Cemex Rallies as U.S. Prices Rise in Construction ReboundBrendan Case
Cemex SAB shares rallied after executives said U.S. cement prices rose during the first quarter and predicted the Mexican government’s spending on infrastructure would grow in 2013.
The largest cement maker in the Americas is confident that its recent price increases in Texas and Southern California will stick, Chief Financial Officer Fernando Gonzalez said today on an earnings call. Sales in the U.S. benefited from a rebound in residential construction, with new housing starts climbing 5.5 percent in the first quarter.
South of the U.S. border, volumes in Mexico will probably be up in 2013 as a new presidential administration boosts infrastructure spending, Cemex said.
“Management comments about U.S. pricing and Mexican infrastructure appear to have assuaged investor concerns” spurred by first-quarter sales and profits missing analysts’ estimates, said Robert Wetenhall, an analyst with RBC Capital Markets LLC in New York who rates the shares “sector perform.”
Cemex rose 2 percent to 14.06 pesos today in Mexico City. Thos gains followed declines of as much as 2.6 percent after the company said its first-quarter loss widened amid slower government spending during the start of President Enrique Pena Nieto’s administration.
“The new government has hardly exercised the budget and that’s why there is a decline during the first quarter in infrastructure” in Mexico, Gonzalez said on the call.
The net loss was $281 million, compared with $30 million a year earlier, the Monterrey, Mexico-based company said today in a statement. Operating earnings before interest, taxes, depreciation and amortization fell 8 percent to $521 million, trailing the $594.6 million estimated by analysts.
Sales dropped 5 percent to $3.32 billion in the quarter, also lagging behind analysts’ estimates, as volumes dropped in Mexico, South America and northern Europe.
Cemex has reported 14 straight quarterly losses, as the U.S. construction market slumped after its $14.2 billion acquisition in 2007 of Rinker Group Ltd., which got more than 80 percent of its sales in the U.S.
Companywide, adjusting for fewer selling days in the first quarter compared with the same period a year ago, sales would have declined 2 percent, Cemex said. Operating Ebitda, adjusted for the change in sales days and excluding gains from a pension plan change in Europe a year ago, would have advanced 9 percent.
Cemex has yet to see any “major negative consequences” from the woes of publicly-traded Mexican homebuilders, Gonzalez said on the call. The homebuilders have deteriorated as the government delayed payment of housing subsidies and shifted policy to promote more capital-intensive apartment construction in urban areas over single-family homes in commuter towns.
Cemex’s U.S. unit posted a profit before interest, taxes, depreciation and amortization for the fourth straight quarter in a row as the company raised prices in several states. The unit’s earnings on that basis were $19 million, compared with a Comdty loss of $24 million a year earlier, Cemex said. U.S. cement prices advanced 5 percent.
“The residential sector continues to be the main driver for cement consumption, supported by record high affordability, low interest rates, and low levels of inventories,” Cemex said in a report.
The company said total cement volume would rise 1 percent this year, with a 2 percent gain in ready-mix concrete and a 1 percent increase in aggregates.
Sales volumes in the first quarter, though, indicate a challenge, said Lilian Ochoa, an analyst with Corporativo GBM SAB who has a buy recommendation on the company. A 2 percent quarterly cement volume increase in the U.S. compares with a 14 percent gain last year.
Cemex was “at much higher levels before,” she said in a telephone interview from San Pedro Garza Garcia, Mexico. “Volumes also fell in South America, Central America and the Caribbean. Are they really going to be able to show a consolidated expansion in volume? I’d worry about that.”