Cemex Falls to Two-Year Low After Loss Exceeds Estimates

Cemex Falls to Two-Year Low
Traffic passes CEMEX SAB'S Anagua cement factory in Mexico, City, Mexico. Photographer: David Rochkind/Bloomberg

Cemex SAB, the largest cement maker in the Americas, fell to the lowest since April 2009 in Mexican trading after posting a wider second-quarter loss than analysts estimated because of slumping U.S. construction.

The net loss was $294 million, or 28 cents per American depositary receipt, compared with $306 million, or 31 cents, a year earlier, according to a statement today. Analysts expected a loss of 6 cents, the average of seven estimates compiled by Bloomberg. Cemex hasn’t had a profit since 2009’s third quarter.

The U.S. was the Monterrey, Mexico-based company’s largest market by sales after it paid $14.2 billion for Rinker Group Ltd. in July 2007, as the construction industry slipped into recession. After that, the U.S. slipped behind Mexico among Cemex’s markets. For the past 11 quarters, its U.S. operating cash flow has been negative.

Profit was hurt “by still weak U.S. operations as well as a margin decline in Mexico,” Benjamin Theurer, an analyst at Barclays Capital in Mexico City who rates the company’s ADRs “equal weight,” said in a report today. “Cemex’s key markets are still far away from recovery.”

Cemex fell 40 centavos, or 4.4 percent, to 8.71 pesos in Mexico City trading at 4:10 p.m. New York time, the lowest close since April 1, 2009. The shares have declined 31 percent this year. Cemex’s 9.5 percent bonds due in 2016 rose 0.22 cent to 100.75 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Sales Gain

Quarterly sales rose 8.7 percent to $4.1 billion, Cemex said. One-time expenses totaling $202 million included severance payments and impairment on the value of assets, according to its statement.

“We believe most markets in our portfolio will exhibit volume growth and increased profitability in 2011,” Chief Financial Officer Fernando Gonzalez told analysts on a conference call.

He said he was “encouraged” that Cemex’s U.S. prices for cement, ready-mix concrete and aggregates all rose from the previous three-month period for the first time in 11 quarters.

Earnings before interest, taxes, depreciation and amortization -- a measure of cash flow known as Ebitda -- fell 7.4 percent to $615 million from $664 million a year ago. In the U.S. Ebitda was a loss of $22.3 million compared with a gain of $16.6 million a year ago.

Cash Flow

Free cash flow, or cash from operations after capital expenses, was negative for a second consecutive quarter. Cemex’s total debt plus its perpetual notes rose to $18.4 billion from $17.9 billion a year ago.

Cemex reached a $15 billion financing agreement with banks in August 2009 after the recession reduced profit. The company has paid about half the loan, which comes due in 2014, by selling shares, bonds and assets.

The company’s ratio of net debt to Ebitda was 7.16 times at the end of June, and a covenant under the financing agreement calls for it to be lower than 7 times by year’s end, Mike Betts, an analyst at Jefferies International Ltd. in London, said in a note today. He rates Cemex ADRs “buy.”

“We are confident that we will comply with our covenants in 2011,” Gonzalez said.

Sales in Mexico rose 4.9 percent to $968 million as cement shipments climbed 3 percent and prices in dollars increased 11 percent because of a stronger Mexican peso. In the U.S., sales fell 9.5 percent to $619 million because of a 10 percent decline in cement shipments.

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