Cemex disappoints JP Morgan analysts

Cemex disappoints JP Morgan analysts
Published: 20 July 2007

Reviewing Cemex’s Q2 results, JPM analysts note that although the EBITDA is in-line with expectations, earnings are disappointing due to a loss on a financial instrument. Secondly, US profitability has deteriorated at the same rate in Q2 as in Q1, despite the weaker comparative period in Q2-06. One should also note tha the US has increased to 41% of Cemex’s pro-forma 2006 EBITDA.

Q2 EBITDA and EBITA figures are as expected says JPM. Cemex reported a Q2 EBITDA of US$1134m, which was US$14m above the company’s 18 June guidance of "about US 1120m”, but US$8m lower than its estimate of consensus.  Operating income at US$806m was slightly below the company’s guidance of "close to US$810m" and US$16m less than its estimate of consensus.

At US$611m, Q2 earnings were US$55m below the company’s estimate of consensus. Cemex incurred a US$44m non-cash loss on a financial instrument when it was marked to market. It reports that this loss will “revert to zero during the life of the instrument”.

In Q2 The EBITDA contribution of Cemex’s US operations was 31% lower in Q2-07 than in Q2-06 and was 32% lower in H1-07 than in H1-06. The volume declines were in-line with the company’s June 18 guidance at -11% for cement, -21% for ready-mixed concrete and -16% for aggregates.

Prices were slightly higher compared with the same quarter a year ago at +4% for cement, +1% for ready-mixed concrete and +2% for aggregates. However, they were 1% lower than in Q1-07 for ready-mixed concrete and 4% lower for aggregates, but were 1% higher for cement.

Mexico and Spain are slowing. Cemex’s Q2-07 EBITDA contributions from Mexico and Spain were both 2% higher than in Q2-06. The rate of growth in both countries is therefore slowing as the EBITDA contribution in H1-07 was 6% higher than in H1-06 in Mexico and 7% higher in Spain.

However, Strong growth in South America and Asia. Q2 EBITDA increased by 64% in South America and by 28% in Asia. In South America, domestic cement volumes increased by 14% and prices were 26% higher. In Asia, volumes increased by 9% and prices by 17%.

The UK continues to disappoint. The region’s Q2 EBITDA contribution declined by 9% despite a 12% increase in sales. Prices in US$ terms were 17% higher for cement, and 13% higher for ready-mixed concrete and aggregates. It is therefore not clear to JPM analysts why the UK profit contribution declined.

Bad weather and higher energy costs also impacted Q2 results says JPM. Cemex’s press release refers to bad weather negatively impacting the quarter’s results in the US Spain and Germany. Energy costs in the cement business were also 13% higher than in Q2-06.