CEMEX SAB de CV Q1 FY2024 earnings call

Management Statement and Operational Highlights

• Financial Performance: EBITDA grew 5%, net income increased 13%, and return on capital was 2.4% (slightly higher than the same period last year). The company received an investment-grade rating BBB- from Standard & Poors. It refinanced its Eurobank facility and published its eighth integrated report, showcasing significant decarbonization progress, waste repurposing, and increased alternative substitution rates.
• Strategic Moves: Divested its interest in assets and operations in the Philippines for a total enterprise value of $800 million, with proceeds to fund growth in the U.S. market. Hosted the 2024 CEMEX Day, detailing regions, decarbonization progress, capital allocation, and strategy.
• Operational Insights: Pricing strategy effectively outpaced input cost inflation. Fewer working days in the quarter impacted EBITDA by approximately $20 million. Organization Solutions continued its double-digit EBITDA growth, accounting for 12% of consolidated EBITDA.

Segment Performance

• Mexico: Set a record in quarterly EBITDA generation. Cement and ready-mix volume guidance was raised from low single digits to low to mid-single-digit growth. Sequential prices for cement, ready-mix, and aggregates rose low single digits. EBITDA margin expanded due to favorable pricing and decelerating input costs. Bulk cement and aggregate volumes grew double digits on an average daily sales basis, while ready-mix volumes rose mid-single digits.
• U.S.: Quarterly performance was significantly affected by bad weather. EBITDA rose 3%, and EBITDA margins expanded almost 1 percentage point. Aggregates volumes grew 9% due to infrastructure work. Cement and ready-mix volumes declined due to weather, market softening, and project endings, but volumes started recovering in March and April.
• EMEA: EBITDA declined 41% due to a challenging demand backdrop in Europe and geopolitical events. Europe EBITDA experienced the largest decline of 44% due to significant volume drops, but prices for cement, ready mix, and aggregates rose low to mid-single digits sequentially. Cement volume guidance was upgraded to flat to low single-digit increase.
• SCAC: Fourth consecutive year-over-year EBITDA growth, led by strong pricing performance and decelerating input cost inflation. EBITDA margin increased 3.8 percentage points. Dominican Republic, Jamaica, and Panama had robust or growing volumes.
• Organization Solutions: Fastest-growing business with double-digit EBITDA growth and important margin expansion, accounting for 12% of consolidated EBITDA. Driven by payment services in Mexico and EMEA's construction demolition and excavation materials vertical.

Guidance

• Full-Year EBITDA: Maintaining guidance for a low to mid-single-digit increase in EBITDA.
• Europe: Expecting better performance going forward due to easier comp bases and an improved demand outlook driven by lower inflation and a more benign interest rate environment.
• U.S.: Volumes are recovering with better weather, and the company expects more pricing traction from second quarter pricing increases.
• Mexico: Cement and ready-mix volume guidance was raised to low to mid-single-digit growth.

Risks

• Weather Conditions: Adverse weather in the U.S. and EMEA impacted volumes, affecting EBITDA.
• Geopolitical Events: Geopolitical tensions in Asia, Middle East, and Africa affected EMEA EBITDA.
• Regulatory Changes: Potential changes in regulations related to carbon capture and other operations could impact the business.

Question and Answer

• Q: On the Philippines asset sale, details on debt, working capital, CapEx, and timing. A: The transaction is expected to close by the end of the year, with an implied enterprise value of ~$800 million. Debt assumed is ~$345 million to $350 million, cash is ~$360 million to $365 million, and the impact on leverage is approximately 0.2 turn.
• Q: U.S. volume performance, market share, and regional performance. A: Approximately 50% of the volume decline in the U.S. relates to weather, ~30% to market softening, and ~20% to project endings. Volumes are recovering, and the company aims to responsibly recover market share.
• Q: Carbon capture timeline. A: The company's traditional levers focus on a 2030 commitment, with carbon capture projects being developed, but not included in 2030 targets yet.
• Q: Mexico volume and price outlook post elections. A: Stable volumes are expected, with industrial, commercial, and infrastructure sectors driving growth. The second half of the year is looking reasonably good.
• Q: Capital allocation, specifically on subordinated perpetual notes. A: The after-tax cost of subordinated perpetual notes is comparable to senior debt. They are not seen as a permanent feature of the capital structure and may be blended into senior debt stack over time.
• Q: U.S. pricing evolution in April and May. **A: Prices were increased in Florida in January, and another ~70% of the portfolio is expected to be repriced in April, with pricing traction expected.