Heidelberg Materials: Full-Year Profit Guidance Raised for Third Consecutive Quarter After Strong Q3

Narrow-moat Heidelberg Materials HEI released an unexpected trading update, reporting third-quarter operating profit growth of 24%, which will exceed company-compiled consensus by 11%. The better-than-expected third-quarter profitability has led management to raise its full-year profit guidance by 4.5% at the midpoint—the third consecutive quarter that the group has raised its profit guidance. Our estimates are broadly in line with the revised guidance, and we maintain our EUR 80 fair value estimate. Although shares are marginally undervalued, CRH remains our preferred pick in the sector due to its significant exposure to the United States, which enjoys a favorable outlook for construction spending due to recently signed legislative acts.

Third-quarter revenue declined 4.4% year over year, slightly sharper than consensus expectations. While no segmental detail was provided, we anticipate declining volumes have more than offset the spillover impact of significantly higher prices implemented in the prior year. Our read-through from peers that have already reported reflects residential construction activity being down globally, with only the U.S. experiencing growth in commercial construction. Management confirmed full-year revenue guidance of a “moderate” increase. Our full-year forecast of 2% revenue growth, after unfavorable exchange rate movements, remains unchanged.