Holcim Ltd Wednesday became the latest cement and building materials company to lower production in response to a severe downturn in construction markets, as it also reported a 23% fall in third-quarter net profit due to higher raw material costs.
The Swiss company, one of the world’s top three cement and building materials companies by volume and sales, will close plants in the U.S. and Spain after warning that operating profits will continue to fall in the fourth quarter as the economic downturn hits its markets.
Net profit in the third quarter was CHF673 (US$567m), below the CHF877mposted a year earlier and worse than analysts’ expectations of CHF714m.
Profits were pressured by rising raw material and energy costs and the strength of the Swiss franc against the dollar and sterling, which Holcim couldn’t fully offset by raising selling prices.
Sales decreased 5% to CHF6.91 billion from CHF7.28 billion, undershooting analysts’ expectations of CHF7.04 billion.
The company plans to shut down two plants in the U.S. and one in Spain, and will book a CHF300 million charge in the fourth quarter for the closures.
The closures come after Mexico-based Cemex SAB (CX) announced cost cutting in response to a sharp fall in profits and France’s Lafarge SA (12053.FR) said it couldn’t confirm its 2010 targets due to the downturn.
"Against the backdrop of a slowing global economy, Holcim forecasts that internal operating Ebitda (earnings before interest, tax, depreciation and amortization) development excluding the planned closing costs will continue to weaken in the fourth quarter," Holcim said.
Holcim has a long-term 5% growth target for operating profit before the impact of currencies and acquisitions, but it fell 5% in the first nine months of this year.
"It was clear the going is getting tough," said Bank Vontobel analyst Patrick Laager, who had lowered earnings forecasts ahead of report. He expects consensus estimates for Holcim’s earnings to come down by some 5% to 7%.
However, Laager said the plant closures show Holcim’s determination to tackle rising costs. Bank Vontobel has a buy rating and CHF88 price target, with price objective now under review.
Holcim said it is also reviewing current capacity expansion projects due to uncertain economic prospects, although it said the projects will "largely" continue.
Holcim’s recent capacity expansion projects include a new kiln line in Azerbaijan for around EUR300m.