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Cemex Gains as Cash Profit Surprises Analysts Seeing Drop

Cemex SAB rose in New York trading after the largest cement maker in the Americas posted a gain in quarterly cash profit, surprising analysts who had projected a decline.

Cemex’s American depositary receipts rose 3.1 percent to $3.71 at the close in New York. The Monterrey, Mexico-based company’s ADRs have dropped 64 percent this year.

Earnings before interest, taxes, depreciation and amortization, a measure of cash flow known as Ebitda, rose 1.4 percent to $658 million from a year ago. Ebitda was forecast at $619 million, according to the estimates of 5 analysts. Cemex reported a net loss of $822 million, or 79 cents per ADR, that was wider than analysts had estimated, after being hurt by foreign currency fluctuations and equity derivatives.

“The results in Europe were very optimistic compared with expectations and South America was very solid,” said Carlos Hermosillo, an analyst with the Mexican bank Grupo Financiero Banorte SAB, said in a telephone interview. “Mexico weakened, but it’s mostly a foreign-exchange issue.”

Cemex’s net loss compared with $89.3 million, or 9 cents, a year earlier. Analysts expected a loss of 29 cents, the average of six estimates compiled by Bloomberg. The loss was caused mostly because of a $217 million foreign-exchange loss and a loss of $339 million related to equity derivatives on Cemex’s shares, the company said.

$15 Billion Loan

The company hasn’t had a profit for eight straight quarters. Its earnings tumbled amid a U.S. construction recession after the $14.2 billion acquisition in 2007 of Rinker Group Ltd., which got more than 80 percent of sales in the U.S. Cemex struggled to meet debt payments following a global credit crunch and got a $15 billion bank loan in August 2009 to avoid default.

Sales rose 5.4 percent to $3.97 billion, the fourth consecutive quarter of sales growth. The average analyst estimate was $3.94 billion. The peso’s value against the dollar declined 13 percent during the quarter, reducing the value of Cemex’s results in the U.S. currency

Sales in northern Europe rose 9.4 percent to $1.3 billion and operations in south and central America climbed 24 percent to $453 million.

U.S. ‘Weakness’

Revenue in Mexico fell 1.4 percent to $856 million as cement shipments declined 1 percent. U.S. sales rose 4.4 percent to $713 million on a 2 percent increase for cement shipments. The U.S. increase includes operations from the stake in Ready Mix USA that Cemex was forced to purchase under a put option for about $350 million.

“There’s still a lot of weakness in the U.S., which is key,” said Hermosillo, who has a “hold” recommendation on the stock.

Cemex remained out of compliance for a yearend covenant under its financing agreement. The company reported consolidated funded debt was 7.2 times larger than annual Ebitda at the end of September. The ratio needs to be 7 times or lower by the end of December. If not, Cemex would have to renegotiate the covenant with banks or risk going into default. The ratio rose from 7.16 times at the end of June.

Cemex Has ‘Confidence’

Cemex has “confidence” it will meet the covenant with sales of assets worth as much as $200 million, carbon-dioxide credits valued at $35 million and cost savings of $100 million in the fourth quarter that will boost Ebitda, Chief Financial Officer Fernando Gonzalez said on a conference call with analysts today.

Ebitda also will be helped by easy comparisons from a year ago when bad weather in Europe and Colombia hurt cash profit, he said. The company needs fourth-quarter Ebitda to rise by at least 5 percent to meet the covenant, Gonzalez said.

Cemex’s total debt plus perpetual notes was $18.5 billion at the end of September compared with $18.4 billion at the end of June.

“Instead of getting better, it got worse,” Hermosillo said of the debt ratio for the covenant. “The debt has to come down.”

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