CRH plc (CRH) Earnings Call Transcript & Summary

Good day, and welcome to the CRH Second Quarter 2026 Results Presentation. My name is Krista, and I will be your conference operator today. [Operator Instructions] At this time, I'd like to turn the conference over to Jim Mintern, CRH Chief Executive Officer, to begin the conference. Please go ahead, sir.

Hello, everyone. Jim Mintern here, CEO of CRH, and you're all very welcome to our Q2 2026 results presentation and conference call. Joining me on the call is Aylwyn Bryan, our CFO; Randy Lake, our COO; and Danilo Juvane, Head of Investor Relations. Before we get started, I'll hand over to Danilo for some brief opening remarks.

Thanks, Jim, and hello, everyone. I'd like to draw your attention to Slide 2 shown here on the screen. During our presentation, we will be making some forward-looking statements relating to our future plans and expectations. These are subject to certain risks and uncertainties, and actual results and outcomes could differ materially due to factors outlined on this slide. For more details, please refer to our annual report and other SEC filings, which are available on our website. I'll now hand it back to you, Jim.

Over the next 20 minutes or so, we will take you through a brief presentation of our results for the second quarter of the year, highlighting the key components of our operating performance, our recent capital allocation activities as well as providing you with an update on our expectations for the year. We will also outline how we are strategically positioning our business to deliver further growth and value creation for our shareholders. First, on Slide 4, let me take you through some key messages from our results. We are pleased to report a record second quarter with further growth in revenues, adjusted EBITDA and margin compared to the prior year period, reflecting favorable underlying demand, disciplined commercial execution and contributions from acquisitions. All of this is underpinned by the benefits of our superior strategy and the continued execution of our winning way. We remain focused on active portfolio management and the disciplined allocation of capital as we continue to build a higher growth connected portfolio to maximize shareholder value. In the year-to-date, we completed 3 strategic divestitures of noncore businesses for a total consideration of $1.9 billion and invested $1.4 billion in 17 value-accretive acquisitions across our 4 strategic growth platforms in aggregates, cementities, roads and mortar. We also recently announced an agreement to acquire Arcosa, a leading provider of building materials and critical infrastructure products in the United States. This is a significant investment, which will reinforce CRH as the leading aggregates and critical infrastructure player in North America, and I will take you through that in further detail later in the presentation. Turning to outlook. We are encouraged by the underlying demand environment across our key markets. Notwithstanding the current geopolitical and macroeconomic uncertainties we are pleased to reaffirm our adjusted EBITDA guidance range for 2026, representing another strong year of growth and value creation for CRH. Turning now to Slide 5 and our financial highlights for the second quarter. Overall, a robust performance with revenues, adjusted EBITDA, margin and diluted EPS all ahead of the prior year period. Total revenues of $10.8 billion were 6% ahead. This translated into adjusted EBITDA of over $2.6 billion in the quarter, a 7% increase over the prior year. Despite contending with an inflationary cost environment, I am pleased to report a further 30 basis points of margin expansion, demonstrating our relentless focus on commercial excellence and strong cost discipline across our business. All of this translated into further growth in our diluted earnings per share, a 14% increase, reflecting a strong operating performance and including a $0.16 net gain on divestitures in the period. Now at this point, I will ask Randy to take you through the performance of each of our businesses.

Thanks, Jim, and hello, everyone. Turning to Slide 7 and starting with Americas Materials Solutions, which delivered a strong performance in the quarter, supported by good underlying demand, positive pricing and contributions from acquisitions. Total revenues and adjusted EBITDA were 10% and 12% ahead of the prior year benefiting from our national scale and connected portfolio of businesses. In Essential Materials, second quarter revenues were 20% ahead of the prior year. Our aggregates volume increased by 2%, while pricing was 5% ahead. Cement volumes were 2% behind the prior year, reflecting some adverse weather conditions, which impacted activity levels in certain markets. Cement pricing declined by 1%, reflecting regional variances across our operating footprint. Our performance also reflects contributions from acquisitions, particularly Eco material, which I'm pleased to report is performing well. In Road Solutions, Q2 revenues were 6% ahead of the prior year, supported by growth in asphalt volumes and pricing as well as increased paving activity. reflecting strong project execution and backlog conversion. From a demand standpoint, the underlying backdrop remains positive, supported by our strategic alignment to growing infrastructure mega trends. Transportation and water infrastructure continues to be supported by strong state and federal funding, while reindustrialization activity remains underpinned by large-scale manufacturing and data center projects. Despite an inflationary cost environment, I'm pleased with how our teams demonstrated strong cost and commercial discipline across our business, delivering a further 40 basis points of margin expansion compared to the prior year. So overall, robust delivery from our Americas Materials Solutions business. And looking ahead for the remainder of the year, I'm encouraged by the positive momentum we're seeing in our bidding activity and our backlogs. Next to America's Building Solutions on Slide 8, where our second quarter performance reflects the impact of recently completed divestitures and a new build residential market. We also experienced an inflationary cost backdrop, particularly in relation to elevated haulage rates in the quarter, and we've implemented operational and commercial initiatives to mitigate these costs. In our outdoor living business, demand for residential repair and remodel continues to be resilient. In our Building and Infrastructure Solutions business, we're seeing good growth in data center, water and energy markets. For Americas Building Solutions overall, total revenues and adjusted EBITDA were 2% and 8% behind prior year. Moving to International Solutions on Slide 9, where our business delivered further growth and margin expansion supported by higher activity levels in certain markets, positive pricing momentum and fixed cost control in an inflationary environment. Total revenue growth of $0.05 translated into an 8% increase in adjusted EBITDA and a further 70 basis points of margin expansion, reflecting ongoing performance optimization initiatives as well as contributions from acquisitions. In Europe, our businesses continue to benefit from favorable infrastructure and reindustrialization activity. While in Australia, our business also continues to perform well, benefiting from positive underlying demand operational improvements and synergy delivery from recent acquisitions.

Thanks, Randy. Overall, a strong second quarter performance from our business. Now at this point, I would like to discuss the continued execution of our strategy. and how that leaves us well positioned for continued growth and valuation. We continue to focus on increasing our exposure to 3 large and growing infrastructure megatrends, which we believe will support significant long-term growth and value creation for our business. Through disciplined capital allocation, we are strengthening our leading market positions in attractive markets to fully capitalize on these compelling growth opportunities. We are continuing to advance our aggregates-led connected portfolio strategy, as demonstrated by our recent agreement to acquire Arcosa. We produce over 380 million tons of aggregates on an annual basis. And by leveraging the benefits of our connected portfolio across our cementitious roads and water platforms, we are able to maximize our profits, cash and returns. With over 1,200 acquisitions completed throughout our history, we have a proven ability to acquire and integrate businesses at scale and our financial strength and cash generation capabilities provides us with strong optionality for further capital deployment. Turning to Slide 12. Through the continued execution of our strategy, we are increasing our exposure to growing infrastructure megatrends, transportation, water and reindustrialization and strengthening our leadership positions across our 4 connected growth platforms of aggregate cementitious roads and water. All of this reinforces our position as the #1 infrastructure player in North America and our ability to deliver further growth and value creation for our shareholders. I will now ask Aylwyn to take you through our recent capital allocation activities.

Thanks, Jim. Hello, everybody. Turning to Slide 13 and first to M&A. For year-to-date, we've invested $1.4 billion on 17 value-accretive acquisitions across our connected growth platforms. The largest acquisition was Axius Water for approximately $700 million, further strengthening our position as a leading U.S. water infrastructure player. As Jim mentioned earlier, in June, we also reached an agreement to acquire Arcosa for a cash consideration of $150 per share, reflecting a total enterprise value of approximately $8.5 billion. . The transaction is subject to Arcosa stockholder approval, regulatory approvals and customary closing conditions, and we expect to close during the first quarter of 2027. Looking ahead and notwithstanding what has been an active year so far, we have a strong pipeline of further M&A opportunities in front of us, supported by our unmatched scale, connected portfolio and fragmented nature of our industry. We also completed 3 strategic divestitures of noncore businesses for a total consideration of $1.9 billion demonstrating our commitment to active portfolio management and the reallocation of capital into higher-growth connected businesses. Through the second quarter, we've invested approximately $800 million in growth CapEx and leveraging our size and scale to fully capitalize on high returning low-risk investment opportunities to expand capacity in high-growth markets, improve operational efficiency, increase automation and optimize our energy usage, all of which will drive long-term shareholder value. We have also returned $1.2 billion to shareholders through dividends and share buybacks year-to-date. And in line with our strong financial position and policy of consistent long-term dividend growth, the Board has declared a quarterly dividend of $0.39 per share representing an increase of 5% on the prior year. Since the inception of our buyback program in 2018, we've returned approximately $10 billion to shareholders through the repurchase of 24% of our shares. As previously announced in June, in connection with our agreement to acquire Arcosa, we have taken the decision to pause our share buyback program following the completion of the latest tranche and we'll reevaluate the program at a later date. So overall, an active year so far demonstrating our focus on efficient allocation of capital to maximize value for our shareholders.

Thanks, Aylwyn. A good summary there of our recent capital allocation activities. Turning now to Slide 14 and our agreement to acquire Arcosa, which is fully aligned with our strategy. Arcosa is a leading provider of building materials and critical infrastructure products in the United States. Under our ownership, it will enhance our connected customer offering and with 35 million tonnes of annual high-quality aggregates, it will reinforce our position as the leader in U.S. aggregates with over 265 million tonnes of combined annualized production. Overall, the acquisition represents a compelling growth and value creation opportunity for CRH and I will ask Randy to provide a brief overview of the strong synergy opportunities we have identified so far.

For this acquisition, we're uniquely positioned to deliver significant value creation for our shareholders. leveraging our unmatched scale, connected portfolio and leading performance capabilities. And as you can see on Slide 15, we currently expect approximately $175 million of run rate cost synergies to be achieved by year 3 with $60 million anticipated in the first year of ownership. We've identified significant opportunities across operational improvements, materials, self-supply, global procurement benefits as well as optimizing our administrative and support functions. So overall, the transaction represents strong synergy and value creation potential, and we look forward to updating you further post completion. Turning to Slide 16 and just to take a step back for a moment to highlight our strong track record of synergy delivery from acquisitions. Our ability to identify, acquire and integrate businesses at scale is a well-developed muscle in CRH. Origination starts at the local level, local teams with strong community ties and long-term relationships, sourcing strategic growth opportunities across thousands of locations. These empowered local teams leverage the benefits of our global scale and leading performance capabilities, be it through best practice programs, global procurement benefits or operational and commercial excellence initiatives. We have a disciplined and value-focused approach, applying a rigorous appraisal process as well as strict strategic and financial performance criteria to every investment we make. Since 2018, we've delivered on average approximately 600 basis points of margin improvement within the first 3 years post acquisition. A more recent example of this is Ecomaterial, the leading supplier of SCMs which we acquired last year. The integration is progressing well, and I'm pleased to report that synergy delivery is ahead of our original expectations. All of this reflects a deeply embedded culture of performance and a relentless focus on continuous business improvement, which really strikes at the core of our winning way.

Thanks, Randy. Turning to Slide 17. And as we previously communicated, over the next 5 years, we expect to have at our disposal financial capacity of approximately $40 billion, reflecting our strong growth profile, the level of cash we are generating and the strength of our balance sheet. We expect to allocate approximately 70% of this to growth investments with the remaining 30% returned to shareholders through dividends and share buybacks. The proposed acquisition of Arcosa accelerates our progress in this regard while also being fully aligned with the delivery of our 2030 financial targets. Annual revenue growth of between 7% and 9% and adjusted EBITDA margin of 22% to 24% by 2030 and an average adjusted free cash flow conversion of over 100%. On Slide 18, you can really get a sense of the size and scale of our business with the adjusted EBITDA of CRH together with Arcosa on a forecast 2026 basis being larger than the next 4 U.S. peers combined. Scale matters in our industry. It creates significant commercial, operational and strategic benefits that set us apart and enable us to deliver leading performance year after year. Our unrivaled cash generation capabilities, combined with our uniquely connected portfolio provides us with superior optionality to invest for further growth and value creation all supported by our strong balance sheet and investment-grade credit rating. All of this together demonstrates why CRH is the leading compounder of capital in our industry. Finally, now turning to outlook on Slide 20. And we are pleased to reaffirm our adjusted EBITDA, net income and diluted earnings per share guidance for 2026. Assuming normal seasonal weather patterns for the remainder of the year and no further major dislocations in the geopolitical or macroeconomic environment, we expect full year adjusted EBITDA to be between $8.1 billion and $8.5 billion. Net income between $3.9 billion and $4.1 billion, and diluted earnings per share between $5.60 and $6.05, representing another strong year of growth and value creation for CRH. So that concludes our presentation for today. I will now hand you back to the moderator to coordinate the Q&A session of our call.

[Operator Instructions] Your first question comes from Angel Castillo with Morgan Stanley.

Jim, Aylwyn, congrats on the strong quarter here. Just you kept your outlook unchanged despite still a volatile and uncertain kind of macro backdrop. So just was hoping you could give us a little bit more color on just your 2026 guidance and just the underlying assumptions. .

Angel, yes, listen, I'll give a bit of background first, and then I might ask Randy just to jump in maybe on the building blocks, the kind of volume and prices underpinning that reaffirmation of the guidance and then Aylwyn just in terms of the financial puts and takes at the end of it. Yes, listen, this morning, very pleased to have announcing a really strong Q2 and a strong H1 despite it has been a very challenging macro environment. As you know, kind of very much a weather interrupted kind of May and June and some of our southern and southeastern parts of the U.S. business. And in that context, very pleased to reaffirming the adjusted EBITDA guidance for the year. What gives us confidence of that is really the positive demand across the business. Infrastructure is strong, Angel, across the business, particularly, and that's both U.S. and an international comment. We're forecasting this year to be still have 40% of the double IJA unspent. So we had good momentum coming into '26. That's continued and looking at good momentum exiting into '27 too. I'd say one thing that we did note, certainly in the first half of '26, we saw a notable pickup in the whole area of reindustrialization. That's kind of also in data centers, but also advanced manufacturing facilities, semiconductor facilities, LNG plants. So these are large multiyear construction projects typically can run kind of 2 to 3 years. Residential, pretty much subdued, particularly on the new build side in the U.S. but seen good resilience actually on the repair and remodel side. Now we switch to the international business and seen similar trends, strong infrastructure across the whole international business again, seen a pickup in the whole kind of reindustrialization space across data centers and advanced manufacturing, particularly in Central and Eastern Europe and maybe slightly different to the U.S. in pockets of recovery and residential certainly in parts of Western Europe and up into the Nordics as well we are seeing. So good underlying backdrop across the business. We've had a good start to the year in terms of pricing or good early season pricing, and that was followed up by midyear pricing also and very good commercial execution. Annd looking forward to that guidance to another year of margin expansion. But maybe, Randy, do you want to get into the specifics, maybe volumes and prices?

Yes. I guess when you look at our business, and we've talked about this before, kind of the Americas Materials business specifically, the window of the future is our backlog kind of gives us that 6- to 9-month view in terms of underlying activities and that remains positive. So when we talk about kind of the quantum that we're bidding as well as what we secured in terms of volumes, they're both up year-over-year. Jim called it out, certainly infrastructure and the private reindustrialization playing a significant role in that. Jim mentioned it as well, these are multiyear projects. I think what it does do is actually play to the strength of the connected portfolio. So it's -- it's not just the ability to provide the aggregates everything from the very beginning of the project in terms of the underground water energy components with our products business as well as cementitious and all the way into delivering aggregate ready-mix and then ultimately, asphalt. So that connected portfolio has been a strength in adds to the volume backdrop that we're seeing. Good to see ag movement in the Q2 volumes up 2%, pricing up 5%. That's really in line with what our full year expectations have been. If you remember back in Q1, we had a mixed adjusted pricing of 5%. So it's great to see it actually coming through in regards to demand in the business. Cement volumes, some weather impact in Q2, but for the first half, up 3%. So encouraging to see that. And I think that really gives us the confidence in terms of what our outlook is on cement kind of low single digit in terms of volume improvement and broadly flat on pricing. I would call out specifically in and around our cementitious strategy. I mentioned it in the opening remarks, ECO material performing really well. Volume and pricing up mid-single digits. So when you look at kind of the strength of that business, what we anticipated in terms of commercial opportunities, the internalizing of that volume is coming through and when you look at a mix adjusted basis on cementitious pricing, we're ahead, which was really positive. Jim mentioned as well just to wrap up on international, good performance, continue to see good volume growth. The expectations for the year, a low single-digit volume and mid-single-digit pricing for the full year, and that will be the ninth year of positive pricing in our international business. So -- the combination of good backlog, good commercial execution gives us a lot of confidence for the year.

One from a scope perspective, you'll have seen it's been an active year from a portfolio perspective. So $1.4 billion on 17 value-accretive acquisitions and $1.9 billion of divestments and so overall scope impact, I guess, lots of puts and takes feeding in to this, but the net incremental EBITDA contribution to be expected in the region of $200 million for the year. And then finally, just on FX. Based on current FX rates, the FX impact is expected to be negligible.

Super helpful. That was a lot of great detail. Maybe just one quick one. Just you touched on prices and how you're seeing some improvements in certain pockets. I guess just your view as we go into the second half and then to kind of exit rate into 2027. I would be curious if you could talk about just the overall market's ability to absorb potentially higher prices. across kind of your Americas Materials products, particularly in Essentials, just given continued cost inflation lasting longer than we thought.

Yes. I think, Angel, as you said, we've had a good start to the pricing. We've good early season pricing across the whole business, and we called it out in Q1 with mix adjusted in 5%. We're good to see that coming through strongly, then the 5% reported in Q2 mid-year pricing, we called it out, I think, on the Q1 earnings, is in place, right? And that's what has given us that confidence in looking at mid-single digits for the full year, which is going to give us good momentum into '27 as well from a pricing perspective. Obviously, a fair bit to play. We're only getting into the kind of crux of the season right now in terms of construction season. But very happy with where pricing is and really looking forward to another year of margin expansion for the full year.

Your next question comes from the line of Anthony Pettinari with Citi.

Jim, could you talk about the drivers of margin weakness at Americas Building Solutions and maybe kind of timing and levers for recovery there? .

Yes. Sure, Anthony. Yes, I think overall, it was kind of a mixed quarter overall for the American Building Solutions business, right? On the one hand, we kind of saw good growth across data centers and the whole reindustrialization space, which kind of fed in strongly to our water and energy infrastructure business. But clearly, the performance in the quarter had been impacted by the divestitures in the first half of the year and kind of continued subdued residential demand, primarily from a newbuild perspective, right? The repair and maintenance is actually a remodel at has remained reasonably resilient to now. We saw a very significant pickup as know, during the pandemic. And since then, it's actually held up reasonably well. So it's really the softness in the subdued nature on the new build residential from that perspective. Specifically in the quarter, I think we called it out, we were impacted by cost inflation in the American Building Solutions business, and that is particularly in the area of haulage, where we saw increased haulage rates on certain of the delivered products in the American Building Solutions. However, we've taken steps to mitigate us. We've come back what kind of additional price surcharges and cost reductions. But as you know, this will take time to recover, right? There can be a lag, but we expect the impact of this cost inflation to moderate as we head into kind of quarter 3 and further into quarter 4 as well.

Your next question comes from the line of Trey Grooms with Stephens.

Yes.So I want to ask about on the public side, about Build America 250, I'd love to get your updated thoughts on how it stacks up to IGA, the puts and takes there. And it looks like we're heading for a continuing resolution here. Curious to see how you think that plays out? And what all that could mean for your business and the public demand outlook. And if we were heading for a bit of a funding gap, how do you navigate that?

Thanks, Trey. Yes, I might ask Randy to comment in just on the very specifics of where we believe it is right now from a DC perspective. But Overall, as I said, we exited last year with good momentum, and we've seen that continue in terms of very strong federal and indeed state funding in the current year, right? And we see it in our bidding activity and our backlogs and as I said, kind of in the opening remarks on the full year guidance, we're expecting at the end of the year to have still 40% of the double IGA yet to be deployed. That's not unusual, right? I said there's a number of times in kind of multiyear interstate highway program funding program to exit with kind of 1 to 18 months kind of tail in terms of funding is quite common. But maybe, Randy, you might just give an update of what we understand where we are exactly in terms of BA250 for MDC?