CRH to seek more cost cuts after H1 profit plunge

DUBLIN (Reuters) - Building materials group CRH (CRH.I)(CRH.L) warned pretax profit nosedived in the first half and said trading would remain extremely difficult, but investors bet the worst was behind the Irish group, sending its shares sharply up.

Ireland's largest listed company by stock market value said it would ramp up cost-cutting in response to an estimated 83 percent slide in pretax profit in January through June and tough conditions ahead.

CRH, one of the world's biggest suppliers of asphalt, paving slabs, bricks and other construction products, said it was targeting an additional 555 million euros in annualised cost savings for 2009 and 2010, on top of 895 million announced in January, with layoffs and plant closures in the frame.

It did not say how many jobs would go. The company employs 93,500 worldwide, according to its website.

Shares in the group, which dominates the Irish index .ISEQ, were up over 6 percent at 16.2 euros at 2:45 p.m. British time, reversing Monday's 5 percent drop and an initial fall of around 4 percent in early trade.

"It's an earnings recovery play," said one Dublin-based dealer. "Our view is that all of the surprise will be on the upside, because you have slashed the cost base and earnings estimates have been realigned to a fairly low expectation."

But not everyone was convinced the bottom had been hit.

"The trouble is, every time the numbers get worse, people say this is the trough," said Reg Watson, investment director at Standard Life Investments.

"They have managed to pull a rabbit out of the hat by cost-cutting internally. But if you want to be cynical about it, the question is why they haven't been able to achieve these cost savings sooner?" Watson said.

DISTRESS AMONG SMALLER PLAYERS

Slumping property prices and shrinking corporate capital budgets have triggered a global construction downturn which has eroded profits across the industry.

France's Lafarge (LAFP.PA), the world's biggest building materials maker, and Holcim (HOLN.VX) of Switzerland, the No. 2 cement maker, have previously said a turnaround would not happen until 2010 at the earliest.

CRH, the No.1 asphalt producer in the United States, is expected to benefit from U.S. President Barack Obama's $787 billion (486 billion pounds) stimulus programme and Chief Executive Myles Lee said the company expected its U.S. highway business to be very busy in the second half.

"We have seen a very strong outflow of projects from state authorities over the last four to six weeks," he told a conference call.

However, even with an improved performance in the United States, profits overall in the seasonally stronger second half will be below last year and analysts scrambled to cut forecasts.

Analysts at brokerage Davy reduced their full-year 2009 earnings per share (EPS) estimate by 10 to 15 percent to 115 to 120 euro cents. A year ago, analysts were forecasting EPS for 2009 of around 250 euro cents.

Operating profit in the first half will be a third of last year's 700 million euros (605 million pounds) and EBITDA will show a decline of around 40 percent in the first six months of the year, CRH said.

CRH is expected to acquire smaller companies after raising 1.24 billion euros via a rights issue earlier this year.

"We are ... seeing an increasing level of distress generally across smaller and medium-sized players in the industry which is widening the pool of opportunities," he said. "We have some due diligences exercises in process at the moment."

(Editing by Simon Jessop and David Holmes)