CRH: Paving the road to the future

Building materials manufacturer CRH is the top gainer on the FTSE 100 in early morning trading after releasing its latest results, once again proving investor mantra that guidance is king and past results are only a setup for future success or failure.

CRH: Paving the road to the future

Building materials manufacturer CRH is the top gainer on the FTSE 100 in early morning trading after releasing its latest results, once again proving investor mantra that guidance is king and past results are only a setup for future success or failure. Despite basically flat trading in the first half of the year (revenues +1% YoY, EBITDA +1%, profit margins flat) amidst FX headwinds and challenging weather conditions (remember Beast from the East?), CRH signaled that H2 profits are expected ahead of the same period last year.

 

This comes on the back of continuing economic growth in the Americas, which is expected to deliver stronger revenues for CRH in both residential and infrastructure sectors. US Building Permits were up 1.5% in July, though the US housing market has retreated from very strong Q1 performance and the latest US Housing Starts were also rather disappointing. That said, CRH anticipates improvement in construction spending, hence the company’s confidence in better FY earnings.

 

CRH is also expecting a recovery in the construction materials market in Europe, but, in a slightly worrying signal, also indicated that higher input costs (a recent bane of FTSE Housebuilders) are impacting operating profit in the UK market. Asian market business is also proving somewhat disappointing, with the Philippines proving an especially troublesome spot for CRH due to higher fuel and energy costs impacting profit margins in that market.

 

In the end, the market reaction to the latest CRH results reflects faith in the company’s ability to deliver improved future earnings. After all, the stock market essentially operates on the discounted earnings model and what matters most to investors is the ability to deliver future results, even if current market conditions, both in the home market and overseas, remain sub-par.

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