CEMEX, S.A.B. de C.V. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Strategic Priorities: Focus on operational excellence and shareholder returns. Reorganized corporate structure, streamlined overhead, empowered regional teams. Conducted regional business reviews, identified improvement areas, developed action plans. Reviewed growth CapEx pipeline, shifted to prioritizing small to midsized M&A in the U.S. Introduced new capital allocation model.
• Project Cutting Edge: Expanded, merged centralized functions into operations, eliminated/reorganized corporate initiatives. Expected EBITDA savings for 2025 to reach $200 million (up from $150 million), with a run rate of $400 million by 2027. Includes $200 million annualized corporate headcount reduction.
• Second Quarter Performance: Consolidated EBITDA outperformed expectations. The EMEA region drove results with volume recovery. Net income increased 38% due to strong FX and lower interest expense. Pricing strategy recovered cost inflation. Volume performance mixed: weaker in Mexico and U.S., recovery in EMEA.

Segment Performance

• Mexico: Second quarter results challenged by prior year comparison, pre-election spending, FX, and June precipitation. Average daily cement sales stabilized with low single-digit sequential growth. Prices up 5% (cement), 6% (ready-mix), 8% (aggregates) year-to-date. Margin resilient due to higher prices, favorable energy, and Project Cutting Edge efforts.
• U.S.: EBITDA declined due to lower volumes from precipitation and residential weakness. Ready-mix and cement volumes down mid-single digits. Aggregates prices up 5% year-to-date. Margin stable due to higher prices and lower costs. Restructured operations from region-based to product line-based.
• EMEA: Strong performance with highest first half EBITDA in recent history, margin expanded almost 3 percentage points. Europe had volume growth except France; Middle East and Africa strong volume growth. Cement and ready-mix prices up year-to-date, aggregates prices down. CO2 emissions in Europe at record low.
• South Central America and Caribbean (SCAC): Cement volumes increased 1% adjusting for business days. Jamaica saw tourism-related developments. Pricing stable after first quarter increase. Ongoing expansion projects impacting margin in the quarter.

Guidance

• Consolidated EBITDA: Flat versus 2024 with potential upside depending on microeconomic conditions. FX rates at end of June level would add approximately $60 million to second half EBITDA.
• Free Cash Flow: Expect improvement in the second half with higher profitability and working capital reversal.
• Capital Allocation: Progressive growth of shareholder return program, including dividends and potential share buybacks. Focus on accretive M&A in the U.S.

Risks

• Market Volatility: Lack of visibility in key markets, external factors like weather impacting volumes.
• FX Impact: Mexican peso remained a headwind, though partially offset by other currency appreciation.
• Portfolio Rebalancing: Underperforming assets at micro market level may require turnaround or divestment, which takes time.

Question and Answer

Q: About Project Cutting Edge savings, where are additional savings from?

A: Mainly from overhead headcount reductions, with $85 million this year, $115 million next year for $200 million total. $400 million run rate includes direct overhead, indirect, non-personnel, and operative savings.

Q: Elaboration on shareholder return platform and SCAC divestments?

A: Capital allocation based on shareholder returns, will prioritize U.S., Mexico, Europe; SCAC divestments expected between end of 2025 and next year.

Q: Free cash flow levers and milestones?

A: Working on CapEx reduction, Project Cutting Edge savings, strategic CapEx execution, interest expense reduction, operational excellence. Portfolio rebalancing takes longer; $400 million steady state EBITDA savings by 2027.

Q: Organizational changes and free cash flow conversion?

A: Decentralized operational excellence, boosted collaboration, optimized resources. Aim to achieve free cash flow conversion rate similar to peers by 2027, with cutting-edge savings directly contributing to free cash flow.

Q: Pricing trends in Mexico and U.S.?

A: Mexico cement price increase effective July, expecting $8-$10/ton more. U.S. cement flat, ready-mix flat, aggregates ~5%-6% sequential increase year-to-date.

Q: EMEA medium-term outlook?

A: Strong potential in Israel, Europe volume growth, CO2 decarbonization, CBAM impact, capacity closures. Pricing to leverage momentum.

Q: Guidance upside sources?

A: Project Cutting Edge savings, FX tailwinds, indirect savings from eliminating positions, rest of cutting edge savings.

Q: U.S. aggregates prices and acquisitions?

A: Aggregates prices strong, but acquisitions will be accretive, meeting NPV, ROIC, synergy criteria, preserving credit rating.

Q: Mexico and U.S. volume outlook?

A: Mexico volumes expected to improve in the second half, U.S. volumes dependent on weather, but infrastructure and data centers support.

Q: Share buyback and SCAC divestments?

A: Plan to start dividends and share buybacks, but specific amounts not disclosed yet. SCAC divestments expected between Oct 2025 and late next year, retaining some high free cash flow conversion operations.

Q: Path to 1.5x net leverage?

A: EBITDA growth is key, along with potential debt management levers, expected to achieve within 12-24 months through EBITDA improvement and free cash flow generation.