HeidelbergCement Targets Higher Margins After Profit Rises

HeidelbergCement AG, the world’s third-largest maker of cement, plans to improve profitability with two cost-cutting initiatives after higher demand in the U.S. and Indonesia boosted second-quarter earnings and sales.

HeidelbergCement aims to widen cement margins in Europe and North America by improving pricing and training its sales force, the Heidelberg, Germany-based company said today. Operating income rose 7 percent to 698 million euros ($657 million) in the quarter, beating a 679 million-euro estimate by analysts in a Bloomberg survey.

Chief Executive Officer Bernd Scheifele is sticking to a goal for higher revenue and operating profit this year as rising demand in North America and Asia counters a “slight” drop in Western and northern Europe. The results echo those of larger competitor Lafarge SA, which last week reported better-than-expected earnings amid cost cuts and demand outside of Europe.

“The fact that they are following up with two new efficiency programs shows they are on the right course,” said Marc Gabriel, an analyst at Bankhaus Lampe KG, who has a “hold” rating on the stock. “The development in the U.S. and in Asia was good.”

The shares fell as much as 1.08 euros, or 2.8 percent, to 37.51 euros in Frankfurt, and traded at 37.68 euros as of 10 a.m. The stock has The stock has gained 15 percent this year for a market value of 7.1 billion euros.

Investors expectations for net income were too high, Gabriel said. Net income gained 16 percent to 184 million euros in the quarter, missing a 190.9 million-euro analyst estimate. Sales advanced 11 percent to 3.78 billion euros, ahead of a 3.67 billion-euro estimate, according to a Bloomberg survey.

One of the cost initiatives will combine material-flow systems across the three main business units and may save 150 million euros by 2014, HeidelbergCement said today. The manufacturer didn’t give a savings figure for the training initiative, designed to improve cement margins.

An existing program to generate savings of 200 million euros this year is ahead of schedule and led to an improvement in cash flow of 138 million euros in the first half, the cement maker said.

The company generated more cash from operations in the quarter, which helped reduce net debt to 8.12 billion euros at the end of June.

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