As per a report from the Portland Cement Association, it is estimated that the U.S. cement industry will grow by 6.2% in the current year, up from 6% in 2012. Estimated annual consumption growth of cement will be around 11.1% for 2015-2017. Increase in cement consumption was fueled by growing construction activities in the U.S. However, Europe is facing a slump in construction activities this year due to a lack of investments in the real estate sector and weakening European economies. Let’s look at how three companies handle the economic changes affecting their industry.
Growing U.S. market
Specialty cement is used in the construction of oil wells, and increasing well construction is fueling the demand for these cement products in the U.S. To take advantage of this, Cemex SAB de CV (ADR) (NYSE:CX) recently announced the expansion of its cement plant in Texas. The plant’s production capacity will increase to 900,000 metric tons, from 350,000 metric ton currently. The company will spend around $87.5 million and one year on this expansion. Increasing production capacity will help the company to keep pace with the growing demand. Cemex SAB de CV (ADR) (NYSE:CX)’s net income will increase to $139 million in 2014, a drastic change from the loss of $904 million last year.
Recovery in the U.S. housing market is favorable for Cemex SAB de CV (ADR) (NYSE:CX), as it is one of the largest producers of cement in the U.S. It is estimated that cement consumption will increase from 81.2 million metric tons in 2012, to 88.2 million metric tons by the end of this year. To ensure the growth of the housing market, the U.S. government is also supporting residential home projects in the country by providing subsidies. Looking at the positive moves of the government and improving housing market, sales for the company are expected to surge from $3.03 billion in 2012 to $3.37 billion in the current fiscal year.
In the quarter ended in March 2013, revenue of James Hardie Industries plc (ADR) (NYSE:JHX) increased to $326.8 million, up by 5.7%, year-over-year. The growth of the company was driven by increasing sales volume in the U.S. and Asia Pacific. With this, its cost of sales was also increased 5.3%, from $213 million to $225 million in the same period, year-over-year. James Hardie Industries plc (ADR) (NYSE:JHX) is expecting growth in the U.S. housing market this year, and to capitalize on the opportunity, it made investments for plant upgrades and refurbishments of idled equipment. The company is also expecting sales to rise in its repair and remodel segment, which caters to repairing homes and upgrading parts of constructed buildings. It is expected that the company will earn around $1.5 billion in fiscal year 2014, up by 7%, year-over-year.
The Ministry of Education in New Zealand filed a lawsuit against two subsidiaries of James Hardie Industries plc (ADR) (NYSE:JHX) in April 2013. The claim is related to defective wall cladding in 300 school buildings built by the company. The company is facing allegations of weather tightness defects. It is expected that the claims will be settled out of court. The lawsuit filed by the ministry is for $1.5 billion, and any adverse decision from the court will impact the brand image of James Hardie Industries plc (ADR) (NYSE:JHX).
Poor performance will continue
In the first quarter of 2013, CRH PLC (ADR) (NYSE:CRH) posted weak results, mainly due to extremely cold conditions and a weak European economy. As a result, housing construction was halted in the same period. The company’s sales in the material segment declined by 17% in the first quarter of 2013, year-over-year, and overall sales of the company in Europe were down by 13%. According to the European Commission, investments in housing may decline further, negatively affecting the performance of the company. Due to these factors, CRH PLC (ADR) (NYSE:CRH) lowered its EBITDA outlook for the second quarter to $535 million, down by 17%, year-over-year.
To offset the weaker economic conditions of the European countries, the company will continue its cost reduction program in Europe. Construction output in the European region fell 8.4% in May 2013, year-over-year. However, CRH PLC (ADR) (NYSE:CRH)’s cost-reduction measures saved $222 million in the previous year, and the company will continue this program. Additionally, the company is expecting to save around $590 million until fiscal year 2015 by improving its workforce flexibility, mobility, improvements in its logistics network, integration of back office operations, and higher use of alternative fuels. These cost reduction measures will increase profitability while the business goes through a tough phase.
Cemex SAB de CV (ADR) (NYSE:CX) is betting on the recovery of the U.S. housing market, and its capacity expansion will set the perfect platform for the company to grow. I recommend investors buy this stock.
James Hardie Industries plc (ADR) (NYSE:JHX) is expecting growth opportunities from the U.S. market, but adverse results from a New Zealand court will offset the profits of the company. CRH PLC (ADR) (NYSE:CRH) is facing tough conditions in the European market. Moreover, the company is also estimating lower revenue for this year. I recommend investors hold both of these stocks until further improvements by the companies are evident.
The article Are These Cement Companies Investment-Worthy? originally appeared on Fool.com and is written by Shweta Dubey.
Shweta Dubey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Shweta is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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