Davy Research |
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CRH
(CRH ID)
NuStar reports weak asphalt demand in Q1 as prices continue to rise
26 April 2012
Barry Dixon
| Closing Price: | 1513c | Rating: | Neutral | 12/01/12 | Previous: | Outperform | 12/09/11 |
FACTS: NuStar, the largest producer of liquid asphalt in the US, reported Q1 revenues in line with forecasts although earnings per share (unit) were behind due to margin pressure.
ANALYSIS: Of relevance to CRH, the company reported for its Asphalt & Fuel Marketing segment that improved results from its crude oil trading operation were more than offset by continued weak asphalt demand.
This is surprising in the context of better weather in the period which should have been positive for asphalt demand for highway construction. It may however reflect the impact of higher prices on demand.
Liquid asphalt prices continued to rise in April, up another 1% month-on-month (16% year-on-year), bringing the average increase over the November-April period to 22%. This will require CRH to achieve a c.10% increase in asphalt mix prices in the current year, which will be challenging in an environment in which state DOT budgets remain under pressure.
DAVY VIEW: Flat budgets and rising input costs do not make a good combination for margin improvement in CRH’s Americas Materials division. The company has made significant cost reductions in this division in recent years which will continue to support margins although delivering increases in the current environment will be difficult.