LafargeHolcim Ltd, the cement maker formed this month in a Franco-Swiss tie-up, said it needs to cut costs to improve profit margins after both merging companies reported earnings below analysts’ forecasts.
The new company will cut spending by at least 200 million Swiss francs ($208 million) over the rest of 2015, when compared to what both companies had planned to spend on a standalone basis, LafargeHolcim, based in Jona near Zurich, said in a statement on Wednesday. It also predicts 100 million Swiss francs of cost savings in the period.
“A disappointing quarter for both Lafarge and Holcim indicative of these companies’ exposure to challenging markets,” Phil Roseberg, an analyst at Bernstein, wrote in a research note. “This is not a good start for the merged entity, but does lower the bar for incoming management.”
LafargeHolcim has predicted the merger to form the world’s largest cement maker will lead to cost savings of 1.4 billion euros annually within three years, giving it an advantage over competitors after a global recession eroded demand for building materials. The stock was down 6 percent as of 12:16 p.m. in Zurich, valuing the company at 36.1 billion francs.
“We continue to operate in a demanding global market environment and this has affected our first-half performance,”said Chief Executive Officer Eric Olsen. “However, as a new company we have hit the ground running.”
Lafarge’s earnings before interest, taxes, depreciation and amortization rose 1 percent in the second quarter to 820 million euros ($907 million), missing the average analyst estimate of 844 million euros. Holcim’s adjusted operating Ebitda dropped 7.4 percent, also missing expectations.
The new entity faces increased competition from HeidelbergCement AG after the German company said on Tuesday it plans to buy rival Italcementi SpA for 3.7 billion euros, putting its repaired balance sheet to work and following LafargeHolcim down the path of consolidation.
Holcim and Lafarge tweaked the original merger agreement earlier this year to win over Swiss investors who were unhappy about the performance of Lafarge since the deal was agreed last year. Holcim has now a bigger stake in the new entity, and the cement makers also named Olsen to lead their combined operation after Holcim shareholders opposed Lafarge CEO Bruno Lafont as head of the new group.
LafargeHolcim said Wednesday it will pay a dividend of at least 1.30 francs per share for 2015.