CEMEX SAB de CV Q2 FY2026 earnings call

Transformation & Project Cutting Edge

• Project Cutting Edge is a multi-year holistic transformation focused on improving earnings quality, free cash flow conversion, operational excellence, and cultural change, targeting structural margin expansion and best-in-class industry performance. 80% of the original $400 million cost savings target has been achieved in the first half of 2026, leading management to raise the total target to $475 million, with most new savings realized in 2027.
• $230 million of total targeted savings will come from overhead optimization, and $245 million from procurement and operational efficiencies (energy management, logistics, supply chain, cement plant operations). $185 million in total savings are expected for full-year 2026, following $200 million in realized savings in 2025.
• The program includes an ongoing asset pruning initiative to dispose of underperforming, cash-burning assets (primarily underutilized ready-mix operations in the U.S. and Europe) without disrupting vertical integration. 12 additional facilities were disposed of in Q2 2026, with material free cash flow benefits expected starting in 2027-2028.
• Management is pursuing AI-driven operational improvements, starting with a successful pilot at the Balcones, Texas cement plant that will be scaled globally. AI is expected to drive material incremental efficiency gains starting in 2028, particularly in planned maintenance and energy efficiency.
• The full transformation targets a potential $300 million incremental free cash flow opportunity from optimized capital expenditure, reduced intangible investments, and best-in-class maintenance spending alignment.

Financial Performance Highlights

• Adjusted consolidated EBIT grew 29% year-over-year, nearly three times the pace of sales growth, with EBIT margin rising almost 2pp. Q2 2026 free cash flow from operations reached a record $651 million, up over $400 million year-over-year (adjusted for severance and discontinued operations), lifting the trailing 12-month free cash flow conversion rate to 60% from 33% a year prior.
• Energy cost per ton of cement produced declined 6% year-over-year in Q2 2026, with a 10% first-half decline driven by double-digit fuel cost reductions. The diesel hedging program offset $32 million in diesel costs year-to-date, with 80% of 2027 diesel consumption already hedged.
• Management completed significant liability management in Q2: $1.5 billion in dollar/euro bank term loans were repaid, $1 billion in 5.125% subordinated notes were redeemed, and the repayments were funded by a new $1.5 billion 10-year 5.75% SEC-registered senior note (priced at the tightest spread to U.S. Treasuries in company history). A $3 billion 5-year revolving credit facility replaced two smaller existing facilities, with pricing linked to credit rating and CO2 reduction targets.

Market & Decarbonization Highlights

• CEMEX has expanded participation in Mexico's 1.8 million unit social housing program through 2030, with 135,000 units awarded to date (up 12% quarter-over-quarter) and 145,000 additional units under negotiation. Large-scale infrastructure project backlog is growing, but project execution delays mean meaningful demand contributions are not expected until 2027.
• U.S. demand is supported by ongoing rollout of IIJA infrastructure funds (50% of allocated funds already spent), with the proposed Build America 250 Act expected to further support infrastructure demand. Industrial demand for data centers and semiconductor manufacturing is growing, with 35% of all U.S. mega data center projects (over $500 million investment) located within CEMEX's footprint.
• CEMEX is progressing on its decarbonization pathway, reducing year-to-date CO2 emissions by 1% through a lower clinker factor, with the EU ETS reform proposal viewed as supportive for decarbonization leaders like CEMEX.

CEMEX operates across four regional segments, with overall Q2 2026 consolidated EBITDA exceeding $1 billion including a $42 million one-time favorable legal settlement in Europe. Adjusted for the one-off, sales grew 11% and EBITDA grew 19% year-over-year, with consolidated EBITDA margin reaching 21.4% (up 1.4pp adjusted).

1. Mexico: EBITDA grew double digits, leading regional results, with two consecutive quarters of year-over-year cement volume growth, driven by recovering demand, competitor outages (temporary), cost efficiencies, and operating leverage. Pricing increased low single digits sequentially, and the segment achieved a record clinker factor of 62.6% for decarbonization. The segment contributed more than 2pp of overall consolidated margin expansion, with temporary tailwinds from lower-than-expected energy costs and favorable foreign exchange.

2. United States: Weather-related operational disruptions in Texas and the Mid-South, combined with rising material and freight costs, pressured EBITDA and margins in the quarter. Adjusted for weather impacts, cement/ready-mix volumes would have grown 1% and aggregates would have grown 7% year-over-year. Cement prices rose 1% sequentially, ready-mix prices climbed 2% (driven by fuel surcharges), and aggregate prices are up mid-single digits year-to-date 2026. Demand remains resilient, led by infrastructure and industrial projects (data centers, semiconductor facilities).

3. EMEA: Adjusted for the $42 million one-time settlement, EBITDA grew 9% year-over-year, with margins flat as lower volumes offset cost efficiencies and pricing gains. Volumes were pressured by weak demand in multiple European markets, higher interest rates suppressing residential activity, and a severe European heat wave that restricted construction work. The Middle East & Africa sub-segment delivered strong 34% EBITDA growth, with resilient operations in Israel and the UAE despite regional tensions. Cumulative pricing since Q4 2025 is up 3% for cement/ready-mix and 7% for aggregates, with CBAM and EU ETS reforms expected to support future pricing.

4. South Central America and the Caribbean: EBITDA grew double digits year-over-year, with margin expansion exceeding 4pp driven by disciplined cost management. Higher cement volumes in Colombia and Jamaica (boosted by post-hurricane reconstruction and tourism projects) offset softer performance in other markets, with resilient informal construction supporting long-term regional fundamentals.

• Full-year 2026 EBITDA guidance is raised to 16% to 17% year-over-year growth, based on an assumed peso exchange rate of 18.25 to 18.50 MXN per USD for the second half of 2026.
• Full-year 2026 energy costs for cement production are now expected to increase only low single digits percentage year-over-year, an upward revision from prior guidance, driven by stronger-than-expected first-half fuel cost performance.
• Full-year 2026 interest paid plus subordinated note coupons are now expected to total ~$455 million, a $40 million decline year-over-year, which is lower than prior guidance.
• Management expects to end 2026 with a lower net debt plus subordinated notes balance than the 2025 year-end, driven by expected working capital reversal in the second half and strong free cash flow generation.
• The majority of the incremental $75 million in Project Cutting Edge savings are expected to be realized in 2027, with asset pruning and AI-driven efficiency gains expected to deliver material free cash flow benefits starting in 2028 and beyond.
• Management's long-term transformation target is to reach best-in-class industry free cash flow conversion of 36% to 40%, with a free cash flow margin to sales of ~8%, which will take several years to fully achieve.

• Macroeconomic volatility and persistent geopolitical uncertainty (including ongoing conflict impacting energy markets, and regional tensions in the Middle East) could create input cost inflation headwinds that may erode some previously identified Project Cutting Edge savings.
• Demand recovery in multiple European markets remains slower than expected, with higher interest rates continuing to suppress residential construction activity, and geopolitical uncertainty creating limited visibility into future demand trends.
• U.S. performance in the second half of 2026 remains exposed to disruption from hurricane season, which could negatively impact operations and margins. Sustained high interest rates also continue to pressure U.S. residential construction demand.
• A competitor's idled cement plant in Mexico is expected to restart production in Q4 2026, which could create added competitive pressure, though management expects growing demand will partially absorb the new capacity.
• Second half 2026 year-over-year comparisons will be more challenging than the first half, and temporary tailwinds in Mexico (competitor outages, favorable product mix, strong energy cost tailwinds) are expected to reverse, leading to moderated margin performance.

Q: What is the structure of the expanded Project Cutting Edge program, and what are the next steps for the transformation initiative? / A: Project Cutting Edge is a holistic transformation built on three core pillars: operational excellence, cultural change, and relentless focus on earnings quality and free cash flow conversion. The expanded $475 million total savings target by 2027 splits into $230 million in overhead reductions across corporate and regional functions, and $245 million in operating and procurement efficiencies driven by improved third-party spend management and AI-enabled processes. Asset pruning of unprofitable, cash-burning assets is a key complementary initiative, with material free cash flow benefits expected from 2027 onward, and AI-driven incremental gains expected to start in 2028. / Q: Is the strong recent volume and margin performance in Mexico sustainable through the second half of 2026 and into 2027? / A: Management expects Mexican margins to moderate slightly in the second half of 2026, but remain at very solid levels. The first half benefited from temporary tailwinds that will not persist: temporary market share gains from competitor operational outages, a more favorable bag-to-bulk product mix, and unusually strong energy cost tailwinds. As large-scale infrastructure projects (which demand higher bulk cement volumes) begin to break ground, the product mix will shift back to lower-margin bulk, and additional planned maintenance outages will also modestly pressure margins. Despite this moderation, underlying demand from social housing, the informal sector, and growing infrastructure backlog remains strong, supporting solid performance going forward. / Q: What is management's view of the proposed EU ETS reform, and what are the implications for CEMEX's European operations? / A: Management views the proposed EU ETS reform as broadly positive and supportive of value creation for decarbonization leaders like CEMEX, which already has the lowest CO2 emissions per ton of cement in Europe. The reform widens the CO2 cost gap between decarbonization leaders and laggards (both domestic producers and importers), incentivizes faster decarbonization with additional financing support, and creates structural support for mid-single-digit annual price increases to protect margins. While the reform delays the pace of free allowance removal by one year for 2028-2029, by 2029-2030 the business case for keeping high-emission capacity running just to capture free allowances will no longer exist, leading to rationalization of excess capacity that benefits incumbent leaders. / Q: Is the 60% trailing 12-month free cash flow conversion rate sustainable, and what is the long-term target for this metric? / A: The entire Project Cutting Edge transformation is focused on improving earnings quality and reaching best-in-class free cash flow conversion, matching peer group performance of 36% to 40% total free cash flow conversion with an 8% free cash flow margin to sales. The 60% current rate is for operating free cash flow excluding one-time items, and the long-term goal is to deliver consistent, best-in-class total free cash flow metrics. Key drivers of sustainable improvement include eliminating underperforming assets that consume capital and burn cash, focusing only on bolt-on acquisitions that expand margins rather than revenue for growth's sake, and optimizing capital expenditure levels. The transformation will take time to fully deliver, but the current 60% operating conversion rate reflects clear progress toward the long-term goal. / Q: What is the size, timing, and distribution of AI-related infrastructure demand gains in the U.S., and when will it move the needle for CEMEX? / A: Internal estimates indicate that U.S. data center construction could add 2% to annual national cement consumption between 2026 and 2030, with total annual investment projected to reach ~$500 billion. Projects are concentrated in Texas, California, Arizona, and the mid-South, all regions where CEMEX has a strong existing footprint. Volume growth has been rapid, doubling year-to-date 2026 after growing 185% in 2025, with CEMEX achieving a 60% win rate on project bids. The company benefits across the value chain, gaining higher-margin ready-mix volume that in turn drives demand for internally produced cement, aggregates, and admixtures. While volumes are not yet material at the company level, the growth trajectory is strongly positive.