Cemex shares fall as outlook For US outweighs asset sales

Cemex shares fall as outlook For US outweighs asset sales
Published: 18 September 2007

Shares of Mexican cement giant Cemex SAB (CX) fell Monday after the company’s guidance for its third-quarter performance confirmed weakness in its U.S. operations, although the planned sale of up to $4.5 billion in assets helped cushion the blow.

Shares in the Monterrey-based company initially rose on the news, but then fell as the local stock market came under pressure from global credit concerns that have been worrying investors for weeks. Cemex CPO shares closed down 2.2% at 31.67 pesos ($2.85), compared with a 12-month high of MXN44.50 and 12-month low of MXN31.60.

"The guidance continues to show weakness in the U.S., with important declines in volumes," said Gonzalo Fernandez, an equities analyst at Santander.

While Cemex’s performance in other markets, Mexico included, mitigated some of the negative effects from the U.S, the share price will probably remain under pressure until there’s a sign that the U.S. has hit bottom, Gonzalez added.

Cemex didn’t offer that sign Monday, citing Chief Financial Officer Rodrigo Trevino as saying "we recognize that the correction and the timing for the eventual recovery of the residential sector in the United States continues to be uncertain."

Third-quarter sales are seen 29% higher at $6 billion, with earnings before interest, taxes, depreciation and amortization, or Ebitda, rising 22% to $1.35 billion, according to Cemex. The jump was attributed to the inclusion of revenues from Australia’s Rinker for the first time, which was acquired for about $15.3 billion during the second quarter.

U.S. cement sales volume are expected to fall 2% in the third quarter, while ready-mix volumes will probably be up 53% and aggregates up 173%, thanks to the Rinker consolidation. But on a like-for-like basis, Cemex added, U.S. cement volumes would be down 19% in the quarter from the third quarter of 2006, with ready-mix volumes down 20% and aggregates down 11%.

On Monday, Cemex also said it’s in talks with Ireland-based construction materials company CRH Plc (CRH) to sell some of its U.S. and European assets for between $3.5 billion and $4.5 billion, a move that was seen as positive.

The sales would lower Cemex’s debt while reducing its exposure to the U.S. market, although under current conditions, the valuation of the assets may not be the best, Gonzalez said.

Carlos Hermosillo, an equities analyst at Vector Casa de Bolsa, said the main concern about earnings was the U.S., although there was some comfort in Cemex’s $4.8 billion Ebitda estimate for the full year. Cemex said that number includes six months of Rinker revenues but excludes any asset sales. Prior to closing the

Rinker acquisition, Cemex was estimating full-year Ebitda of $4.3 billion.
The assets Cemex plans to sell include the 39 plants in Florida and Arizona that U.S. regulators required in authorizing the Rinker takeover.

But the asset sale may go further, including non-core operations such as its concrete pipe business, and a gypsum wallboard distribution business in Florida; the sale of materials and concrete products operations in the Pacific Northwest, Utah, Wyoming, Nebraska, New Mexico and El Paso, Texas; aggregates in Kentucky; and cement plants in Pennsylvania and Ohio. In Europe, the assets include a cement plant in Spain and ready-mix concrete and aggregates assets in Austria and Hungary.

Cemex’s debt, which was $4.1 billion at the end of the second quarter, is expected to be soar to $19 billion at the end of the third quarter as a result of the Rinker acquisition. In its earnings guidance, Cemex said it would continue to apply most of its free cash to lowering debt, while aiming for a net-debt-to-Ebitda ratio of 2.4 times from 1 times at the end of the second quarter.