Building and construction materials is an industry sector worth hundreds of billions of dollars. However, the sector has been beset with cyclical revenue growth and low profitability for the past decade. Our analysis of 50 large construction materials suppliers reveal that internal research and development (R&D) spending in and of itself is not sufficient to move the needle on earnings. Companies getting the highest elasticity for earnings growth as a function of R&D spending are the ones engaging externally via acquisitions or partnerships. Even in difficult segments like insulation, architectural glass, and construction chemicals, companies like Kingspan, Guardian Industries, and Sika AG have delivered outsized financial returns.
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