CRH plc (CRH) Earnings Call Transcript & Summary

Good day, and welcome to the CRH Third Quarter 2026 Results Presentation. My name is Krista, and I will be your 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 Q3 2026 Results Presentation and Conference Call. Joining me on the call is Aylwyn Bryan, our CFO; Randy Lake, our COO; and Danilo Juvane, our Head of Investor Relations. Before we get started, I'll hand over to Danilo for some opening brief 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 Slide 2 and to our filings with the SEC, including our annual report on Form 10-K and our quarterly reports on Form 10-Q, which are available on our website. We will also refer to certain non-GAAP financial measures. Definitions and reconciliations are included in the appendix of the presentation and in our earnings release. I'll now hand it back to Jim.

Over the next 20 minutes or so, we will take you through a brief presentation of our results for the third 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 as a whole. We will also spend some time discussing the continued execution of our strategy and Velocity, a recently launched transformation initiative that will help us build a better CRH and deliver further value creation for our shareholders. Based on the visibility that we have at this moment in time, we will also share our thoughts on some of the trends we are seeing across our markets as we look ahead to 2027. So first, on Slide 4, let me take you through some key messages from our results. Overall, we delivered a resilient third quarter performance despite contending with a challenging cost environment and subdued residential activity across many of our markets. Looking ahead to the remainder of the year and based on the current momentum that we see across our business, we are updating our financial guidance and now expect full year adjusted EBITDA to be between $7.8 billion and $8.0 billion, representing another year of growth and value creation for CRH. The strength of our balance sheet and cash generation capability enables us to invest for future growth while also delivering significant returns to shareholders. Today, we announced a new $6 billion share buyback program to run through the end of 2030, demonstrating our continued focus on disciplined and efficient capital allocation. Our ability to deploy capital in high-growth markets, integrate at scale and deliver unique synergies through our connected portfolio is a key differentiator for our business. We recently announced the completion of our $8.5 billion acquisition of Arcosa, a significant investment, which will reinforce CRH as the leading aggregates and critical infrastructure player in North America. We have also invested a further $1.9 billion in 27 value-accretive acquisitions in the year-to-date. And we have an attractive pipeline of further growth opportunities in front of us, supported by our unmatched scale, connected portfolio and proven growth capabilities. During the quarter, we launched Velocity, a focused initiative to deliver an enhanced scalable operating model for CRH. Velocity will underpin our growth objectives and enhance operational efficiency, thereby delivering a structurally higher margin business. We expect Velocity to generate $400 million of annual adjusted EBITDA run rate benefits by the end of 2028, and I will take you through that in more detail later in the presentation. Looking ahead to 2027 and based on the visibility we have across our key markets, the outlook for our business is positive, supported by our strategic alignment to growing infrastructure mega trends. Turning to Slide 5 and our financial highlights for the third quarter. Overall, we delivered a resilient performance despite subdued residential activity and a challenging cost environment. Total revenues of $11.4 billion were 3% ahead of the prior year, reflecting good underlying demand across our key markets, positive pricing momentum and contributions from acquisitions. We experienced significant cost inflation during the quarter as sustained increases in oil prices flowed through to key inputs, particularly energy, raw materials and haulage. In response, we implemented further commercial and operational actions to mitigate the impact. This enabled us to deliver an adjusted EBITDA of $2.7 billion, in line with the prior year, representing a margin of approximately 24%. Our third quarter margin was 80 basis points behind the prior year, are in line, excluding the impact of some one-off gains in the prior year, which demonstrates the resiliency of our connected portfolio in an inflationary environment. All of this translated into diluted earnings per share pre impairment of $2.09, which includes the impact of transformation-related costs associated with Velocity. 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 resilient performance despite subdued residential activity and input cost pressures. Total revenues and adjusted EBITDA were 6% and 1% ahead of the prior year, reflecting positive pricing momentum, contributions from acquisitions and the benefits of our connected portfolio. In Essential Materials third quarter revenue were 19% ahead of the prior year. Our aggregates volumes increased by 2%, while pricing was 5% ahead or plus 6% on a mix adjusted basis. Cement volumes were in line with the prior year, while the pricing declined by an average of 2%. Our performance also reflects contributions from acquisitions, particularly Eco Material, which I'm pleased to report continues to perform well with volumes and pricing both up mid-single digits compared to the prior year period. In Road Solutions, Q3 revenues were 2% ahead of the prior year, supported by growth in asphalt and ready-mixed concrete pricing. As Jim mentioned, we experienced some significant input cost inflation during the quarter, which impacted our margin performance, and we focused on cost recovery through further commercial actions and operational measures. While housing activity remains muted, overall underlying demand remains supported by our exposure to growing infrastructure megatrends. Transportation continues to be underpinned by federal and state funding while reindustrialization activity is being fueled by large-scale manufacturing and data center investments. So overall, a solid performance for our Americas Materials Solutions business. And looking ahead, I'm encouraged by our backlogs, which are in line with the prior year. Next to Americas Building Solutions on Slide 8, where our third quarter performance reflects the impact of divestitures, subdued residential activity as well as the non-recurrence of a prior year gain on the sale of certain land assets. We also experienced an inflationary cost backdrop, particularly in relation to elevated haulage rates and have now implemented ongoing operational and commercial initiatives to mitigate those costs. In our Building & Infrastructure Solutions business, we continue to experience strong growth in data center, water and energy infrastructure markets. For Americas Building Solutions overall total revenues and adjusted EBITDA were 3% and 18% behind the prior year period. Excluding the impact of land sales, third quarter adjusted EBITDA and margin were ahead of the prior year. Moving to International Solutions on Slide 9, where our business delivered further growth and margin expansion supported by increased activity levels in certain markets, positive pricing momentum and disciplined cost control. Total revenue growth of 1% translated into a 6% increase in adjusted EBITDA and a further 110 basis points of margin expansion. In Europe, demand remains underpinned by good infrastructure and reindustrialization activity. While in Australia, our business continues to benefit from positive underlying demand, operational efficiencies and contributions from acquisitions.

Thanks, Randy. And turning to Slide 10, reflecting our third quarter performance and expectations for the fourth quarter, we are updating our financial guidance for 2026 to reflect a softer residential market, inflationary cost backdrop as well as a partial year contribution from the Arcosa acquisition. Assuming normal 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 $7.8 billion and $8.0 billion, net income between $3.1 billion and $3.3 billion and adjusted diluted earnings per share between $5.37 and $5.59, representing another year of growth and value creation for CRH. Now at this point, I would like to discuss the continued execution of our strategy. Since setting out our strategic road map and ambitious 2030 growth targets at our Investor Day last year, we have continued to strengthen our portfolio and increase our exposure to attractive markets aligned with growing infrastructure mega trends, transportation, water and reindustrialization. We have been proactively shaping our portfolio to capture secular growth, recycling capital into higher value strategic opportunities through acquisitions such as Arcosa, Eco Material and Axius Water, as well as completing over 60 value-accretive bolt-on acquisitions and $2.1 billion of divestitures. Alongside portfolio strengthening, we are now evolving our operating model through Velocity, a focused transformation initiative that will underpin our growth objectives and enhance operational efficiency thereby delivering a structurally higher margin business, all powered by our winning way. Together, these actions will build a better CRH and support the next era of growth and long-term value creation for our shareholders. First, I will ask Aylwyn to take you through our recent capital allocation activities.

Thanks, Jim, and hello, everybody. Turning to Slide 13 and first to M&A, where year-to-date, we have invested $10.4 billion across our 4 connected growth platforms of aggregates, cementitious, roads and water. We completed our $8.5 billion acquisition of Arcosa ahead of schedule and invested a further $1.9 billion on 27 additional value-accretive acquisitions in the year-to-date. Now withstanding an active year so far, we have a strong pipeline of further M&A opportunities in front of us, supported by our own match scale, connected portfolio and the fragmented nature of our industry. We have also completed three strategic divestitures of non-core businesses in the year-to-date 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. In addition, through our third quarter, we've invested $1.2 billion in growth CapEx, leveraging our size and scale to fully capitalize on high returning, low-risk investment opportunities to expand capacity in high-growth markets, improved operational efficiency, increase automation and optimize our energy use, all of which will deliver long-term shareholder value. Turning to Slide 14 and to shareholder returns. Following completion of the Arcosa acquisition, we are pleased to announce a new $6 billion share buyback program, which will run to the end of 2030. The share buyback program we're announcing today is in line with the $40 billion capital allocation framework we set out as part of our Investor Day last year. In addition, in line with our 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 prior year. All of this is underpinned by the strength of our balance sheet and the significant financial capacity we have at our disposal. We remain committed to maintaining our strong investment-grade credit rating which we've held for over 20 years, and we expect our leverage ratio to normalize towards approximately 2x over time. So overall, these actions highlight our continued focus on disciplined capital allocation and delivering long-term value for our shareholders.

Thanks, Aylwyn. A good summary there of our recent capital allocation activities. Turning now to Slide 15 and our recent acquisition of Arcosa. Arcosa comprises two infrastructure-related businesses, Construction Products and Engineered Structures. Construction Products is a high-quality connected aggregates-led materials business serving 13 of the 50 largest MSAs in the United States with leading positions in Texas, New Jersey, the Southeast and other high-growth regions. And with 35 million tons of annual high-quality aggregates, it will reinforce our position as the leader in U.S. aggregates with over 265 million tons of combined annualized production. Engineered Structures is a leading U.S. manufacturer of critical infrastructure products in the high-growth energy transmission market. This business is supported by robust long-term demand underpinned by grid modernization, electrification and data center construction. 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 shareholders, thanks to our proven ability to acquire and integrate at scale. As you can see on Slide 16, 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 operations, integration and procurement, including production efficiencies, network and logistics optimization, increased material self-supply and the streamlining of administrative and support functions. We're delighted to have Arcosa as part of the CRH family and really looking forward to updating you on our progress. Turning to Slide 17. Let me briefly take you through our combined energy and data portfolio with Arcosa now under our ownership. As you can see on the map, we now have an extensive nationwide manufacturing footprint across the United States, which will enhance our existing connected portfolio and expand our addressable market. It is highly complementary to our existing offering. By combining our leadership positions in energy distribution and data centers with Arcosa's strength and transmission, it will enhance our capabilities in the fast-growing U.S. energy infrastructure market. It also deepen our relationships with leading utilities, hyperscalers and telecom carriers through our early engagement in the design and specification process, allowing us to deliver more tailored, high-value solutions for their specified needs. Overall, our combined energy and data portfolio represents a scaled, high-growth platform.

Thanks, Randy. I'm turning now to Slide 18. The outlook for this business is robust as reindustrialization continues to drive demand for power, grid and data center infrastructure. For example, as a result of the structural deficit and power supply, U.S. utilities are expected to invest approximately $1.4 trillion in grid infrastructure through 2030, representing the largest grid expansion and modernization in decades. At the same time, the rapid growth of data centers is creating significant long-term demand for power and utility infrastructure with the North American data center pipeline now exceeding $2 trillion. As a result, transmission has become the fastest-growing segment of the energy market expected to grow at approximately 10% per year through 2030 as grid capacity continues to expand. Together with our leading market positions in nationwide coverage, we are well positioned to capitalize on the strong growth opportunity. Now at this point, I would like to turn to Velocity on Slide 20. Velocity is a 2-year initiative focused on delivering an enhanced scalable operating model for CRH. At its core, Velocity streamlines our organizational structure, fostering greater agility and entrepreneurship across our business. By delayering decision-making, we will bring management closer to our customers and end markets, enabling faster decisions, more effective execution and greater economies of scale. Overall, Velocity underpins our growth objectives and enhances operational efficiency, thereby delivering a structurally higher margin business. And moving to Slide 21, we have set out the expected benefits. Through simplifying organizational structures and processes, optimizing core business operations through technology, AI and data and accelerating decision-making, execution and the deployment of best practices, we expect Velocity to deliver annual adjusted EBITDA run rate benefits of approximately $400 million by the end of 2028. Reflecting, among other factors, the opportunities identified through Velocity we are pleased to update our 2030 adjusted EBITDA margin target to the upper end of our previously guided range at approximately 24%. With that, I'll ask Randy to take you through some of the key initiatives already underway across the business.

First, simplification. We are restructuring and modernizing our organizational structure to achieve permanent cost efficiencies while also delayering management levels to accelerate decision-making. This will result in a more efficient and agile organization that is closer to the customer. Next, an example of optimization. Across our global asphalt plant network, we're leveraging real-time fuel management, mix analysis and enhanced monitoring capabilities to drive more data-driven decision-making. These initiatives are expected to deliver significant natural gas fuel savings of between 10% and 15%. And finally, acceleration, rolling out a next-generation connected quarry platform across 42 of our largest quarries, each of which produced more than 1 million tons of aggregates annually. Supported by a data-led digital performance hub, the platform enables real-time optimization across the production process from mine planning and blasting through to crushing and low down, and is expected to deliver a 7% to 10% reduction in variable cost. These are just a few examples of the initiatives underway so far, demonstrating our ability to leverage technology, data and best practices at scale, to deliver improved performance. And we look forward to updating you on our progress as Velocity is fully deployed across our business.

Thanks, Randy. Now before I hand over to Q&A, I would like to take a moment to share our thoughts on some of the trends we are seeing across our markets as we look ahead to 2027. First, to the Americas and Transportation, where we continue to see a supportive backdrop underpinned by state and federal funding with approximately 40% of the AAJ funds yet to be deployed, highlighting the significant runway we still have ahead of us. While a multiyear reauthorization of highway funding remains outstanding, we believe we are headed in the right direction, supported by continued bipartisan momentum for increased infrastructure investment in the years ahead. In reindustrialization, we expect continued strong demand for large-scale manufacturing and data centers. With a $2 trillion pipeline of data center projects either announced or under construction in North America and the benefits of our unmatched scale and connected customer offering, we are very well positioned to benefit in this area going forward. We also expect to see continued investment in critical infrastructure, including water, energy and data investment. As for the residential sector, we expect activity to remain subdued in the near term as a result of the ongoing affordability challenges. And as we've said in the past, this is not a demand issue, and we believe the long-term fundamentals in this market remain very attractive, supported by favorable demographics and significant levels of underbuilt. In our international business, we expect positive momentum to continue across Western Europe, driven by good growth in Ireland, the Nordics and Spain, stability in the U.K. and France and some early signs of residential improvement in certain markets. In Eastern Europe, our businesses are well positioned to benefit from a significant pipeline of infrastructure investments supported by EU funding programs. In Australia, the outlook also remains favorable, underpinned by the ongoing infrastructure activity and major project work. Regarding the pricing environment, we expect positive momentum to continue across our markets. So in summary, notwithstanding a subdued residential market, the overall trend is positive for our business heading into next year. And turning now to Slide 25. CRH will enter 2027 from a position of strength. We are taking decisive actions to recover the impact of cost inflation that we have seen in the second half of the year, and expect the benefits of further commercial and operational initiatives to deliver positive price/cost spread in 2027. We will also benefit from the full year contribution from Arcosa and the associated synergies. Through Velocity, we are focused on building a better CRH, evolving our operating model and raising our margin ambitions. We have announced a new $6 billion share buyback program to 2030, underpinned by our superior financial capacity and cash generation, and we continue to see a healthy pipeline of acquisition opportunities alongside continued portfolio optimization initiatives. Together, all of this supports delivering further growth and value creation for our shareholders and reinforcing our position as the leading compounder of capital in our industry. So that concludes our presentation today. I will now hand you back to the moderator to coordinate the Q&A session of our call.

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

Jim, I was just hoping you could maybe talk a little bit more about the reasons for the kind of fiscal year '26 guidance cut. And maybe just kind of unpack a little bit more kind of the drivers, particularly maybe with the weakness in Americas Material Solutions. And as you think about kind of the range that you provided, just what would get you to the low end versus the high end of the guide.

Angel, yes, maybe I might ask Aylwyn to come back at the end, maybe just to comment on some of the puts and takes in the guidance we've reissued. The revised guidance this morning, Angel, really reflects the Q3 performance that we reported and also our estimates for the last quarter of the year. It's built in on what was a very strong first half, right, which -- I think showed the benefits and the resilience of the connected portfolio, and we actually delivered margin expansion through the Q2 and H1. However, since we entered July, we've seen a sharp and sustained increase in energy costs, particularly diesel. But also other costs, including haulage distribution. We've also noticed and seen a residential demand has softened further across the U.S., and that's really, again, the backdrop of rising interest rates. So in broad terms, this guidance reflects the impacts from diesel, haulage, other related raw material costs and assumes in the Q forecast that we remain at these elevated levels of energy for the fourth quarter. Now specifically on the question on American Materials, obviously, these impacts were most pronounced in the U.S. material business throughout Q3. Notwithstanding that, we delivered a solid underlying performance against what was a very challenging cost backdrop, from actually the low point of energy prices in kind of early mid to July, we've seen a sharp increase with diesel up 40% in a short period of time. And that has had a knock-on impact into other areas such as haulage. Now for us, at this time of the year, it's difficult to recover that kind of cost inflation late in the year and also in what are some of our busiest activity months. I mentioned it also residential weakness was also a factor. Activity softened throughout the summer and impacted volumes across many of our markets. And we felt really the combined cost invasion and residential impact across all our products. We felt that across the AMS business in the quarter. Now despite that, right, when you look at it, encouraged by the activity we see on the key infrastructure and non-res markets, our roads business is busy, and continues to perform really well, and we see good momentum in reindustrialization, particularly in the data center space. Now what will be done to, I guess, address that inflationary cost backdrop. We're taking decisive actions, adding fuel surcharges and pushing pricing late in the season. And we see that in terms of our mix adjusted aggregates price was 6% up in the quarter. I'm confident when we look across the business and across the group, our teams are executing well and get in the top of what is, in effect, a temporary timing issue. So we're well positioned heading into '27. Our backlogs are in good shape, and we expect a positive price/cost spread and a return to margin expansion in '27. Maybe Aylwyn, do you want to comment on the...

Angel, so maybe just a couple of comments on scope. As you'll be aware, it has been an active year in terms of M&A and investments for us. So with $10.4 billion of acquisitions year-to-date and $1.9 billion of divestments. So lots of puts and takes there, but we expect the overall net incremental contribution from acquisitions for the full year 2026 to be in the region of $300 million. Obviously, that includes the contribution from Arcosa for the final 2 months of the year in what is a seasonally quiet quarter for the business. Other than that, as Jim mentioned, we are assuming energy constant at the current levels. And then, I guess, finally, in terms of the quarter in general, as you'll be aware, quarter 4 is a smaller quarter for us, and so it can be impacted by weather. If we get an early winter or vice versa, if we get a mild benign winter. So guidance assumes normal weather patterns.

Very helpful. And I know it's a little bit early here maybe into fiscal year '27, but just I wanted to touch on the comments you made about commercial actions or initiatives towards the end of the year to maybe try to recover some of this cost inflation into next year. So if you could comment maybe just -- as we think about the price that is required to ultimately recover this and return back to kind of price cost growth into next year? What kind of pricing actions should we be expecting across the aggregates and cement or realized price into next year?

Yes. Sure, angel. I'll maybe give a kind of bigger macro picture backdrop, and I might ask Randy, maybe just to comment specifically on some of the kind of assumptions and what we're thinking on volume and prices as we enter '27. Overall, if you look at it, the underlying demand backdrop is positive, right? And we got good pricing momentum as we're exiting 2026. So if you look at the building blocks, U.S. infrastructure remains positive, right? We have a continued resolution which is going to be in place in mid-December. We've got good visibility on our backlogs and they're solid. And actually, the state and federal funding remains favorable. Actually, state tax receipts are up kind of mid-single digits in the first half of '26, right? And already, the kind of highway reauthorization conversations are underway, and we're exiting this year but about 40% of the AAJ still unspent. I touched on it. We're busy in the reindustrialization space and demand remains robust. We've got good backlogs, good visibility across a large multiyear projects, not just data centers, but complex manufacturing, chip plants, energy and LNG plants that gives us really good visibility, and I think we'll see continued growth in that space into 2027. U.S. residential remains subdued. And we think that's going to be continued softening through '26. It's not a demand issue. It's an affordability issue. But the 30 year fixed now at 7.4%, we don't really see any res recovery probably until mid-2028 at best. Maybe moving across the international business, there's a number of drivers for growth in 2027 across the international business. We've got very similar end to end market dynamics across all our international footprint. We got strong infrastructure demand across Western and Eastern Europe and Australia. Positive reindustrialization demand across our footprint, strong data center build-out across that footprint, but also particularly in Central and Eastern Europe, defense spending is notable, right, in terms of the activity levels across the eastern part of our portfolio. And we're seeing some signs of residential recovery in some of our key markets. Now we're operating in an inflationary backdrop. And as we enter '27, we kind of think that we're looking at mid-single digits in terms of overall cost inflation. But maybe on volumes and prices, specifically, Randy, would you like to give color?

Yes. I guess, just building on that. So I think you did a good job kind of laying out the overall demand environment, which continues to be pretty positive. Coming out of Q3, I think Jim mentioned it good pricing progression in aggregate 5%, total 6% on a mix-adjusted basis. As I look into next year and we get pretty good visibility, obviously, because of the backlog of our work. 2027 is going to be an exceptionally strong year in the aggregate side of the equation. Obviously, with a full year contribution of Arcosa that's going to bring about really a positive momentum there. I'd say more broadly, the market is probably flat to slightly positive in regards to demand. But from a pricing standpoint, the expectation we have is for high single-digit pricing as we get into 2027. That work is already underway and beginning to make its way through the marketplace. I think just building on that, when you look at our cementitious portfolio, again, the demand drivers are in place. The visibility is good. We're looking at volumes up low single digits in the U.S. and pricing to follow in low single digits for the cementitious, which would be inclusive our Escrow business and the Eco Material business. So again, a strong contribution as we look into next year. The international, Jim called that out as well. They're building off another strong year. You saw the performance in Q3. The demand environment is such that I think the volume expectations there for cement would be low single-digit volume growth and mid-single-digit pricing into '27 for our international cement business. So all in all, when you factor that in, the expectations for us to have margin expansion as we get into '27.