Holcim Ltd (ADR) (HCMLY) announced today its earnings results for the first quarter of fiscal 2014 (1QFY14; ended March 31, 2014) before the opening bell. The Swiss cement manufacturer reported a 57% decline in profit as it prepares to dispose assets to comply with regulatory authorities before its merger with Lafarge S.A. (ADR) (LFRGY).
The Jona, Switzerland-based company recorded lower sales of 4.09 billion francs for the quarter, a 5.4% decline year-over-year (YoY). Sales missed analysts’ estimates of 4.2 billion francs owing to adverse fluctuations in foreign exchange rates.
During the quarter, the company’s net income fell 57% YoY to 80 million francs ($90.7 million), missing the consensus estimate of 110.5 million francs. In 1QFY13, the company had gained some 146 million francs ($165.51 million) by divesting a 25% stake in Cement Australia.
Although Holcim reported lower revenues, it recorded a 2.9% YoY increase in consolidated cement sales, which totaled 33 million tons for the quarter. The increase was driven by a stronger performance in Europe, where mild weather during the quarter facilitated construction activity.
Performance By Segments
The company’s businesses in the Asia-Pacific region reported a 0.7% YoY decline in consolidated cement volumes, attributable to the impact of the disposal of Holcim’s 25% equity in Cement Australia. That excluded, however, consolidated cement volumes grew 1.7% on greater sales volumes in Indonesia and Australia. However, consolidated net sales in the region were down 15.1% YoY to 1.68 billion francs as a result of unfavorable currency conversion rates.
Consolidated cement sales volumes posted by Holcim’s Latin America businesses were up 1.5% YoY to 6 million tons. Sales in Brazil, currently the epicenter of construction activity due to the upcoming FIFA World Cup, offset lower volumes in Mexico and Argentina. Consolidated net sales in Latin America were, however, down 12.5% YoY to 723 million francs.
The European region continued its gradual recovery from the recession, with mild weather in many countries leading to improved construction activity. Consolidated cement sales increased 20.1% YoY to 5.2 million tons in the region during the quarter, as business in almost all countries reported higher sales. Consolidated net sales in the region increased 14.8% to 1.18 billion francs.
Holcim’s North American segment, too, reported a 2.5% YoY increase in consolidated cement volumes on the back of Holcim US’s strong performance in the Texas and Oklahoma regions, which, to an extent, compensated for the negative impact of inclement weather across Canada. Net sales increased 0.7% YoY to 444 million francs in the region.
The consolidated sales volume in the Africa and Middle East region increased 11.8% YoY to 2 million tons on the back of Holcim Morocco’s strong performance on the back of higher exports to the Ivory Coast. Consolidated net sales in the region reached 206 million francs, a 1.7% increase YoY.
Outlook
Holcim expects an increase in cement sales volumes across all regions in 2014, but the company has predicted that global economies will remain uneven. Businesses in the North American region are expected to continue benefiting from a further recovery, especially in the US. On the other hand, the Latin America region is expected to face uncertainty, but growth can be expected in Brazil, which is preparing for the 2016 Olympics after the FIFA World Cup.
The company expects a recovery in Europe, as further cuts in interest rates will allow potential buyers to borrow for purchases and undertake construction activity. The Asia-Pacific region is also expected to grow, albeit at a comparatively slower pace than in recent years. The Africa and Middle East region is also expected to deliver a better performance.
Merger
Earlier this month, Holcim and Lafarge announced they intended to tie up in a merger of equals. The proposal was unanimously approved by the boards of directors of both companies. The proposed merger will be structured as a public offer filed by Holcim for all of Lafarge’s outstanding shares on the basis of a 1-for-1 exchange.
Holcim said there is considerable interest from private equity and other industry players in the assets the company must sell before merges with Lafarge. Holcim is expected to relinquish assets worth approximately 5 million euros ($6.85 million) to win a nod from regulators.
The two companies plan to merge before the second half of 2014 commences. The new company, to be called LafargeHolcim, will be based in Switzerland, where Holcim’s current headquarters are located.
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