Holcim Earnings: Third-Quarter Results Exceed Consensus Estimates, and EBIT Margin Guidance Raised

Narrow-moat Holcim HOLN reported organic EBIT growth of 14% to CHF 1.60 billion during the third quarter, marginally exceeding company-compiled consensus estimates of CHF 1.56 billion. EBIT margin expansion occurred across geographies and business units supported by higher pricing but also benefited from the divestment of its cement business in India last year. Similarly to Heidelberg Materials, which upgraded its EBIT margin guidance in its trading update last week, Holcim has followed suit, raising its full-year EBIT margin guidance to above 17% from 16%. We aren’t surprised by the raise in its guidance and had forecasted margins of approximately 17%. We maintain our CHF 60 fair value estimate and view shares as fairly valued.

Organic sales grew 4.3% during the third quarter, but this was offset by divestments and unfavorable currency movements, which led to an 8.8% decline in reported revenue. Geographically, Latin America was the best performing region, delivering 21% organic revenue growth, which is its 13th consecutive quarter of organic profit growth. North America and Europe both reported organic revenue growth of 8.7% and 6.5%, respectively, whereas the market in China was flagged as soft. The Solutions and Product segment, which mostly consists of roofing, declined by 8.8% against a tough comparable and subsequent destocking. The group expect the segment to return to growth during the fourth quarter. Holcim continues to utilize its strong balance sheet, having made 21 bolt-on acquisitions for the year to date.