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Terrible weather blurred many a motorist's vision in Europe and America last winter, and the chill seemed endless. It did not do much to aid visibility in the cement and building materials sector, either. This week, a clutch of global companies – HeidelbergCement, Holcim and Lafarge – released their earnings for the first quarter of 2013. Most disappointed.
Year-on-year earnings before interest, tax, depreciation and amortization fell by a fifth at Lafarge, and by 6 per cent at Holcim. HeidelbergCement saw a 5-per-cent EBITDA gain, yet fell short of consensus expectations. And CRH, more narrowly focused in terms of geography but with a distribution arm, warned of a likely drop in its first-half EBITDA (although with hopes of second-half improvement).
Lesson One from this reporting spree was that the length of winter, early Easter, and benign conditions a year ago were underestimated. In itself, that may not matter too much: the first quarter is generally of less importance. Lesson Two was a broad sense of conditions picking up in the U.S., in the residential and even non-residential sectors; continuing difficulties in Europe; and fairly decent growth in most other regions.
This left Lafarge forecasting a 1- to 4-per-cent uptick in overall cement volumes this year, with a 5- to 9-per-cent decline in Western Europe countered by a 4- to 7-per-cent gain in the U.S. That is more conservative than some existing estimates, which anticipated smaller European falls and growth of 5-per-cent-plus in overall volumes. Still, on the positive front, pricing is improving while cost inflation moderates.
Where does this leave investors? As ever, they need to stock-pick based on regional exposures, scope for cost-cutting, and balance sheets. Holcim arguably offers the best all-round option, and its first-quarter Indian dent may prove temporary. But trading on 16.5 times consensus earnings for 2013, it is not cheap. Lafarge, also held back by short-term issues in Egypt and Africa, is on a more modest 15 times, with cost savings and deleveraging well on track. Summer may be close.