Cemex (NYSE:CX) held its first-quarter earnings conference call on Thursday. Below is the complete transcript from the call.
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The full earnings call is available at https://events.q4inc.com/attendee/799171124
Summary
Cemex reported a record quarterly EBITDA of $794 million, a 34% increase year-on-year, driven by transformation efforts leading to a structurally stronger cost base and higher margins.
The company continues to focus on strategic initiatives, including the sale of assets in Colombia and the acquisition of Omega, enhancing its U.S. operations with significant synergies.
Cemex maintains a positive full-year EBITDA guidance, despite ongoing global uncertainties, with expectations of further operational efficiency and pricing adjustments to offset energy inflation.
Operational highlights include strong performance in Mexico with a 47% EBITDA growth and margin expansion, and resilient operations in EMEA and the U.S. despite adverse weather conditions.
Management highlighted the effectiveness of its energy hedging strategy, reducing exposure to volatility, and emphasized continued commitment to shareholder returns through increased dividends and share buybacks.
Full Transcript
Becky (Operator)
Good morning and welcome to the CEMEX first quarter 2026 conference call and webcast. My name is Becky and I will be your operator today. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. If at any time you require operator assistance, please press star followed by zero and we’ll be happy to assist you. And now I will turn the conference over to Lucy Rodriguez, Chief Communications Officer. Please proceed.
Lucy Rodriguez (Chief Communications Officer)
Good morning and thank you for joining us for our first quarter 2026 conference call and webcast. We hope this call finds you well. I am joined today by Jaime Muguerza, our CEO, and by Maher Al-Hafar, our CFO. We will start our call with some brief comments on our current views on the immediate ramifications of the Iran war and then review our first quarter results followed by our expectations and guidance for full year 2026 and then we will be happy to take your questions in relation to the recent portfolio rebalancing transactions that we have announced. I would like to clarify the relevant accounting treatment with respect to the announcement of the sale of some of our operating assets in Colombia, which we expect to close by the end of the year as a partial sale of an operation. We will continue to fully consolidate these operations in our P&L until the transaction closes. In addition, we announced the purchase of Omega on February 26th and began consolidating the business as of April 1st. And now I will hand the call over to
Jaime Muguerza
thank you Lucy and good day to everyone. Before turning to our quarterly results, let me share a few thoughts on the global backdrop. I last spoke to you at our Analyst Day in late February, just two days before the Iran war began. First and foremost, our thoughts are with those affected by the war. We have colleagues, customers and partners in the region and our priority is and will continue to be ensuring their safety and well being. The war adds another layer of uncertainty to an already complex global environment. Once again, it reinforces the importance of focusing on what we control and those levers are working. Over the past several quarters, our transformation has delivered a structurally stronger cost base, higher margins and improved free cash flow generation positioning Cemex to navigate increased volatility well, to date we have seen limited direct impact from the war on our business. Our operations in Israel and the UAE together represent around 4% of consolidated EBITDA. While we experienced some temporary disruptions at the outset of the war, construction activity has largely normalized. The most relevant immediate exposure is energy, where we benefit from a comprehensive strategy that limits our risk to volatile markets. Approximately 60% of our total energy spend in 2025 has been hedged for 2026 through a combination of financial derivatives, yearly contracts and regulated pricing frameworks. Maher will go into more detail on this. In addition, operationally we have flexibility to adjust the fuels we use in our kilns, allowing us to switch between petcoke, natural gas, coal and alternative fuels when economically attractive. We also typically maintain two to three months of fossil fuel inventories across our network, further limiting short term sensitivity to market disruptions. Consequently, we believe our direct exposure to energy price volatility this year is significantly contained. We also have dusted off our Ukraine war playbook to help cushion us more medium term. We have already begun implementing fuel surcharges and are reviewing additional pricing increases for this year throughout the portfolio. The war is disrupting cement supply chains, making some import sources more expensive. We expect that over time this will increase pressure on U.S. cement importers, leading to relevant pricing opportunities in several U.S. markets. Finally, our transformation mindset has allowed us to identify additional structural savings and self help initiatives that should provide important support in an increasingly volatile environment. While we have a currency hedge in place to protect our leverage ratio, the Mexican Peso has been resilient and remains stronger than the FX assumption embedded in our 2026 EBITDA guidance. While volatility will persist with our approach to date on our strong first quarter performance, I remain confident in our ability to deliver our full year EBITDA guidance and with that let me turn to our results. I am very pleased with our first quarter results that continue to benefit from our transformation efforts. Record quarterly EBITDA of $794 million, a 34% increase serves as a great start to achieve our full year plan. EBITDA growth was broad based with Mexico, EMEA and South Central America and the Caribbean all delivering solid results. EBITDA margin expanded meaningfully with a more than 300 basis point increase year on year. Cost of sales and operating expenses as a percentage of sales improved significantly. Importantly, a large part of this margin gain is structural and sustainable driven by improved operating efficiency and a leaner cost base. These efforts were complemented by disciplined pricing and the benefit of operating leverage in some markets. As you know, through our regional review process we have identified a number of facilities that did not meet our return requirements. At the next day, we highlighted both the size of this opportunity and that it would take time to realize it. Since launching this effort in 2025, while not yet material in scope, we have already disposed of approximately 60 of these facilities. Free cash flow from operations grew at a multiple to EBITDA, increasing by about $300 million. The trailing twelve month conversion rate reached 51% after adjusting for severance and discontinued operations. Our Mexico operations delivered strong EBITDA growth and margin expansion with a recovery gaining traction and cement volumes posting year over year growth for the first time since mid 2024. During the quarter, Cemex was upgraded to AAA, the highest MSCI ESG rating, placing us among the leaders in our industry. This upgrade reflects our continued progress on sustainability and our commitment to decarbonize through value accretive levers. We continued advancing on our portfolio rebalancing during the quarter with the announced divestment of selected assets in Colombia in a transaction expected to close by year end. We also acquired Omega, a leading stucco and mortar player in the Western U.S. which offers significant synergies to our existing business and serves as an important foundation to expand this product line throughout the U.S. these transactions of course adhere to our new capital allocation framework. Regarding our commitment to bolster shareholder return, we repurchased approximately $100 million in shares during the quarter. In addition, at our annual shareholder meeting in March, the annual dividend was approved with an increase of almost 40%. In short, our quarterly results and activities reinforce a key point we are delivering on the commitments of our Project Cutting Edge plan we introduced a year ago centering on operational excellence and best in class shareholder returns. And there is more still to be done. We are actively working on dimensioning the next phase of our savings program and continued reorganization. I intend to share more detail on this in our second quarter earnings call. First quarter performance reflects a structurally stronger Cemex with a more resilient earnings profile and clear momentum heading into the rest of the year. Despite challenging weather in the US and EMEA, net sales grew 3% supported by higher consolidated prices and cement volume recovery in Mexico. But what really stands out is how effectively revenue growth translated into ebitda, EBIT and free cash flow generation. On a like to like basis, EBITDA increased 23% driven by operational efficiencies and pricing. EBIT, a key metric in our transformation, expanded 40%. Our free cash flow from operations increased by nearly $300 million and was positive in a quarter that has historically generated negative free cash flow due to our working capital cycle with a significant investment in the first half of the year. Adjusting for severance payments and discontinued operations, free cash flow from operations conversion rate reached 51% on a trailing 12 month basis, reflecting a structurally stronger cash Generation up from 31% a year ago. Additional project cutting edge savings and transformation initiatives coupled with operating leverage as volumes in our core markets, recovery should increasingly translate into higher margins and a stronger cash conversion. Adjusting for the effect of the one off gain from the sale of our operations in the Dominican Republic in 2025, first quarter net income would have almost doubled. at the consolidated level. Cement volumes reflect continued recovery in Mexico which along with improvement in South, Central America and the Caribbean as well as in the Middle east and Africa more than offset weather disruptions in the US and Europe. US volumes were impacted by adverse weather in the mid south and Texas. In aggregates, volumes benefited from our couch acquisition and our recently completed expansion projects which more than offset the weather impact in Europe. Volume performance also reflected difficult winter conditions throughout the portfolio which were further exacerbated by a prior year comparison base with very benign weather for the full year. Our consolidated volume guidance of low single digit growth across our three core products remains unchanged with only slight regional adjustments. With our focus on operational efficiency and available capacity, we remain well positioned to capitalize on the strong operating leverage in our business. As volumes recover, Consolidated prices across cement ready mix and aggregates increased at a low to mid single digit rate on a sequential basis supported by positive pricing dynamics in most of our markets. In Mexico cement prices rose 5% while in the US aggregates prices increased mid single digits. In Europe, mid single digit pricing gains were supported by the introduction of a carbon border adjustment mechanism together with tightening of free CO2 allowances under the EU ETS system. Our pricing strategy seeks to compensate for input cost inflation. With recent sudden moves in energy prices, we have moved to implement fuel surcharges in most markets as well as evaluating subsequent pricing increases to offset energy cost inflation. EBITDA in the quarter was supported by positive contributions across all levers. Importantly, nearly half of EBITDA growth came from self help initiatives, underscoring our focus on the things we can control, particularly in a volatile environment. Pricing and FX driven primarily by a large year over year peso rate differential were also important factors in EBITDA growth. Finally, organic growth in our core products and urbanization solutions portfolio also made an important contribution. EBITDA margin expanded by 3.3 percentage points reflecting a combination of the structurally lower costs, pricing discipline and operating leverage. A year ago I laid out the priorities of our transformation centered on operational excellence and best in class shareholder returns. Since then we have worked relentlessly to execute on our plan focusing on operational efficiency, elimination of overhead and enhanced free cash flow generation. We have clear evidence of progress in the quarter with $60 million in incremental recurring savings under Project Cutting Edge as well as improved EBITDA margins across our regions. Our efforts to reduce overhead along with our operating initiatives are paying off with important reduction in cost of goods sold and HGA as a percentage of sales. We still have more to deliver with an additional $105 million in savings expected during the rest of this year under our announced $400 million project cutting edge commitment. Importantly, three quarters of the savings relate to overhead reduction decisions taken last year. As I have mentioned, there are additional transformation opportunities we are identifying and you should expect that the $400 million in project cutting edge cost savings from 2025 to 2027 will be upsized when I address this in July. In March we announced the divestment of several assets in Colombia including cement operations and a portfolio of ready mixed concrete aggregates, mortars and admixtures for total proceeds of approximately $485 million. We are currently in discussions to divest related non operational assets in the country for around $70 million. We expect these transactions to close by the end of the year representing a combined multiple of 10 times 2025 EBITDA. In line with our strategy to grow our US business, we recycled a portion of the future proceeds into higher return opportunities in the US at the next day we announced the acquisition of Omega, the leading stucco producer in the Western US with the number one brand at A Post Energy multiple below seven times. The acquisition was completed on March 31st. This transaction is highly accretive with significant direct synergies driven by vertical integration as stuccos and mortars use cement, sand and admixtures as key raw materials. In fact, Omega’s cement requirements are equivalent to Those of approximately 8 average sized ready mix plants and it has already begun to direct the raw materials needs to Femex. In the first quarter. Direct synergies are expected to amount to close to 50% of Omega’s 2025 EBITDA of roughly $23 million. Beyond direct input synergies, the acquisition also unlocks cost efficiencies across procurement and R and D as well as cross selling opportunities through our existing customer base. With a free cash flow conversion rate of around 65%, Omega will enhance our overall cash generation and improve our earnings quality. More importantly, leveraging Omega’s expertise provides us with a strong platform from which to expand our mortars and stucco business in the U.S. consistent with our focus on adjacent high return growth opportunities. I would also like to take a moment to warmly welcome the Omega team to themx. We are excited to have you join us and look forward to learning from your solid capabilities, strong culture and market leadership as we build this platform together. And with that, back to you Lucy.
Lucy Rodriguez (Chief Communications Officer)
Thank you Jaime. Mexico delivered strong results supported by continued cement volume recovery, relevant operational efficiencies, pricing and operating leverage, reinforcing the momentum built over recent quarters. For the first time in six quarters year over year, cement volumes inflected positively as the government accelerated the rollout of their social programs. Demand to date has largely benefited from self construction and government backed social programs such as rural roads and housing supporting bagged cement volumes. The social housing program targeting 1.8 million units through 2030 is also ramping up. We are currently participating in the construction of approximately 120,000 units, double the level of fourth quarter and are in negotiations for an additional 110,000 more in infrastructure. While conditions remain relatively soft, activity on the ground is improving and our ready mixed backlog is trending higher. We are currently participating in the construction of relevant projects including the elevated viaduct in Tijuana and rail line projects such as Querétaro-Irapuato and Saltillo-Nuevo Laredo, with additional projects expected in the near term. Going forward, we expect the main drivers of growth to come from resilient housing demand and while timing remains difficult to pinpoint infrastructure activity, the market volume performance was also supported by a temporary market share gain as a few competitors experience outages in the central part of the country. In the quarter, EBITDA grew 47%, benefiting …
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