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UPDATE 2-Holcim, HeidelbergCement see 2014 profit rise though Q2 disappoints
July 30, 2014 / 5:51 AM / 3 years ago

UPDATE 2-Holcim, HeidelbergCement see 2014 profit rise though Q2 disappoints

* HeidelbergCement’s sales volumes up in all businesses

* Holcim’s sales down in Latin America, Europe

* Currency effects impair revenue, profits

* HeidelbergCement, Holcim confirm outlook for 2014

* Holcim shares down 5 pct, Heidelberg down 1 pct (Adds forecasts, North America, Holcim results,)

By Marilyn Gerlach

FRANKFURT, July 30 (Reuters) - Cement makers HeidelbergCement and Holcim stuck to targets for a rise in 2014 earnings, saying solid growth in North America and cost cuts should offset unfavourable currency effects, which weighed on second-quarter results.

After a deep winter chill depressed cement shipments in North America in the first quarter, demand for first-time home buyers picked up in April to June. The sector is seen benefiting from a better economic environment in the United States for the rest of the year.

For the second quarter, however, Swiss-based Holcim and German rival HeidelbergCement on Wednesday posted earnings below analysts’ forecasts, citing weak currencies in Latin America and in Asian countries such as Indonesia and India.

The latest numbers come as Holcim prepares to merge with French rival Lafarge to create the world’s top cement company, indicating that the merged company may face tougher conditions than initially expected, an analyst said.

“I still think (Holcim) management is telling us a too optimistic story. The weaknesses in India and in Mexico - we expected some of these, but we didn’t quite expect how much of this would have on impact on the results,” Sanford Bernstein analyst Phil Roseberg said.

“The merger process will continue and move forward. My gut feeling is that the merger process is causing some of these weaknesses because management is now taking its eye off the ball in order to get the merger through. It has become less focused and that’s coming through into the results,” he added.

Shares in Holcim slid 4.8 percent by 1107 GMT after soaring 15.2 percent so far this year fuelled by the announcement of the merger with Lafarge.

HeidelbergCement shares dropped 2 percent, having risen 5.3 percent year-to-date, while the sector index was up 4 percent year-to-date.

HeidelbergCement said exchange rates hit second-half revenues by 482 million euros. Holcim, which derives half of group sales from Asia and Latin America, said weaker currencies in those regions trimmed quarterly revenue by 6.6 percent to 4.97 billion Swiss francs.

Operating profit at Holcim dropped 14 percent to 667 million francs ($735 million), while it was flat at HeidelbergCement at 516 million euros ($692 million).

Holcim said it saw a payoff from a cost-cutting programme, which to date has helped save 1.45 billion Swiss francs.

France’s Lafarge, which is planning to complete the merger with Holcim in the first half of 2015, earlier this month also posted a drop in quarterly profit mainly due to the strength of the euro and the company’s shrinking scale as it sheds assets to trim debt.

HeidelbergCement executives told analysts in July that the Holcim-Lafarge merger would be a good opportunity to acquire assets the two companies would have to divest to get regulatory approval for their deal.

HeidelbergCement, the fifth biggest maker of cement by market value, said it continued to expect an increase in 2014 revenue, operating income and profit after solid volume growth in North America and a rebound continued in construction markets in Britain and Germany.

HeidelbergCement generates nearly half of its revenue in North America, the United Kingdom, Germany and Northern Europe.

Heidelberg said that besides residential investments, commercial and infrastructure construction were increasingly expanding in North America, where Holcim saw quarterly cement volume sales rising nearly 11 percent and operating profit by 30 percent.

Heidelberg started in June this year to improve working production processes in 65 cement plants worldwide, on top of an ongoing 150 million cost cuts at its logistics and changes in rebates system to boost margins by 350 million euros by 2015.

ThomsonReuters’ Eikon data show HeidelbergCement’s price at 12.5 times its expected earnings over the next 12 months. Holcim’s ratio is higher at 15.2, reflecting a stock price rally since the merger announcement. ($1 = 0.7461 Euros) ($1 = 0.9069 Swiss Francs) (Reporting by Marilyn Gerlach in FRANKFURT and Katharina Bart in ZURICH; Editing by Maria Sheahan and Jane Baird)

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