Saint-Gobain Anticipates Unprecedented Profit Margins Amidst Business Recovery

Saint-Gobain Anticipates Unprecedented Profit Margins Amidst Business Recovery

Saint-Gobain, a specialist in construction materials and chemicals, reported third-quarter revenues of €11.575 billion, slightly below expectations but showing improvement from previous quarters. Despite challenges in the new construction market, the company anticipates enhanced operating margins in 2024, aiming to surpass the 11% achieved in 2023. While the CAC 40 struggled, Saint-Gobain’s stock rose 1.6%, buoyed by positive trends in construction chemicals and an optimistic outlook for future performance.

(BFM Bourse) – Saint-Gobain, the specialist in construction materials and chemicals, reported third-quarter revenues that met expectations and is optimistic about gradual improvements in its operations. The company is now focusing on enhancing its operating margin in 2024, following an achieved margin of 11% in 2023.

Despite a mostly declining CAC 40 index on Wednesday, with 35 out of 40 stocks in the red, one company stands out—Saint-Gobain. This historic company, with roots dating back to the 17th century, has managed to remain resilient.

By around 3:30 PM, the building materials company saw a modest gain of 1.6%, standing out as the only notable rise amid the broader index decline, thanks to its consistent quarterly performance.

From July to September, Saint-Gobain generated revenues of 11.575 billion euros, reflecting a nominal increase of 0.1% on a reported basis, although on a like-for-like basis, there was a 2% drop. The analysts at Oddo BHF had projected revenues of 11.6 billion euros.

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Improving Volumes

Although Saint-Gobain’s operations have been hindered by a sluggish new construction market, the company is seeing a sequential recovery, especially after experiencing a 4.9% decline in like-for-like revenues during the second quarter and a 5.8% drop in the first.

Volume trends are nearing stability, with a decrease of 1.5% in the third quarter following a 3.9% drop in the first half of the year.

Oddo BHF noted, “Considering the context of the Paris Olympics and the political changes in France, the sequential improvement from -3.1% to -1.5% in volume is a commendable result.”

The brokerage also highlighted the impressive performance of construction chemicals, a sector in which Saint-Gobain has significantly strengthened its position in recent years, achieving around 2-3% growth in the quarter. This contrasts with Swiss competitor Sika, which experienced a more modest increase of 1.7%.

Nonetheless, Saint-Gobain continues to face challenges due to the downturn in new construction projects across Europe, particularly in France, while renovation projects—accounting for 60% of the company’s European sales—are performing better.

In Northern Europe, several countries have reached or are nearing their low points, with Eastern Europe showing signs of volume growth. In Southern Europe, apart from France, most countries have also hit their low points, according to Saint-Gobain.

“Although the political situation may delay reaching a low point by a few more quarters, encouraging indicators like a reduction in interest rates and improved household purchasing power are providing hope,” the group explained.

Profitability Expectations

Post-quarterly results, Saint-Gobain has adjusted its profitability forecast slightly. Initially, the company aimed for a double-digit operating margin, but now it has set its sights on further increasing this margin in 2024.

This revised goal suggests the possibility of achieving a new record margin, following the 11% margin recorded in 2023. This development isn’t entirely unexpected for the market, especially since the operating margin hit 11.7% in the first half of 2024, compared to 11.3% during the same timeframe in 2023. Oddo BHF mentions that the consensus estimate currently stands at 11.5%.

Management during the post-results conference call indicated their expectation for continued sequential improvement in the business over the forthcoming quarters.

Oddo BHF maintains its ‘outperform’ rating on the stock, pointing out its significant potential for valuation catch-up with industry peers.

“Gradually, the group’s valuation multiples are on the rise. We strongly believe that the changes from recent years, including the green deal, sustainable ESG practices, strong pricing capabilities, and strategic acquisitions, have not yet been fully reflected in the market’s perception of value,” the research firm elaborated.