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UPDATE 2-Ireland's CRH sees stagnant annual earnings
August 14, 2012 / 10:21 AM / 5 years ago

UPDATE 2-Ireland's CRH sees stagnant annual earnings

4 Min Read

* H1 EBITDA 568 mln eur vs 574 mln last year

* LFL sales in America up 8 pct vs 5 pct drop in Europe

* Sees sales in U.S., Europe slipping in H2

* Shares down 5.5 pct

By Lorraine Turner

DUBLIN, Aug 14 (Reuters) - Ireland-based building materials group CRH expects the euro zone's economic problems to deepen a slide in sales in the second half of 2012, preventing it from raising profits despite a recovery of U.S. construction markets.

The building sector, already facing the collapse of housing markets in Spain and other crisis hit euro zone states, is one leading indicator of whether European companies are committing to the investment needed to prevent an extended downturn.

Sales in the U.S., where CRH is the leading producer of asphalt for highway construction, rose 8 percent on a like-for-like basis in the first half compared with a 5 percent drop in Europe where bad weather added to government's debt problems.

The company, which moved its primary listing to London last year, said European sales had fallen 5 percent this year. That will deepen on the back of a depressed euro zone economy which data on Tuesday showed shrank 0.4 percent in the second quarter.

"The big question is whether Germany and some of the economies that are performing well can compensate and continue to deliver growth for the euro zone overall," said Chief Executive Myles Lee told state broadcaster RTE.

EU leaders have been struggling to find ways to fix the nearly three-year-old debt crisis, which now threatens Italy and Spain, as well as Greece. Growth even in Germany is finally beginning to suffer, bringing more pressure to bear on policymakers to take more aggressive action at a series of meetings in the first half of September.

"The periodic responses just don't seem to buy time or inculcate enough confidence," said Lee.

France's Lafarge, the world's largest cement marker, reported improved second-quarter sales and operating profit on Friday, although net income plunged due to a 200 million-euro hit on the value of its Greek assets

Shares in CRH, which does just under half its business in the United States and about the same in Europe, were 5.5 percent down at 0917 GMT, worse than a wider market fall of 1.1 percent.


Earnings before interest, taxes, depreciation and amortization (EBITDA) fell 1 percent to 568 million euros ($701.56 million), in line with analysts' expectations.

First-half results were propped up by favourable weather conditions and improving construction markets in the U.S., with revenue, profit and margin growth across all three of its divisions in the first-half, said CRH.

Another sector player there, Cemex, reported its highest quarterly operating core profit in nearly three years on Friday giving investors hope for a turnaround at the debt-laden Mexican cement maker.

But CRH noted that the rate of economic growth in the U.S is tailing off, and forecast that sales growth in the second half in the region will be "well below" the 8 percent sales growth in the first half.

Forecasts for its full-year currently range between 1.67 billion and 1.82 billion euros, with the average at 1.74 billion according to a Thomson Reuters I/B/E/S poll of 17 analysts.

"Following this statement, we are likely to be downgrading FY12 forecasts by 3-5 percent," said analysts at Goodbody Stockbrokers, adding that revisions are likely to be larger for 2013 given that they currently imply double-digit EBITDA growth.

The Dublin-based company said key European markets such as the Netherlands continue to struggle, while it is expecting a contraction in sales in Poland in the second half of the year.

The company is seeking to cut costs by more than 2 billion euros over a 5-year period in response.

"We just don't see how they (the euro zone) can get their act together in time to have a significant impact in the second half," Chief Financial Officer Maeve Carton told Reuters.

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