Positive expectations in reach despite mixed 1Q18 corporate results

LafargeHolcim, HeidelbergCement and Martin Marietta Materials Inc all released 1Q18 results this week with some mixed performances. The regional strength of Asia and Africa is generating profits for multinationals in these markets, but Europe, the Middle East and North America have seen lower returns.

LafargeHolcim
Jan Jenisch, LafargeHolcim's Group CEO, was in bullish mood in asserting that the benefits of the company's new strategy would see it deliver on LafargeHolcim's 2018 targets. The company's Strategy 2022 – "Building for Growth" is aiming to secure a three to five percent annual sales growth and in most cases, regional markets are looking up for LafargeHolcim.

The 1Q18 results reflected positive development in Latin America and strong performance in China and India. The harsh winter though negatively affected sales in North America. However, LafargeHolcim is still expecting residential and non-residential demand to pick up. In Europe the adverse weather also resulted in fewer working days and higher maintenance activity.

Analysts CM-CIC Market Solutions pointed out  that LafargeHolcim's business is very seasonal and the 1Q18 results should be put in context. EBITDA came in at CHF700m (US$698.7m) on revenues of CHF5830m, reflecting a fall in margin to 12 per cent versus 13.8 per cent in 1Q17. Moreover, the selling price of cement was unable to cover the rise of variable costs such as energy.

HeidelbergCement
Meanwhile, analysts at Bernstein have suggested that 1Q18 for HeidelbergCement was a ‘big miss’ versus expectations, particularly for North American and west/south European markets, which were impacted by severe weather and negative working days. HeidelbergCement has commented that inflation and the interest rate in the USA have risen faster than anticipated, while the threat of possible trade restrictions and the unpredictable consequences of China's economic downturn are still to be played out.

However, HeidelbergCement maintains that stronger growth is expected in particular for Africa and the Middle East, partly because of the considerable increase in oil prices over the past year. The German multinational still expects stable economic development in USA, Canada, Germany, northern Europe, as well as France and Spain, but 75 per cent of the company's revenue is currently being generated by Egypt, Indonesia, India, Morocco as well as western and eastern Africa where returns are more favourable.

CM-CIC Market Solutions notes that HeidelbergCement has cut its net loss to EUR-23m versus EUR-70m in 1Q17 but mainly owing to the fall in taxes and capital gains on the disposal of assets in Germany and North America.

Martin Marietta Materials
Martin Marietta Materials Inc has also reinforced the indications that the US market had a difficult start to the year but was more than optimistic about prospects for FY2018. This followed 1Q18 results that saw cement revenues fall 4.7 per cent as pricing growth of 4.2 per cent was offset by an 8.8 per cent volume decline.

Martin Marietta's Chairman, President and CEO, Ward Nye, stated: "As we start the year, we are encouraged by ongoing customer optimism and our first-quarter results, both of which are consistent with our expectations.

"We believe the United States is in the midst of a steady, multi-year construction recovery. Our leading positions in attractive, high-growth markets allow us to benefit from anticipated increased demand for both public and private construction activity in 2018 and beyond."

Summary
As Bernstein's analysis has commented, many construction companies have blamed 1Q18 results on one-off factors, but most of the cement sector is confident that the early-guidance figures are still in reach if sales pick up as expected over the course of 2018.

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