CEMEX, S.A.B. de C.V. Q2 FY2024 earnings call

Management Statement and Operational Highlights

• Financial Performance: EBITDA rose 2% driven by strong growth in Mexico. EBITDA margin expanded to the highest level since 2016 as pricing strategy outpaced input cost inflation. Free cash flow after maintenance CapEx declined slightly due to tax payments and lower fixed asset sales.
• Weather Impact: Difficult weather in key markets (U.S., EMEA, Mexico) affected volumes, but Mexico stood out with strong performance. Weather conditions in various regions impacted volume figures.
• Sustainability: Reduced Scope 1 CO2 emissions by 3% in the first half of 2024 relative to H1 2023. Recognized by World Benchmarking Alliance with highest climate transition score for climate action efforts.
• Urbanization Solutions: Double-digit EBITDA growth, driven by Regenera Circularity in Europe and growth in Mexico's pavements, services, and admixtures. Urbanization Solutions business continued strong performance with double-digit growth.

Segment Performance

• Mexico: EBITDA grew strongly, driven by improved bagged cement activity, infrastructure, and industrial segments. Volumes were strong despite weather, with bagged cement and infrastructure/industrial contributing. Revenue contribution from Mexico was significant. EBITDA for Mexico region saw growth due to positive pricing and volume performance in key segments.
• U.S.: Impacted by weather, residential slowdown, and competitive dynamics. Volumes declined, but margin expanded due to higher prices and lower cost inflation. U.S. operations faced weather-related volume drops but margin improved from pricing and cost control.
• EMEA: Decline in EBITDA due to challenging demand in Europe, geopolitical events in Middle East, and sale of Philippines operations. Europe saw divergent volume dynamics between Western and Eastern Europe. EMEA region experienced EBITDA decline from demand issues and geopolitics.
• Urbanization Solutions: Grew 13% year-to-date, representing 10% of consolidated EBITDA, driven by Regenera Circularity in Europe and growth in Mexico's pavements, services, and admixtures. Urbanization Solutions business continued strong performance with double-digit growth and 10% of consolidated EBITDA.

Guidance

• EBITDA: Confident in low to mid-single-digit EBITDA growth for 2024. Management expects like-to-like operations excluding Philippines and FX as of quarter end.
• Energy Costs: Upgraded energy cost guidance to a high single-digit decline instead of mid-single-digit decline, driven by better comps, fuel substitution, and clinker factor reduction.
• U.S. Outlook: Expect EBITDA improvement in the second half of 2024 with volume growth, less scheduled maintenance, decelerating costs, and market share recovery.
• Europe: Anticipate an inflection point in Western Europe with better economic data, expected rate cuts, and lifting of construction bans post-Olympics.

Risks

• Weather: Continued adverse weather conditions in key markets could impact volumes and operational performance.
• Geopolitical Events: Geopolitical tensions in the Middle East and challenging demand environments in Europe pose risks to EMEA operations.
• Currency Fluctuations: Exchange rate volatility, particularly in the Mexican peso, can impact financial results due to FX translation effects.

Q: About U.S. cement demand end markets A: Lucy Rodriguez stated that infrastructure, accounting for ~50% of U.S. demand, remains vibrant with IIJA projects. Residential slowed due to affordability and mortgage rates above 7%. Industrial has large projects but commercial is slow.

Q: Energy cost guidance improvement A: Maher Al-Haffar explained that better comps, substitution to lower-cost fuels, and clinker factor reduction drive confidence in upgrading energy cost guidance to high single-digit decline.

Q: World Benchmarking Alliance criteria A: Fernando Gonzalez said the alliance uses 60% climate action and 40% social issues. CEMEX ranked #1 among cement, steel, and aluminum for strong climate action and social strategies.

Q: U.S. pricing outlook A: Lucy Rodriguez and Maher Al-Haffar mentioned resilient pricing expected due to sold-out market, potential rate cuts, and improving housing market dynamics.

Q: Mexico market segments A: Jorel Guilloty was told that infrastructure, housing, and industrial sectors are driving growth in Mexico, with ready-mix and bagged cement showing strong volumes and pricing.

Q: Main drivers of Mexico margin improvement A: Maher Al-Haffar listed energy/fuel management, clinker factor reduction, and favorable supply/demand dynamics as key drivers of margin improvement in Mexico.