Questionable Timing of US Construction Materials Acquisitions

Implications: It isn’t clear the extent to which the housing slump was factored into the assessments of the recent pending transactions involving construction materials companies. It is clear, however, that the industry is experiencing significant declines in sales volumes from the housing downturn.

Analysis:  

There are three pending multi-billion construction materials acquisitions (Cemex/Rinker, Vulcan/Florida Rock and Heidelberg/Hanson) that are in process, as the US housing slump deepens and adversely affects the sales and earnings of certain of the affected companies. In their latest earnings releases, both Florida Rock and Cemex have cited a significant decline in their first quarter sales volumes, primarily attributed to the housing slump (but also including some weather related effects). Certain markets, like Florida and California seem to be particularly impacted and the end may not yet be in sight. The magnitude of the US sales volume declines announced by Cemex and Florida Rock is disturbing. Cemex cited declines of 18%-25%, depending on product line while Florida Rock announced declines ranging from 27%-34%. It remains to be seen how long and how deep the housing led downturn will be, but it is looking like 2007 might be a considerably more difficult year for the industry than previously envisioned. It will be interesting to see if the current slump affects any of the transactions in process or any future deals that are being contemplated.