RBC downgrades Amrize as cost inflation overwhelms volume gains

Investing.com -- RBC Capital Markets downgraded Amrize Ltd to “underperform” from “sector perform” and cut its price target to $48 from $60, after the cement and building materials maker’s second-quarter EBITDA of $986 million missed the RBC/Visible Alpha consensus estimate of $1.01 billion by 2.1%, even as revenue beat forecasts, driven by margin contraction across both of its business segments.

Amrize’s second-quarter revenue of $3.49 billion came in 3.9% above consensus of $3.36 billion, up 8.6% year-over-year, driven by 6.7% organic growth that included a $200 million volume contribution, $16 million from price, $54 million from the PB Materials acquisition and $6 million from foreign exchange. 

But the EBITDA margin of 28.2% fell 173 basis points below the 30.0% consensus and 74 basis points below the prior-year period, as costs outpaced the benefit from higher volumes.

RBC said Amrize was the only major "heavyside" building materials company to miss second-quarter consensus and cut full-year guidance, noting that peers CRH, Martin Marietta and Vulcan Materials all beat estimates and held their guidance. 

The broker said Amrize’s Q2 EBITDA miss was driven by the building materials segment, while its Building Envelope unit posted a small consensus beat.

RBC’s Q2 EBITDA bridge cited $75 million of oil-driven cost inflation affecting freight, diesel and raw materials, against just $29 million of savings from Amrize’s ASPIRE cost-savings program, a net headwind of about $46 million in the quarter. 

The broker said Amrize’s full-year guidance implies a persistent annual gap of $60-$90 million between cost inflation and ASPIRE savings that management must close through pricing.

RBC also flagged a $78 million understatement of deferred revenue tied to extended warranties from Amrize’s Duro-Last and Malarkey acquisitions, which the company called "not material to any previously issued consolidated financial statements" but which required revision of multiple prior periods.

RBC cut its FY26/27/28 EBITDA estimates by 3.8%/6.3%/7.3% and its adjusted diluted EPS estimates by 11.6%/14.1%/15.0%, modeling toward the lower end of Amrize’s updated guidance range of $3.1-$3.2 billion.

The broker lowered the EV/EBITDA multiple underpinning its price target to 9.5x from 11.5x, while raising its free cash flow yield assumption to 6.0% from 5.5%.

At $47 as of Aug. 7, shares had fallen 8%, trading at 9.6 times CY2026E EV/EBITDA, broadly in line with CRH’s 9.4x but without CRH’s 12-year track record of margin expansion, RBC said. The downside scenario points to $34 a share and its upside scenario to $72.

RBC said it would reassess its rating if Amrize delivers positive price/cost trends in both segments for two consecutive quarters, ASPIRE savings exceed $50 million per quarter on a sustained basis, or cement pricing turns positive year-over-year for two straight quarters.