Cemex Targets 80% Ebitda Increase as U.S. Pricing Power SoughtBrendan Case
Cemex SAB is targeting an 80 percent increase in a benchmark profit gauge through 2016 as a recovery in the U.S. housing market lifts pricing power for the largest cement maker in the Americas, Chief Executive Officer Lorenzo Zambrano said.
More than half the advance in earnings before interest, taxes, depreciation and amortization, or Ebitda, will come from the U.S. as the housing industry accelerates in Cemex’s biggest foreign market, the company said in a presentation to analysts in New York yesterday. Most of the rest will come from Mexico and other markets in the Americas, pushing the profit measure to $4.7 billion in 2016 from almost $2.62 billion last year, Zambrano said during the event.
Cemex seeks to return to profitability and regain an investment grade capital structure after 13 straight quarterly losses as the U.S. housing bust hurt its business there. The Monterrey, Mexico-based company has quelled worries it was sinking toward default by extending maturities on $6.7 billion of debt last year, raising $960 million in an initial public offering of a unit and posting its largest Ebitda margin since 2009.
“We have repositioned the company,” Zambrano said in a webcast of the meeting with analysts, saying Cemex is now poised for “significant organic growth” in the coming years. “We expect to generate substantial value through our pricing.”
Cemex climbed 2.6 percent to 13.97 pesos in Mexico City yesterday, its largest gain in more than two weeks.
“Management transmitted a bullish outlook reinforcing the company’s commitment to generate cash and regain financial flexibility,” Esteban Polidura, an analyst with Deutsche Bank who attended the meeting, wrote in a report yesterday. “Pricing was clearly set as the main tool.”
Polidura, who rates Cemex shares a buy, estimates 2016 Ebitda of $4.4 billion, he said in the e-mailed report.
Cemex said $1.15 billion of the approximately $2.1 billion projected increase in Ebitda by 2016 would come from the U.S., with $350 million coming from Mexico and another $350 million coming from its South America, Central America and Caribbean market.
Projected Ebitda increases and plans to continue paying debt will put the company in “investment grade territory” by 2016, Zambrano said. Standard & Poor’s raised the company’s rating last month to B, five steps below investment grade.
While Cemex’s Northern Europe unit faces a “difficult” year in 2013, growth is expected to resume in 2014, regional president Ignacio Madridejos said. Cement demand in Spain is at “1962 levels,” according to Jaime Muguiro, president of the company’s Mediterranean region. Cemex’s cement volumes in Spain fell 40 percent last year.
The head of Cemex’s U.S. operations, Karl Watson Jr., said in November that the company would raise prices by almost 20 percent this year with increases in January and July. The success of price increases in Florida has been a “stunning surprise,” he said yesterday, and Cemex has also boosted prices in the Midwest and at a Colorado plant.
Increases in Texas and the Southeast have been postponed until April and efforts to charge more in California have proved a “stunning disappointment,” Watson said.
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