CEMEX SAB de CV Q3 FY2023 earnings call

Management Statement and Operational Highlights

• Financial Performance: EBITDA grew 32% due to decelerating input cost inflation and strong pricing, with margin exceeding 2021 levels. Free cash flow increased significantly. EBITDA margin expanded 350 basis points, the largest in years.
• Growth Investments: Incremental EBITDA contribution from growth investments ramped up to 11%. Organization solutions business grew double-digit year-to-date, with EBITDA growing over 20% CAGR since 2019.
• Sustainability: Reduced Scope 1 carbon emissions 3%, Scope 2 11%. Became first in industry to provide third-party validated environmental info for core products. Working on biodiversity and water goals, aiming to develop biodiversity baselines for active quarries by 2025.
• Regional Updates: Mexico operations strong, US EBITDA up 36%, EMEA Europe EBITDA up 17%, Asia/Middle East/Africa margin contracted, South Central America/Caribbean sales and EBITDA up.

Segment Performance

• Mexico: Delivered strong results with sales supported by double-digit volume and price increases across products. EBITDA grew over 30%. Cement volumes rose 10%, bag cement grew for the first time since 2021, and ready-mix/aggregates benefited from formal construction. A 1.5 million ton capacity expansion in Tepeaca came online.
• US: EBITDA grew 36% driven by pricing strategy and decelerating costs. Cement and ready-mix pricing rose double-digits, aggregates up 9%. Volume decline in cement/ready-mix due to California weakness and industrial projects, but infrastructure activity growing. Aggregate volumes grew from recent acquisitions.
• EMEA (Europe, Middle East, Africa): EBITDA grew despite challenging demand, margin expanded to highest in years. Europe EBITDA rose 17%, margin 17.3% due to success of One Europe strategy. Pricing resilient in Europe, with cement prices up 21%.
• Asia, Middle East, Africa: EBITDA increased low single-digits, margin contracted due to competitive environment in the Philippines.
• South Central America and Caribbean: Net sales and EBITDA rose 11% and 18% respectively, driven by prices and slowing energy inflation. Cement prices up high single-digits, volumes grew first time in two years due to formal construction projects.

Guidance

• Revised 2023 EBITDA guidance from $3.25 billion to over $3.3 billion, a 23% increase vs 2022.
• CapEx expected at $1.35 billion ($900M maintenance, $450M strategic).
• Working capital investment expected at $100 million.
• Cash tax guidance increased to $550 million, driven by stronger results and tax effect of foreign exchange on debt.

Risks

• Geopolitical: Tensions in Israel/Middle East affecting employees and assets.
• Input Costs: Volatility in input costs and inflation impacting margins.
• Market-Specific: Volume declines in US cement/ready-mix, Europe volumes, and competitive environment in Philippines.
• Interest Rates: Impact on commercial and residential projects in the US due to higher rates.

Question and Answer

Q: Carlos Peyrelongue from Bank of America asks about US volumes outlook for next year.

A: Fernando Gonzalez comments on trends in US and Europe, mentioning fiscal stimulus and infrastructure projects, noting Mexico may have positive trends due to election year.

Q: Ben Theurer from Barclays asks about US imports and margin potential.

A: Fernando Gonzalez and Maher Al-Haffar discuss import dynamics, stating imports are complementary to local production, and a 300 basis point margin impact from reduced imports.

Q: Paul Roger from Exane B&P Paribas asks about CCUS projects.

A: Fernando Gonzalez states CEMEX has 7 CO2 capture projects, 4 industrial-level in US (Victorville, Balcones) and Europe (Rudolf, Alcanar), in development with potential grants reducing investments.

Q: Francisco Chávez from BBVA asks about cement price trend.

A: Fernando Gonzalez explains price decline is due to receding inflation, with pricing strategy to recover input cost inflation, and the Philippines being an isolated case of price decline.

Q: Marcelo Furlan from Itaú asks about capital allocation for 2024.

A: Fernando Gonzalez and Maher Al-Haffar discuss returning cash to shareholders via dividends and continued growth investments, with an approved pipeline of investments yielding high IRRs.