Higher raw material costs weigh on Geberit’s profit growth

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By John Revill

ZURICH (Reuters) – Geberit sees “considerable challenges in the raw material markets,” said the Swiss construction supplier on Wednesday, as higher costs weighed on earnings growth in the third quarter.

The piping and bathroom ceramics maker was the latest construction company to warn of higher spending as construction activity in the industry picks up after the pandemic closed last year.

Suppliers with stuttering production starts and broken logistics networks have also driven up costs for companies like cement manufacturer Holcim, while energy prices are also ticking upwards.

Geberit said that its bill for raw materials increased by 15.6% in the three months to the end of September, which dampened the growth in operating profit.

Sales rose 7.6% to 854.8 million Swiss francs (935.5 million US dollars), but operating profit rose much more slowly by 1.5 percent to 230.7 million Swiss francs.

Raw materials remain a challenge, with Geberit anticipating a price increase of around 3% for the fourth quarter compared to the third quarter.

The company, whose results are considered a proxy for the general construction industry, uses metals such as aluminum and zinc, plastics and ceramics in its products used in new construction and refurbishment projects.

After a strong first half of the year, Geberit said that growth trends are slowing as the flattering comparisons with the 2020 numbers affected by the pandemic fade.

There was also a normalization of inventories at wholesalers, who had previously created high demand by building up their inventories, and the first signs of a slowdown in the home improvement trend.

Nevertheless, Geberit stated that sales in the third quarter were 17.4% higher than in the third quarter before the coronavirus. The company has raised its earnings forecast and increased the stock 1.9% in premarket activity.

The company now expects an increase in net sales in local currencies of between 12% and 14% for the full year, which is roughly in line with the previous forecast.

It also expects an EBITDA margin (core profit) of 30 to 31%, slightly higher than the previous forecast for the upper end of the medium-term target corridor of 28 to 30%.

($ 1 = 0.9137 Swiss Francs)

(Reporting by John Reville, Editing by Michael Shields and Mark Potter)

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