Cemex 2Q Results Expected To Show Impact Of US Housing Slump

Cemex 2Q Results Expected To Show Impact Of US Housing Slump
Published: 17 July 2007

The continuing correction in the U.S. housing market is expected to hurt the second-quarter results of  Cemex though the company should still register a on-year revenue gain and steady profit.  
 
Cemex is expected to post a net income similar to last year’s second-quarter profit of $579m, analysts said.  
 
Some downside risk is seen to the second-quarter guidance the company provided last month for a 2% decline in earnings before interest, taxes, depreciation and amortization - or Ebitda - to $1.12 billion.  
 
"We expect a decrease in Ebitda of around 4%, mostly due to the weakness seen in the U.S., particularly the housing sector," said Ixe financial group analyst Carlos Gonzalez.  
 
In June, Cemex lowered its outlook for the struggling U.S. market - its biggest source of revenue - saying cement volumes would likely fall 4% for the year. The company anticipates an 11% drop in U.S. cement sales in the second quarter, with ready-mix volumes down 22%.  
 
Cemex’s guidance for a 6% rise in second-quarter revenue to more than $4.9 billion and a 6% drop in operating profit to $810 million are roughly in line with market expectations.  
 
Carlos Hermosillo, an analyst at Vector brokerage, said he expects the company to generate just under $5 billion in revenue, resulting in a net profit of $581 million.  
 
Hermosillo’s Ebitda and operating profit forecasts nearly match the company’s, but he acknowledges uncertainty about the U.S. operations.  
 
"The most important thing will be U.S. volumes," he said. "Prices have been firm enough, but what about volumes?"  
 
Cemex is on the verge of ramping up its exposure to the U.S. market with its $14.25 billion acquisition of Australia’s  Rinker Group Ltd. (RIN), which derives most of its income from the U.S. The deal will also bring Cemex’s global operations on a par with the largest building materials companies in the world.  
 
Gonzalez of Ixe acknowledged the risk of taking on Rinker during a U.S. housing slump, but thinks the move will prove to be positive by the end of the year. 
 
"I believe the outlook for Cemex will be much better going forward," he said. "We expect to see a recuperation in the U.S. housing sector and more infrastructure spending in Mexico."