SOURCE: Lux Research

Lux Research

March 25, 2015 07:30 ET

Outside Partnerships Drive Profit and Revenue for Building Materials Firms

External Engagements Better Correlate With Increased Revenues and Earnings, Relative to R&D Spending, According to Lux Research's Analysis of 50 Large Building Materials Companies

BOSTON, MA--(Marketwired - Mar 25, 2015) - Building and construction materials companies, beset by cyclical revenue growth and low profitability over the past decade, benefit more from partnerships and acquisitions than from increased R&D spending, according to Lux Research. Such external engagement was better correlated with earnings growth, relative to R&D spending, in an analysis of 50 large building materials companies.

"The correlation of healthy business growth to looking outside the company is now apparent in longer cycle industries like construction materials, as it has been for years in consumer packaged goods," said Aditya Ranade, Lux Research Senior Analyst and the lead author of the report titled, "Making Money in Construction Materials." "Established companies should certainly maintain viable R&D functions, but it's vital to pair them with robust technology scouting, corporate venturing, and/or M&A programs."

Lux Research analysts evaluated 50 large building companies on historical R&D and external engagement, along with five-year revenue growth and operating margins. Among their findings:

  • Insulation manufacturers are desperately trying to escape commoditization. Major insulation manufacturers like Owens Corning and Knauf have struggled with both revenue growth and profitability. Kingspan has been a standout with high topline growth driven by acquisition of complementary technologies such as structured insulated panels (Rigidal) and air barrier membranes (Pactiv).

  • Cement alone lacks a positive outlier. Even well-managed companies such as Lafarge and Cemex have barely maintained positive revenue growth. Not surprisingly, the sector is going through a period of consolidation with the Lafarge-Holcim merger the biggest on the horizon.

  • Adjacencies offer opportunities. Small innovative companies represent ready-made opportunities to identify and expand into technological or business model white spaces. Good examples include more efficient air handling systems for a tighter building envelope, new modeling and fabrication tools, and niche products in commoditized segments such as interior paints.

The report, titled "Making Money in Construction Materials," is part of the Lux Research Sustainable Building Materials Intelligence service.

About Lux Research

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