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Lafarge Repeats Forecasts as Cold Weather Constricts Sales

Lafarge SA (LG), the world’s biggest cement maker, reiterated its full-year forecast as cold weather, stinted Algerian and Egyptian production and fewer working days constricted first-quarter sales.

Chief Executive Officer Bruno Lafont said in a statement the first quarter traditionally represents a small proportion of income and isn’t indicative of full-year trends. “Our outlook remains unchanged and we expect to see cement demand growth in our markets of between 1 percent and 4 percent in 2013.”

Lafont is cutting jobs and procurement costs and pushing sales of higher-margin services and products to counter a construction slump in Europe and political turmoil in the Middle East. He’s also selling assets to repair a credit rating that has fallen below investment grade. Paris-based Lafarge said it was able to raise prices to counter cost inflation and that the increases “will fully deliver in the coming months.”

The stock rose as much as 6.2 percent in trading in the French capital, the steepest rise in 2 1/2 months, giving the company a market value of 14.9 billion euros ($19.6 billion). Lafarge shares were up 5.9 percent to 51.78 euros at 12:58 p.m. local time.

“The fact that price increases are gaining momentum month after month is reassuring,” Arnaud Palliez, an analyst at Raymond James in Paris, said by telephone. He rates Lafarge market perform. “With stable energy costs in the first quarter, they’re a bit ahead” compared with their annual guidance.

Production Incidents

Earnings before interest, taxes, depreciation and amortization fell 26 percent from a year earlier to 380 million euros, the company said. Analysts surveyed by Bloomberg had expected 450 million euros.

Lafont said the decline in earnings was entirely linked to one-time items that reduced volume, including very unfavorable weather in central Europe, northern Africa and the U.S., and production incidents that are now largely solved.

Sven Edelfelt, an analyst at Bryan Garnier & Co. who recommends clients to buy Lafarge, said today’s weak results were a good entry point in the stock.

“The full-year guidance 2013 is unchanged on volume and energy costs,” he said in a note to clients. “We view this weak performance as linked to the strike in Algeria, production disruption in Egypt, and fewer working days in Europe.”

Debt Trimmed

Lafarge’s debt shrank by 4 percent at the end of first quarter from a year earlier to 11.8 billion euros. Lafont has set a goal to trim the company’s debt below 10 billion euros this year, a target that the manufacturer will “probably” attain in the second half of the year, he said on a call with reporters.

The company said it has agreed to 1 billion euros in asset sales since the start of 2012, and has already received 600 million euros in proceeds from these divestments.

Lafont said that 800 million euros of capital expenditure this year will be used to free up production capacity, mostly in emerging markets. The company plans new grinding investment in Algeria, India, the Philippines and plant renovation in Iraq.

Lafarge plans to deliver 650 million euros of additional Ebitda from cost cutting and innovation in 2013, the company reiterated. That will help it meet most of its 2015 target to boost Ebitda by 1.75 billion euros one year early, though the benefit could be partly offset by lower sales of carbon credits and falling revenue in some markets, Lafarge has said.

The company posted a net loss of 117 million euros in the quarter compared with a loss of 60 million euros a year earlier. Sales fell 2.7 percent to 3.14 billion euros.

To contact the reporter on this story: Francois de Beaupuy in Paris at fdebeaupuy@bloomberg.net

To contact the editor responsible for this story: Simon Thiel at sthiel1@bloomberg.net

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