Mexico`s Cemex Surprises

Cemex has gained some added support after management floated bullish earnings guidance that topped Wall Street expectations. Better than expected growth in both US and Mexican markets provide an unexpected boost.

Cemex has gained some added support after management floated bullish earnings guidance that topped Wall Street expectations. The world's third-largest cement company watched its share price on the New York Stock Exchange rise 1.1% to $25.67 after estimating late Thursday that third-quarter EBITDA and operating income will post double-digit growth from the year-earlier period.  The numbers were greeted warmly by analysts who think Cemex is well positioned to benefit from a budding economic recovery in the US that will eventually trickle down to neighboring Mexico.  "You could say Cemex is a leveraged play on the North American recovery," said John Kasprzak, a US construction analyst with BB&T Capital Markets. Cemex became North America's No. 1 cement producer in 2000, after forking over $2.8 billion for U.S.-based Southdown Inc. BB&T, which has a `strong buy' recommendation on the stock, raised its 12-month price target to $32 from $28 on Friday. Cemex predicted earnings before interest, taxes, depreciation and amortization will total $560 million alongside $400 million in operating income in the third quarter, up 11% and 13%, respectively, from the year-earlier period.

In a report Friday entitled "The Free Cash Flow King of Cement Companies," Merrill Lynch said Cemex's guidance for EBITDA, operating income and free cash flow all came in above its own estimates, which were already higher than the Wall Street consensus. The investment bank, which has a `buy' rating on the stock, described Cemex's forecast of a 2% rise in US cement volumes as "another positive surprise." Merrill Lynch said that means Cemex's US cement volume for the first nine months of the year likely slipped only 1%, compared with its estimate of a 4% decline.

A positive number for the US market in the third quarter would be Cemex's first such reading in seven quarters, as the U.S. economy shows signs of picking up steam. Citing healthy demand from the public works and social housing sectors, Cemex also said it expects its Mexican operations to book a 3% increase in domestic gray cement volume.  The Finance Ministry reported Thursday that Mexico's industrial output slipped a worse-than-anticipated 1.9% in July from the year-earlier month, the fourth straight decline. Construction activity, however, expanded 3% from July 2002, up from a 2.4% expansion in June.