The performance of Europe's largest rated building materials issuers remained resilient in 2024. Yet several risks--including geopolitical tensions, tariffs, and pricing pressure--could jeopardize companies' base case.

We anticipate mergers and acquisitions (M&As) will continue in 2025, while financial policies will determine companies' creditworthiness and our ratings. The overall rating headroom in the sector remains adequate.

In this article, we summarize issuers' results for 2024, discuss the guidance that is already available, and address investors' questions on trends for growth, profits, capital allocation, and ratings.

Frequently Asked Questions

How did the largest European building materials issuers perform in 2024?

Companies that have already published their 2024 revenues reported low-single-digit decline to low-single-digit growth. Overall, volumes did not recover from the low levels in 2023 and even declined for some companies. Residential end-markets, particularly the new builds segment, remained weak and were less resilient than commercial and infrastructure markets. Selling prices in the building materials sector were broadly stable (see table 1).

Table 1

M&A activity was more pronounced than in 2023 and contributed to most companies' growth. Issuers mainly focused on acquisitions in North America and Australia, whose markets are more fragmented and benefit from higher growth prospects.

Despite depressed residential end-markets in Europe, large issuers' operating and financial performance was resilient. This was mainly due to their geographic diversification in North America and Asia-Pacific, where their performance was solid. In contrast, demand in Europe remained subdued. According to Saint Gobain and CRH, demand in most European countries has reached a low point.

Most European building materials issuers' operating margins were robust and even increased in some cases. On average, reported EBITDA margins expanded by about 30 basis points. However, the extent of margin improvements differed across subsegments (see chart 1).

Chart 1

The margins of cement producers--such as Buzzi, Cementir, Heidelberg Materials, and Holcim--and other heavy building materials issuers increased substantially on the back of continued positive price-cost spreads, solid infrastructure end-markets, and strong cost control.

In contrast, margins decreased for light building materials companies and distributors, which suffered more from pricing pressure and weak residential volumes.

What are the main trends in issuers' 2025 guidance?

Almost all issuers expect that current high macroeconomic uncertainty and geopolitical tensions will continue to depress volumes. Recently deployed U.S. tariffs and potential reciprocal measures from other regions will likely further increase uncertainty in 2025.

Most companies' guidance focuses on margins, rather than sales and volumes, which we think will likely remain low in Europe. However, Saint Gobain believes that residential volumes have bottomed out and could recover in the second half of 2025.

Overall, issuers continue to expect solid long-term growth opportunities in North America. Even so, trade tariffs could hamper business and consumer confidence and weaken the business environment over the short term.

Similarly to 2024, forecasts differs across subsegments. While cement producers expect further profitability increases, distributors' and general building materials' expectations point to broadly stable margins.

What are the main risks and opportunities you see in 2025?

• Weak demand in Europe could persist, especially for new builds, due to affordability constraints.
• Germany's residential sector will show no signs of recovery over the coming quarters.
• Political uncertainty in France could delay a recovery of the residential sector.
• In Italy, tax incentives on residential renovation works will be scaled down from 2025.
• While we expect the direct effects of U.S. tariffs on European building materials issuers will likely be limited, indirect consequences--such as declining business confidence, weaker growth, and higher prices--could be more pronounced.

Factors that could mitigate these risks include our expectations of:

• Resilient infrastructure and commercial end-markets in Europe and the U.S.
• Solid civil engineering on the back of large infrastructure fundings and projects. These include the Next Generation EU program, which will continue to benefit mainly heavy building materials issuers.
• High growth in the datacenter segment, which could mainly benefit electrical manufacturers and distributors.

The U.S. administration has announced new general tariffs on some countries, including the U.K. and the E.U. Do you anticipate negative consequences for Europe's largest building material companies?

The direct effects of potential U.S. tariffs on European building materials would be minor. This is particularly the case in heavy industry, where cross-continental trade is limited and products are usually made locally because they are inconvenient to ship. Even for light industry, trade between Europe and the U.S. is limited.

However, some of Europe's largest building materials companies with a significant presence in the U.S. could be moderately affected if U.S. tariffs on neighboring countries become effective. This is because the supply chain footprints for some products that are for the U.S. market extend to Mexico and Canada.

This is particularly the case for electrical component manufacturers, which tend to have manufacturing facilities or assembly facilities in low-cost countries or regions, such as Mexico. Electrical components and products also include chips and electronics, which are primarily sourced in China or other countries in Asia-Pacific.

If the recently announced 145% U.S. tariffs on China stay in place, electrical component manufacturers could see their sales and profitability decrease meaningfully in 2025.

Most building materials companies are confident that they could pass through additional costs from tariffs. This is because of the sector's solid track record of passing through inflation costs over 2022-2024.

In our view, however, companies might struggle to pass through tariff-related costs quickly and fully, given the current weakness in the residential construction market. That said, we believe that profitability impairments would be temporary and moderate.

Indirect consequences--such as higher inflation and construction costs, reduced business confidence, and lower volumes--would be more relevant and could exacerbate the existing housing affordability crisis. In Europe, the negative sentiment spreading across other European industries that are more affected by a potential trade war could impair household confidence and an already weak economic growth.

What effect will Germany's €500 billion infrastructure fund have?

The investment program could create new opportunities for infrastructure end-markets, with new projects for rails, roads, and bridges. Indirectly, it could also accelerate the recovery of the residential end-market through higher GDP growth and better business and consumer sentiment.

We believe any meaningful recovery in Germany's residential market will only materialize at the end of 2025, if not in 2026.

How do issuers manage their capital allocation?

Most companies significantly increased their capital allocation to M&As in 2024. For example, Legrand, CRH, Holcim, and Saint Gobain spent above €1,000 million each on acquisitions last year. We estimate investment-grade issuers' M&A spendings exceeded a total of €12 billion in 2024, from about €5 billion in 2023.

Acquisitions focused on improving geographic diversification--mainly in North America and Australia--and capturing long-term megatrends, including electrification, sustainable housing, and decarbonization.

Companies' shareholder remunerations were generous. Aggregated dividends increased by more than 18% in 2024, compared with 2023. CRH and Holcim accounted for most of the increase.

Aggregated share buybacks remained high, even though they declined after CRH stopped its extraordinary share buybacks. Although share buybacks are generally more flexible than dividends as they could be easily suspended, we believe they have become an integral part of companies' capital allocation policies.

We anticipate that companies' capital allocation will continue to prioritize M&As in 2025 as the sector aims for business growth. In this context, companies will continue to focus on investments in digitalization, the energy transition, and developed countries with the most attractive growth rates, such as the U.S.

We forecast that cash spendings--including capex, acquisitions, and shareholder remuneration--will exceed aggregated operating cash flows in 2025 and increase releveraging on average (see chart 2).

Chart 2

We expect investment-grade companies' spendings will be in line with their capital allocation strategy.

In the case of Holcim, we anticipate reported net debt leverage will remain below 1.5x, after the spin-off of the North America business. In our base-case scenario, we do not assume any share buybacks over the next few years. Due to uncertainties about timing and size, we have not reflected any acquisitions in our credit metrics either.

Yet we note that M&As are a key element of Holcim's capital allocation policy to achieve its growth targets, in line with its track record. We cannot exclude further shareholder remuneration on top of ordinary dividends if credit metrics allow for an increase in leverage.

How much rating headroom do large investment-grade building materials issuers have?

Overall, rating headroom reduced slightly in 2024, mainly due to an increase in M&A activity. Issuers also continued to distribute dividends and buy back shares.

Companies such as Buzzi, Cementir, and Heidelberg Materials continue to retain very comfortable rating headroom. We expect Saint Gobain's and CRH's leverage will increase slightly in 2025. This is because of continued acquisitions, share buybacks, and capex programs, which are in line with the companies' respective financial policies.

Overall, large building materials issuers' rating headroom remains adequate (see chart 3). Currently, about 93% of rated building materials companies display a stable outlook. The few negative outlooks are related to speculative-grade companies.

Chart 3

Financial policies will continue to determine companies' creditworthiness and our ratings, both in the investment-grade and speculative-grade categories. If shareholder remuneration or M&As become even more equity-friendly than we currently expect in our base case, rating pressure could increase.

We do not anticipate negative rating actions on large European building materials issuers due to tariffs. This is because we expect that any direct effects will be limited or offset by the positive effects of megatrends, such as digitalization. We also think it is unlikely that moderate macroeconomic implications alone will put pressure on the ratings.

Do you expect similar trends for speculative-grade issuers?

Results and outlooks for speculative-grade issuers are usually available from April or May.

We generally expect weaker results and forecasts for these companies. This is because of their weaker geographic and product diversification, and limited financial flexibility, compared with investment-grade companies.

That said, several rated companies undertook cost saving programs and business restructurings in 2024 to adapt to difficult macroeconomic conditions. We forecast that adjusted leverage will slightly improve over 2025-2026 as those initiatives pay off.

In 2024, we took negative rating actions on companies, particularly distributors, with ratings in the 'B' category and with a business focus on countries whose business performance deteriorated, including Germany, the Nordics, and the U.K. Negative outlooks continue to dominate in the 'B' category, indicating that negative rating actions will likely outweigh positive ones in 2025.

Most European building materials in the 'B' rating category are particularly sensitive to the continued weak construction cycle in the region. This is because their financial leverage has already weakened after the decline in volumes over 2023-2024. A prolonged business downturn as a consequence of the deteriorated trade conditions would likely increase downside risks.

Companies in the 'B' category, especially those that are owned by financial sponsors, could also engage in debt-financed acquisitions and dividend recapitalizations, which increases the likelihood of negative rating actions further.

Related Research

• Legrand S.A., April 4, 2025
• Most European Corporates Can Manage The Immediate Effects Of U.S. Tariffs, April 4, 2025
• Holcim Ltd. 'BBB+' Ratings Affirmed On Spin-Off Details; Outlook Stable, March 28, 2025
• European Building Materials Issuers Could Withstand Potential U.S. Tariffs, March 3, 2025
• Global Building Material Companies--Strongest To Weakest, Jan. 30, 2025
• Industry Credit Outlook 2025: Building Materials, Jan. 14, 2025
• CRH PLC, Dec. 11, 2024
• Adolf Wuerth GmbH & Co. KG, Dec. 5, 2024
• Heidelberg Materials' Solid Credit Metrics Can Absorb The $600 Million Acquisition Of Giant Cement, Dec. 3, 2024
• Sanitary Plumbing Products Maker Geberit Downgraded To 'A' On Generous Shareholder Distributions; Outlook Stable, Dec. 2, 2024
• Buzzi S.p.A., Oct. 31, 2024
• Compagnie de Saint-Gobain, Oct. 11, 2024
• Rexel S.A., Aug. 27, 2024
• Cementir Holding N.V., June 26, 2024