Heidelberg Materials delivers strong Q4, but FY25 outlook slightly below consensus

investing.com -- Heidelberg (ETR:HDDG) Materials AG (ETR:HEIG) traded higher on Tuesday following the release of its fourth-quarter earnings report, which showed a stronger-than-expected financial performance. 

The company’s earnings before interest, taxes, depreciation, and amortization (EBITDA) exceeded expectations by 4%, driven by improving margins in key markets and cost-cutting efforts under its "Transformation Acceleration" plan.

Revenue for the quarter increased by 6% year-on-year, coming in 2% ahead of market consensus. 

EBITDA rose by 13%, with all regions reporting positive contributions, ranging from 3% to 8% above expectations. 

Operating profit (EBIT) followed suit, rising by 16% year-on-year and surpassing consensus estimates by 2%.

Both Morgan Stanley (NYSE:MS) and RBC Capital Markets analysts pointed to strong margin performances in Europe, North America, and the Asia-Pacific regions, with Heidelberg Materials’ overall EBITDA margin improving by 137 basis points. 

North America stood out, with cement margins reaching 30% and aggregate margins improving to 32.3%, underscoring operational efficiencies across the business.

Despite these gains, full-year net profit declined by 8% to €1,782 million, falling short of the consensus estimate of €1,980 million. 

The shortfall was primarily due to restructuring costs and impairments associated with plant closures in Europe. However, free cash flow remained stable and outperformed expectations by 12%.

The company reiterated its commitment to the "Transformation Acceleration" initiative, which aims to deliver €500 million in annual cost savings by the end of FY2026. 

The program focuses on cost synergies, standardization, automation, procurement, back-office reductions, clinker substitution, and increased use of alternative fuels to enhance efficiency.

Regional performance reflected a mixed but largely positive outlook. In Europe, sales grew by 4% year-on-year but missed consensus expectations by 1%. 

EBITDA margins improved by 184 basis points, helping the division outperform consensus by 6%. A demand recovery is expected to continue into FY25, with projected revenue growth of 4.5%. 

North America saw a 6% increase in sales, though it slightly trailed consensus forecasts. EBITDA margins rose by 286 basis points, with infrastructure demand remaining strong, supported by federal and state investment programs. 

The outlook for FY25 remains positive, with consensus forecasting a 10% revenue increase. In the Asia-Pacific region, sales declined by 1% and missed consensus expectations by 2%, but EBITDA margins expanded by 255 basis points, leading to an 8% beat on expectations. 

While Australia and Thailand showed positive momentum, challenges persist in China and India. RBC estimates a 5.5% revenue increase in the region for FY25.

Meanwhile, the Africa-Mediterranean Basin region outperformed, with sales surging by 21% year-on-year, 18% above consensus estimates. Despite a decline in margins, the region still managed a 4% EBITDA beat, with demand expected to remain strong in FY25.

For FY25, Heidelberg Materials anticipates an EBIT of €3.25 billion to €3.55 billion, with a midpoint of €3.4 billion, which is a shade under the consensus prediction of €3.48 billion. 

“FY25 capex largely in-line with consensus and we see potential for further strong FCF generation - expect further bolt-on M&A as part of the strategy to bring leverage back to target 1.5-2.0x,” said analysts at Barclays (LON:BARC) in a note. 

The company’s ROIC target is around 10%, and capital expenditure is projected at €1.2 billion, meeting market expectations.

Analysts suggest that reaching the upper end of EBIT guidance would likely require additional mergers and acquisitions or a stronger-than-anticipated recovery in volume growth. 

For now, market sentiment remains cautious, with investors waiting for clearer signs of sustained demand recovery before adjusting expectations.

The return to positive revenue growth in Europe, after a period of decline, marks a key turning point for Heidelberg Materials. 

Coupled with improved profitability and cost efficiency, this strengthens the company’s outlook for 2025. 

Morgan Stanley rates the stock ’equal-weight,’ citing its valuation of 11 times projected 2025 earnings and a 7% free cash flow yield.