Saint-Gobain Earnings: Drop in Sales Prices Reflects Weak Demand, but Not Hitting Margins Yet

No-moat Saint-Gobain continued its trend of declining sales, falling 6% on an organic basis during the first quarter. A 1% decrease in selling prices is a concern, and while its price/cost spread remained positive during the quarter, we expect it may eat into its record operating margin achieved during fiscal 2023. During the past two years, price increases for its products have been able to somewhat offset lower demand from a weak construction sector, particularly in Europe, in response to higher interest rates. We attribute the underperformance, compared with narrow-moat Sika and narrow-moat Holcim, which have both reported flat sales growth during their first quarter, to Saint-Gobain’s greater geographic exposure to Europe and its products being more commoditized in nature. We maintain our EUR 68 fair value estimate and view shares as fairly valued.