Lafarge reports higher earnings but outlook mixed

Lafarge reports higher earnings but outlook mixed
Published: 06 November 2009

Lafarge’s turnover declined by 14.9 per cent to €12,243m in the first nine months of 2009 and the EBITDA was down by 20.9 per cent to €2832m. The company reported 3Q earnings of €404m, some €8m below its own consensus estimates and down from €647m a year ago. Current operating income was disappointing at €852m, around €44m less than the company’s estimates with shortfalls in the concrete and aggregates divisions although all three divisions were down equally in percentage terms. Better earnings were mainly due to a lower than expected tax charge. Meanwhile, 3Q sales at €4232m were €434m lower on earlier estimates and down 20 per cent on last year’s returns.



Group cement deliveries fell by 9.4 per cent to 107.6Mt, with reductions of around 27 per cent in both Europe and North America and of 13.2 per cent in Latin America being offset by increases of 10.3 per cent in Asia, 9.1 per cent in the Middle East and 4.7 per cent in Africa. Prices have generally held up but exceptions were seen in Iraq and Russia in particular and Chinese prices were also a bit lower, following a good increase last year. To deal with the over-capacity in America and Europe, some 10Mt of capacity have been closed and mothballed, while the new capacity coming on stream next year is centred on China, Syria and Saudi Arabia.



Analysts at JP Morgan note that current operating income from the Aggregates and Concrete division was €116m in 3Q09, less than half the €259m achieved in 3Q08. It was also €55m below its forecast while €41m of the shortfall was in North America.

On a brighter note, continuing improvements in cost-cutting saw the cost of goods sold declining by 12 per cent in the first nine months of this year, compared with the same period last year on a like-for-like basis. This was better than the 11 per cent reduction in the first six months of this year. Lower tax payments attributable from lower profit contributions from mature markets also helped earnings.

The company has lowered its guidance for the full year tax rate from 21 per cent to 20 per cent. 

Lafarge has continued the trend in the results season so far of reporting worse than expected results from North America. The company has narrowed its guidance range for this year’s cement volumes from –4 to –8 per cent in July to –6 to –8 per cent now. Regionally, the main reduction is in North America, which is to be expected. The comment by Lafarge CEO Bruno Lafont that "volumes in mature markets may start to recover as of the second half of 2010” is realistic but may disappoint the market, which may have envisaged an earlier improvement.