CRH update reflects prolonged weak demand

The Irish building materials group illustrated a softening in demand for its products in both Europe and the Americas

Anthony Dayrit 26 May, 2009 | 11:53AM
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CRH provided an update for the first four months of 2009 earlier this month, in which the Irish firm's sentiments showcased the prolonged weak demand environment for building materials and products.

The company's European materials segment was negatively impacted by severe weather conditions, and cement volumes declined by over one third year-over-year in both Poland and Finland. Cement volumes in Ireland and the Ukraine experienced even more pressure, since a weak economy exacerbated the effects of poor weather--volumes plummeted 50% year over year in both countries.

European demand for building products remained weak, given continued declines in the new residential sector. That said, the CRH's European distribution business held up relatively well (low-teen revenue decline) due to the segment's higher exposure to the repair and remodel market. We believe this resilience is likely the result of consumers putting off new construction and shifting toward do-it-yourself projecting during the weak economy.

The firm's Americas segment also echoed the effects of softening demand. Aggregates and asphalt volumes decreased 30%, although the company expects a pickup in highway construction activity as weather conditions improve. Building products and distribution revenues have sustained declines of around 20% and the mid-teens, respectively, since the softening of the non-residential sector has now piggy-backed onto housing weakness.

While CRH faced significant head winds during the first few months of 2009, the company painted a brighter picture for the second half of the year. The firm anticipates to benefit from increased US infrastructure activity in the upcoming months--we think that these projects will provide a slight boost to the company's performance but are unlikely to completely offset the significant declines across the company's residential and non-residential end markets.

CRH will issue its interim statement for the first half of the year on July 7. We have already accounted for a steep mid-teen top-line decline and hefty margin erosion for 2009 and, as a result, we plan to maintain our fair value estimate.

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Anthony Dayrit  Anthony Dayrit is a stock analyst with Morningstar.

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