Cemex Bolstered by U.S. as Sales Fall in Europe, Mexico

Cemex SAB, the largest cement maker in the Americas, boosted U.S. sales to the highest level in more than three years, fueling share gains even as revenue fell in Mexico and Europe.

U.S. sales rose 15 percent in the second quarter to $795 million, the highest quarterly level since the end of 2008, the Monterrey, Mexico-based company said yesterday in a statement. Cemex also made money in the U.S. for the first time in eight quarters, earning $27 million before interest, taxes, depreciation and amortization, a measure of cash flow known as Ebitda.

“We are very positive on the evolution of the market in the U.S. -- finally, after so many years,” said Fernando Gonzalez, Cemex’s chief financial officer, on a conference call with analysts and investors.

Cemex has reported 11 straight quarterly net losses, having suffered during a U.S. construction recession after the $14.2 billion acquisition in 2007 of Rinker Group Ltd., which generated more than 80 percent of its sales in the U.S. During 2010, 2011 and the first three months of this year, the U.S. was the company’s only regional market that lost money in Ebitda terms.

“There’s a long way to go in the U.S., but it finally returned to positive territory,” said Esteban Polidura, an analyst at Deutsche Bank in Mexico City, who has a buy rating on Cemex shares. “If this trend is confirmed in the third quarter, there could be an upside surprise.”

Cemex rose 5.9 percent to 9.47 pesos in Mexico City yesterday, its highest close since April 4. The stock has gained 32 percent this year, the 10th-best performance on the IPC index of 35 Mexican stocks.

European Weakness

The cement maker’s second-quarter net loss narrowed to $187 million from a $209 million loss in the same period a year ago. Sales of $3.86 billion fell 7.2 percent from a year earlier and trailed the $4.1 billion median estimate of eight analysts surveyed by Bloomberg.

Revenue climbed 20 percent to $529 million in South America, Central America and the Caribbean, while falling 14 percent in Mexico, dragged down in part by lower-than-expected infrastructure spending. Sales dropped 18 percent in Northern Europe and 20 percent in the Mediterranean region.

While Cemex said more infrastructure spending later this year or next year may fuel Mexican sales, a weaker outlook in Europe makes the company’s near-term performance “a levered bet on U.S. recovery,” said Andrew Casella, an analyst with Imperial Capital LLC, who has an underperform rating on the shares.

California, Texas

Casella said Cemex must boost sales in order to drive additional gains in Ebitda, which rose 11 percent to $702 million in the second quarter. That was the highest level since the third quarter of 2009, buoyed in part by job cuts over the last year and lower energy prices.

“You need the U.S. to have a very robust recovery, you need Colombia and Panama to continue to do what they’re doing,” Casella said in a telephone interview from New York. “The weakness in Europe is pretty substantial.”

The sales declines in Europe came a year after a strong performance there, said Maher Al-Haffar, Cemex’s chief of communications and investor relations. The company’s Northern European markets are likely to show “flat to muted growth” in the second half of the year, he said, while the Spanish business will probably show continued declines.

Driving Cemex’s U.S. rebound were sales in California and Texas, Gonzalez said. In a conference call with reporters, he said he saw a “sustained recovery since July or August of last year.”

Debt Load

Continued gains would help Cemex work off its debt, which totaled $17.6 billion including perpetual notes as of June 30, down 4.3 percent from its level a year earlier. U.S. sales peaked at $1.7 billion in the third quarter of 2007, more than twice the amount in the second quarter of this year.

Cemex’s credit rating was cut seven levels by Standard & Poor’s over a 10-month span ended in August 2009 after the company added debt to pay for the Rinker acquisition. Cemex bonds have rallied since it said June 25 that it was negotiating with banks to extend the maturity of $7.25 billion of loans. A refinancing offer announced July 5 will expire on Aug. 20.

“We’re quite pleased with the support and response we’ve been getting from all the financing participants,” Al-Haffar said. “We’re optimistic that come Aug. 20, we’ll be able to close on that.”

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