Saint-Gobain Delivers Record 2022 Results, but Warns About Market Slowdown in 2023

No moat Saint-Gobain SGO exceeded our full-year expectations, reporting record annual revenue and operating profit of EUR 51.2 billion and EUR 5.3 billion, respectively. Impressive 2022 results were driven by price increases to the tune of 14.6%, which not only supported organic revenue growth of 13.3%, but also fully offset cost inflation of EUR 3 billion versus the prior year. However, higher prices combined with a slowdown in construction activity appears to be weighing on demand, which trended downward throughout the year and declined 3% during the fourth quarter. We expect this trend to continue, which will ultimately filter through to margin pressure. While we plan to revise our top-line estimates for Saint-Gobain’s outperformance in 2022, we don’t anticipate a material change to our EUR 58 fair value estimate, nor our margin outlook, which falls at the midpoint of management’s 2023 EBIT margin guidance between 9% and 11%. Shares are currently fairly valued.

Saint-Gobain’s volume decline of 3% during the fourth quarter was less severe than heavy building material manufacturer HeidelbergCement. The group’s exposure to renovation activity, which accounts for 50% of group sales is less cyclical than the new residential construction market, and has also benefited from demand for energy-efficiency renovations.

Saint-Gobain’s record operating margin of 10.4% (20 basis points above 2021) has benefited from a shift in the group’s product mix toward higher-margin construction chemicals and away from low-margin distribution. The disposal of its U.K. distribution business is expected to be completed in 2023 and will provide more tailwinds to the group’s margin profile. Therefore, management’s EBIT margin guidance for 2023 between 9% and 11% likely indicates that profit in the underlying business will face pressure during 2023.

Shareholders will be rewarded with a EUR 2.0 dividend, an increase of 23% year over year, and at least EUR 400 million in buybacks during 2023.