European producers first-half performance weak

European producers first-half performance weak
Published: 01 August 2010

European cement makers posted weak or opaque outlooks on Friday, adding to investor concern about the patchy recovery in global construction markets.

A lower outlook from Lafarge and a vague one from HeidelbergCement was followed by No. 5 producer Italcementi’s forecast for an uneven recovery, all of which weighed on the sector.

France’s Lafarge cut its 2010 outlook estimate for demand in its global markets on Friday and posted underwhelming second-quarter results, while HeidelbergCement beat quarterly operating profit forecasts but gave a non-committal outlook.

Italy’s Italcementi then predicted an uneven recovery when posting a larger than expected fall in quarterly net profit.

Lafarge’s new forecast for cement demand in its markets saw a rise by three per cent at best or fall of one per cent at worst. It had expected a gain of up to 5 percent.

HeidelbergCement repeated that it should grow faster than the overall economy this year and next.
"Lafarge was particularly unlucky in the regions where it has a relatively strong presence," said Helvea analyst Patrick Appenzeller. He said that amid the French company’s strongest European markets were Spain and Greece, where construction activity was particularly glum due to austerity measures.

Government stimulus programmes in North America are shoring up the building industry there and bolstered HeidelbergCement’s earnings, the German company said.

The region accounted for a quarter of first-half sales at HeidelbergCement. Lafarge derived only 18 percent from North America and Italcementi just 7 percent during the period.

Italcementi, which aims to expand in areas such as India and North Africa, said construction would remain lively in emerging countries and U.S. demand would pick up in the second half, while government austerity measures would hit Europe.

Construction activity in Europe is seen falling a further 3.7 per cent this year. 2009 marked the worst year in more than a decade with output down 7.5 per cent to EUR1.2trn, data from industry body FIEC showed.

"We remain careful about the price situation for cement makers. The risk for a downgrade to junk bond for Lafarge’s debt remains high in our opinion. We prefer Saint-Gobain and HeidelbergCement," said analyst Rafic El Haddad at Natixis.

DZ Bank analyst Marc Nettelbeck voiced caution about the German company’s prospects: "(HeidelbergCement) still avoids giving a precise guidance."