CRH shares fall 17pc after giant warns of US problems
Worries over double-dip recession trigger worst stock slump in over two decades
CRH, Ireland's biggest company, has suffered its largest share slump in more than two decades after issuing a dramatic profit warning, mainly due to a slowdown in its US division.
Shares closed down 17pc at €11.70 as the market reacted with dismay to its outlook for the remainder of the year.
While its first-half results were broadly in line with expectations, the outlook provided by the company took the market by surprise, with brokers scurrying to revise down their year-end forecasts.
CRH, the world's second largest building materials group, said it was dealing with a "continuing flow of disappointing economic data'' from the US and worries over a double-dip recession. It also said there was no sign of bottoming out yet in the Irish property market and the Irish business has recorded an operating loss in the first half.
Asked about the slowing US economy and the pricing competition in that market, chief executive Myles Lee said: "Hopefully it's a once-in-a-generation event."
He said the share price slump was exacerbated by the low volume of trading in equity markets in recent weeks.
Strong balance sheet
Even at €11.70 the market didn't seem in a hurry to buy back into the company. "Despite the fall in the share price, we see no need to rush into buying the shares,'' said analysts.
However, the company has a strong balance sheet and "recovery potential'', its analysts added.
The huge plunge in the share price is the latest setback for CRH shareholders this year, who are dealing with a 34pc year-to-date share price decline. Providing some compensation is that the dividend is being maintained at 18.5c a share.
The problems for the company arise in its American materials divisions, which produces concrete, asphalt and gravel and operates in 44 states across the US.
Since putting out a trading statement in July, this business has deteriorated, said CRH.
"Our American materials business has experienced weaker-than-expected volumes and more competitive pricing due to lower-than-anticipated levels of commercial construction and pullbacks in state budgets,'' said the company's outlook.
The impact of all this is a radical change to its earnings forecasts. Originally the company was forecasting earnings in the second half of 2010 would beat 2009, but this is now being dispensed with.
Instead full-year earnings before interest, tax, depreciation and amortisation (known as EBITDA) will drop by 10pc compared with 2009. In fact, in the first six months the company's pre-tax profits dropped to just €25m, down from €108m.
The company is now expected to get even more aggressive on cost reduction and asset sales across its portfolio are also on the cards.
However, Mr Lee cautioned that the company would stick with most of its businesses despite the problems and only sell off significantly underperforming units.
The company has rejected suggestions that it should reduce its US exposure and delve deeper into Asian markets, particularly China.
"It is tough to make money in that part of the world,'' said chief operating officer Albert Manifold.
He said the benefit of acquisitions in the US and Europe was "early paybacks''.
The company spent €86m on acquisitions in July and August on six transactions, including one in China.