Emerging Markets Boost
Building materials companies' first-quarter results illustrated the effects of differing degrees of exposure to emerging markets. Firms with greater leverage to developing economies fared much better on sales volumes front than their peers.
Holcim (OTC:HCMLF), a global cement company with more exposure to emerging markets than its closest peers, Lafarge (OTCPK:LFRGY), HeidelbergCement, and CEMEX (CX), saw its cement volumes grow 3% year over year on a like-for-like basis. Lafarge and Heidelberg, which are relatively more exposed to Europe and North America but still have cement plants in other areas such as Asia and Africa, both saw their cement volumes drop 5%. And CEMEX, with the greatest degree of exposure to North America among the top four global cement players, saw volumes drop 6%. Bringing up the rear were Vulcan Materials (VMC) and Martin Marietta Materials (MLM), which produce aggregates in the United States. These companies saw aggregates sales volumes drop 14% and 12%, respectively, in the first quarter.
Harsh winter weather in North America and Europe was at least partly to blame for the dismal first-quarter results. However, both Holcim and Heidelberg admitted in their first-quarter earnings calls that it's too early to determine how much was due to weather and how much was simply due to anemic construction markets. We do have some quantitative evidence that demand is stronger now that winter is over, at least in the U.S. Both Vulcan and Martin reported that March volumes were up on a year-over-year basis, which marks the first growth in four years. April volumes were also stronger. Railroad data confirm these positive trends. In March 2010 the average weekly U.S. rail carloads of crushed stone, sand, and gravel just topped March 2009 levels. And in April 2010, carloads grew 20% on a year-over-year basis, according to the Association of American Railroads Weekly Railroad Traffic Report and Rail Time Indicators.
Looking ahead, in the U.S. signs point to improving infrastructure spending and increased residential construction activity (albeit from a low base). As of the end of March, 74% of highway-related stimulus funds remained unspent. Plus, March's jobs bill--the Hiring Incentives to Restore Employment Act--restored highway funding to fiscal-year 2009 levels until the end of 2010, resolving some of the uncertainty that had plagued highway construction markets since the last highway bill lapsed in September 2009. Commercial construction remains the laggard and the wild card.
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