Lafarge SA jumped as much as 10.3 percent, the most in almost five months, after the French cement maker posted a better-than-expected operating profit and signaled earnings may rise in 2012 as it cuts expenditure.
Shares of the world’s biggest cement maker rose to as much as 35.12 euros in their biggest intraday gain since Sept. 27. They traded 8.3 percent higher at 34.48 euros as of 15:05 p.m. in Paris. The stock was the biggest gainer on the benchmark CAC 40 Index.
Lafarge posted a 3 percent increase in current operating income in the fourth quarter of 538 million euros ($709 million), beating analyst estimates. The company, which cut debt by 2 billion euros to 12 billion euros last year, will sell at least 1 billion euros of assets this year, halve its dividend, shrink capital expenditure by 400 million euros, reduce costs by a further 400 million euros, and try to raise prices.
“This is a good set of numbers in the fourth quarter from Lafarge, driven mainly by Europe and the U.S., and the management is clearly going after debt reduction in a big way,” said Tim Cahill, an analyst at J&E Davy Holdings, in an e-mail. He maintained his “Underweight” rating on Lafarge because of concerns about cost inflation and cement demand.
Chief Executive Officer Bruno Lafont is deepening cost cuts amid higher raw material prices as he seeks to repair a credit rating that has fallen below investment grade. Standard & Poor’s and Moody’s Investors Service cut the company’s credit rating to “junk” in 2011.
“I hope that with all the measures we take and with the moderate volume assumptions we are making, that it will produce an increase of results,” the CEO said on an analyst conference in Paris today. “Debt will be significantly reduced.”
The company, based in Paris will aim to lift its cash-flow-to-debt ratio to 28 percent, up from 13 percent in 2011 “as soon as possible” to regain an investment-grade credit rating, the CEO said.
The company has 1.4 billion euros in maturing debt this year, and there is no need to sell new bonds to refinance it, he said. Lafarge may use private placements if opportunities arise, Chief Financial Officer Jean-Jacques Gauthier said.
“Lafarge reported an excellent operating profit,” said Sven Edelfelt, a Paris-based analyst at Bryan Garnier & Co., in a note to investors. The profit and the cost-cutting plan “bolsters our ‘buy’ case,” it said.