forecasts, as higher raw material costs took their toll.

Lafarge, which recently entered into exclusive talks to sell its European and South American plaster assets as part of a wider debt reduction plan, has struggled to push through price hikes to compensate for higher raw materials prices.

The higher prices squeezed margins in the second quarter, resulting in a decline in earnings before interest, tax, depreciation and amortisation (EBITDA) to 702 million euros, missing the 774 million average estimate in a Reuters analyst poll.

"The slight miss at the EBITDA level is attributable to lower-than-expected margins in western Europe, which offset a better-than-expected outcome in all other regions," analysts at Nomura said in a research note.

Second-quarter sales were flat at 4.42 billion euros ($6.42 billion), in line with analyst estimates, but the company's operating margin narrowed to 15.9 percent from 18.8 percent.

Lafarge shares were down 3.1 percent, bringing their decline so far this year to 18 percent.

The company said it expected to see market growth of 2 to 5 percent for the year thanks to increased cement demand mainly driven by emerging markets.

"The group is focused on its priorities, including price actions in response to a high cost environment and strategic moves with its asset portfolio, to support profitability and reduce debt by at least 2 billion euros this year," Lafarge Chief Executive Bruno Lafont said in a statement.

Lafarge, which borrowed heavily to finance the 8.8 billion euro purchase of Egypt's Orascom Cement in 2007, said its asset sale programme had cut its debt load to 14.26 billion from 15.16 billion at the end of last year. (Reporting by Christian Plumb; Editing by James Regan)

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