Holcim Ltd., which is merging with Lafarge SA to form the world’s largest cement maker, reported quarterly profit that missed analyst estimates as currency effects wiped $498 million from sales in the second quarter.
Net income in the three months through June rose 5.9 percent to 406 million francs ($448 million), missing the 459.5 million-franc average estimate of 12 analysts surveyed by Bloomberg. Savings were less than half the 237 million francs achieved in the first quarter, adding pressure on Holcim to regain ground during the rest of this year to meet its financial targets. The stock fell as much as 5.4 percent.
“Cost programmes appeared to lose traction in the second quarter,” analysts at Davy Research said in a note today. “While outlook comments are unchanged, consensus downgrades are likely with the stock under pressure today.”
The $40 billion merger will couple Lafarge’s African cement plants with Holcim’s Asian assets, two regions where building is expected to boom over the next decades. Holcim and Lafarge have kicked off the sale of about 10 percent of their combined assets to get the deal past regulators and ensure it’s wrapped up on target by the first half of next year. The asset sales are weighted towards Europe, cutting exposure of both companies to the slower-growing region.
Holcim shares traded 4.6 percent lower as of 9:28 a.m. in Zurich, giving the company a market value of 24 billion francs. Before today, shares had gained 14.9 percent this year.
Restructuring costs of 50 million francs as well as a 452 million franc cost from translating weaker emerging market currencies into Swiss francs weighed on earnings, Holcim said. Sales fell 6.6 percent to 5 billion francs, just short of the 5.1 billion-franc average estimate.
The Swiss cement maker reiterated a forecast for cement shipments to increase this year as well as confirming profit forecasts. Meeting those targets would prove that a savings program begun by Chief Executive Officer Bernard Fontana little more than two years ago will offset currency headwinds and weak demand in key emerging markets Mexico and India.
Earlier this month, the companies jointly published a list of planned asset sales. In total, cement and crushed rock plants with approximately 1 billion francs of earnings before interest taxes, depreciation and amortization will be sold. Several suitors are interested in all assets on sale, Fontana said in a briefing in Zurich July 21.
Fontana will help to integrate the two companies before Lafarge chief Bruno Lafont becomes head of the merged entity next year.