2nd UPDATE: Lafarge Lowers Volume Guidance As Profits Fall

Construction material and cement maker Lafarge SA (LG.FR) Friday lowered its volume expectations for 2009 after it reported a 38% drop in third-quarter net profit due to lower sales, but said volumes should pick up in the second half of next year as stimulus packages boost spending on infrastructure projects.

"The progressive improvement of the economic environment along with government stimulus plans, with their announced large focus on infrastructure spending, are expected to have a positive impact on our markets as of the second half of 2010," Lafarge said.

Lafarge, one of the world's biggest producers of cement along with Mexico's Cemex SAB (CX)and Switzerland's Holcim Ltd (HOLN.VX), has been hard hit by the downturn in the world's construction markets and its third quarter results missed expectations.

Net profit fell to EUR404 million, from EUR647 million a year ago, short of analysts' expectations of EUR412 million. Revenue dropped 20% to EUR4.25 billion, from EUR5.32 billion, as cement sales fell. The sales figure missed analysts' expectations of EUR4.66 billion.

"Lafarge's results are disappointing" as they come in below expectations and with a slightly lowered guidance, a Paris-based trader said, noting that revenue in the third quarter dropped 16% if acquisitions, disposals and currency movements are discounted, "and that's quite negative news."

At 0830 GMT, Lafarge's shares were trading down EUR1.74, or 3%, at EUR56.25, underperforming a flat CAC-40 benchmark index.

The French company said the economic downturn in Europe and North America led to a strong volume decline, although this was less pronounced than in the second quarter. Volumes fell 8% in the third quarter after 10% in the second, according to slides posted on its web site.

It now expects annual cement volume in its markets to decline 6% to 8%, putting pressure on operating margins, while pricing is expected to be in line with cost inflation. It had previously expected a decline of 4% to 8%.

Last week, Cemex said volumes were down in practically all its markets in the third quarter as it cut its operating profit forecast for 2009. Holcim will report Nov. 11.

Meanwhile, Austria's Wienerberger AG (WIE.VI), the world's biggest producer of red bricks, Friday said it swung to a net loss in the third quarter as it was hit by poor demand, particularly in Eastern Europe, restructuring costs and write-downs. It reported a loss of EUR2.3 million, down from a profit of EUR25.8 million in the same period a year ago, as sales fell 22%.

Wienerberger's Chief Executive Heimo Scheuch said he didn't expect an improvement in earnings in the fourth quarter because the markets remain so weak, although cost savings will improve its earnings and cash flow next year.

Lafarge said its long-term prospects remain undiminished as developing economies still have a fundamental need for cement as they continue to urbanize and develop infrastructure and as their populations continue to grow.

"Cement demand is strongly linked to economic development and Lafarge is one of the best placed players in a recovery," Bank of America-Merrill Lynch analyst Maud Penillard said, adding she was confident for 2010. She rates Lafarge at buy.

Lafarge Chairman and Chief Executive Bruno Lafont said the group's focus on cost savings and free cash flow has helped cut net debt to EUR14.61 billion at the end of September, from EUR17.8 billion a year earlier.

The company added that its plan to divest EUR1 billion of assets is progressing well, with EUR800 million of divestments already secured.

- By Geraldine Amiel, Dow Jones Newswires; [phone]; [e-mail]; (Flemming Hansen in Vienna contributed to this article.)

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