Cemex, the world’s No. 3 cement maker, on Friday posted a decline in net profit as a peso devaluation took the shine off improving operations, especially in the United States. Cemex which has subsidiaries in more than 30 countries, said its second-quarter net profit totalled $247 million, below expectations, and below $309 million posted in the quarter a year ago. In a Reuters survey, analysts had forecast Cemex’s second-quarter net at $304 million, hurt by foreign exchange losses from a 3 percent depreciation of the peso. Cemex also reported a foreign exchange loss in the quarter of $93 million, compared with a gain a year earlier of $48 million.
"Net profit fell because of the foreign exchange loss, but at the end of the day we are seeing better results" for Cemex, said Francisco Suarez, deputy head of analysts at Banorte.
A US economic rebound has boosted construction in Cemex’s second-largest market and led to an increase in cement and ready-mix volume sales and with a lack of attractive acquisition opportunities on the horizon, Cemex used cash flows to slash net debt by $383 million in the quarter. "The results should help the share price, above all because they are reporting a bigger reduction in debt than was expected," said Vector analyst Carlos Hermosillo.
"In the absence of acquisitions that meet our strict investment criteria, we will continue in our bias toward de-leveraging throughout the year," said Hector Medina, Cemex’s executive vice president of planning and finance. Earnings before interest, taxes, depreciation and amortization rose 15 percent to $635 million. The Reuters survey forecast EBITDA to come in at $612 million. Cemex said free cash flow in the quarter was $444 million, up 14 percent from the 2003 period. Medina said he was "very confident" Cemex would achieve previously announced full-year guidance of $2.35 billion in EBITDA and $1.35 billion in free cash flow.
Operationally, Cemex’s US unit was the pick of its major markets. Cement volumes in the quarter increased 9 percent and ready-mix rose 7 percent, with profits boosted further by higher prices. Cemex cement prices in the US rose 3 percent in the second quarter and ready-mix volumes were up 4 percent. Medina said it would make another price increase in the United States in July or August because of short supply and low inventories. Medina also did not rule out a third price increase in the United States later in the year. "If we see conditions are proper for another price increase, we’ll go for it," he said. In Cemex’s top market, Mexico, volumes were mixed in the quarter. Cement sold dropped 1 percent and ready-mix volume rose 12 percent. In No. 3 market, Spain, sales were flat.
The company’s net debt at the end of the quarter was $4.969 billion, around $2 billion less than at the height of Cemex’s acquisition spree in the 1990s, which culminated with the 2000 purchase of U.S. cement maker Southdown for $2.8 billion. Cemex closed a three-year $800 million revolving credit facility at the end of the June and used the cash to prepay debt.