CRH Plc expects 2004 pretax profit to have leaped to more than €1 billion euros but shares in the building materials company slipped this morning amid fears it faced headwinds in 2005.
CRH was confident about the year ahead but would have to contend with economic uncertainty as well as the impact of a weak US dollar and high energy and raw material prices, Chief Executive Liam O'Mahony said following a trading update.
"One thing people are overly focusing on is the outlook for European products and distribution after CRH said the market had failed to sustain the firmer tone seen in the first half," said Robert Eason, analyst at Goodbody Stockbrokers.
Eason noted, however, that the company always tended to sound a cautious note and said he was reassured by management comments that, after a weak patch in September and October, the European unit had ended the year well.
Shares in CRH were down 1.8 per cent at €19.73 at mid-morning in Dublin, underperforming ISEQ index, which was down 0.4 per cent. The stock was down 2.2 percent at €19.65 in London.
Analysts also pointed out that the weak dollar looked set to continue eating into earnings generated at CRH's US units, despite the fact that the impact last year was not as severe as 2003, when currency movements shaved 10 per cent off group profit.
Adverse foreign exchange rates would have knocked €40 million off earnings in 2004, which was equivalent to about 5 per cent of 2003 pre-tax profit, the company said.
"Reflecting the recent weakness in the dollar, we are adjusting our forecast for 2005 pre-tax profits from €1.125 billion to €1.08 billion," said Joe Burnell, analyst at Davy Stockbrokers, in a research note following the update.
CRH's expectation that 2004 pre-tax profit would have broken through the €1 billion level for the first time equates to a rise of about 16 per cent from the €864 million posted in 2003 and was broadly in line with analyst forecasts.
Despite the obstacles posed by economic and currency market uncertainties, the company said in the update that it was confident for the year ahead and that overall markets had shown "improved activity levels through the second half of 2004."
While there was little excess fat left to be stripped out, costs could be cut further in areas such as the American materials business in order to boost profitability, CRH'S O'Mahony told analysts in a conference call.
"We really are setting out to grind out slightly better margins," he said, repeating that investors could expect growth in dividend pay-outs to remain around the mid- to high-teen percentage mark over the coming years.
CRH, one of Europe's biggest suppliers to the construction industry, raised its interim dividend by 17 per cent in August after first-half earnings jumped 71 per cent thanks to better weather, strong demand for new houses and acquisitions.
The firm said in a separate development update today that it had spent €309 million on 25 projects in the second half of 2004, bringing total investment and acquisition spending to about €1 billion, down from €1.6 billion in 2003.