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Lafarge Unveils New Plan to Boost Earnings; Shares Rise

Lafarge SA, the world’s second-biggest cement maker, unveiled a plan to boost earnings through cost cuts and new services after third-quarter operating profit dropped more than analysts estimated.

The Paris-based company plans to raise earnings before interest, taxes, depreciation and amortization in 2015 and 2016 by 1.1 billion euros ($1.5 billion), with cost cuts contributing 600 million euros and pricier offerings and new services adding 500 million euros, it said in a statement today. The stock gained as much as 3.2 percent.

‘The size of the plan might be a positive surprise for the market,’’ Sven Edelfelt, an analyst at Bryan, Garnier & Co in Paris, said in a note to clients. “The share price should react positively to the new initiatives.”

Chief Executive Officer Bruno Lafont is slashing expenditure, pushing sales of higher-margin services and selling assets to repair a credit rating that has fallen one level below investment grade amid a slump in European construction and rising energy prices. Lafarge today said net debt shrank to 10.9 billion euros at the end of September, a drop of 1.3 billion euros from a year earlier.

The company reiterated a goal to reduce borrowings to below 10 billion euros this year, and to less than 9 billion euros in 2014, to regain an investment grade as soon as possible.

Construction Demand

The stock gained as much as 1.70 euros to 55.20 euros and was up 2.7 percent as of 9:32 a.m., valuing the company at 15.8 billion euros. Before today, the stock had gained 11 percent this year, while the CAC 40 benchmark index had risen 17 percent and Swiss rival Holcim Ltd. had increased 1.5 percent.

Holcim, the world’s largest cement maker, yesterday lowered its 2013 sales forecast because of disappointing shipments in India, Mexico and Canada. Sales won’t match last year’s level, given weakening demand for construction materials in key markets, the Swiss company said.

In the third quarter, Lafarge’s Ebitda fell 6 percent to 1.01 billion euros. Analysts polled by Bloomberg had estimated 1.06 billion euros. Net income was little changed at 304 million euros

The “disappointing” third-quarter Ebitda is linked to “volume decline and adverse forex effects,” Edelfelt said.

Growth Forecast

Lafarge reiterated a forecast for the cement business to grow as much as 3 percent this year in the markets where the company operates. “This implies better trends in the second half compared to the first half as market recovery is becoming evident in the U.S., growth in most emerging markets continues and Europe is showing stabilization at a low level,” the company said.

“Looking ahead, we’ll benefit from three organic growth drivers: continuing growth in emerging countries, accelerating growth through innovation and progressive recovery in mature markets,” the CEO said in the statement. “All our measures strive towards growth in sales, cash flows and returns and our priority is to create sustainable value for our shareholders.”

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