Cemex CEO Vows to Cut Debt by Up to $3.5 Billion as Profit JumpsBy
Cement maker is seeking a return to investment-grade status
Profit was the highest for a second quarter since 2008
Cemex SAB, which teetered on the brink of default during the global financial crisis, is targeting a debt cut of as much as $3.5 billion by the end of next year as it steps up a push to regain an investment-grade credit rating.
Achieving the debt-reduction goal would mean a 23 percent drop in the company’s liabilities from the end of last year, Chief Executive Officer Fernando Gonzalez said Wednesday. The largest cement maker in the Americas is also increasing its target for asset sales in the period to as much as $2 billion even after reporting the biggest second-quarter profit since 2008.
“We continue to see profitable demand growth throughout our portfolio,” Gonzalez said on a call with investors following the company’s earnings report. “Debt reduction for the second half of the year should come from additional free cash flow generation and, subject to closing conditions, the proceeds from pending divestments.”
Cemex is boosting efforts to recover an investment-grade capital structure by raising cement prices in key markets and moving ahead with asset sales such as last month’s initial public offering of its Philippines unit, which raised about $507 million. The company said it would increase free cash flow this year by as much as $550 million compared with a previous estimate of as much as $450 million.
Shares advanced 2.3 percent to 13.33 pesos at 2:42 p.m. in Mexico City after climbing as much as 8.1 percent for the biggest intraday gain since Feb. 17. The company’s $1 billion in bonds due in 2024 climbed .43 cent on the dollar to 102.1 cents on the dollar, the highest in more than a year.
“We believe that these better-than-expected results will have a positive and immediate effect on bond prices and affirm our view that Cemex should be considered a core holding for EM portfolios,” Rafael Elias, head of emerging-market strategy at Cantor Fitzgerald, said in a note to clients. “We expect continued strength in most of its markets.”
Net income climbed 81 percent to $205 million, the most for a second quarter since 2008, Cemex said in a statement Wednesday. Earnings before interest, taxes, depreciation and amortization rose 6 percent to $771 million, exceeding the $760.4 million average of seven dollar-based estimates compiled by Bloomberg.
Increased profits and lower debt gave Cemex the “perfect mix,” Vector Casa de Bolsa analyst Jorge Placido said in a note to clients.
In Mexico, sales rebounded after a drop during the first three months of the year.
“The cement business in Mexico posted greater market share recovery than expected,” Vanessa Quiroga, an analyst at Credit Suisse Group AG, said in a report. Cemex had “higher than expected Ebitda due to Mexico.”
Revenue also rose in the U.S. with a boost from rising volumes and higher prices for cement. That helped Monterrey, Mexico-based Cemex increase total Ebitda to 20.9 percent of sales from 19.6 percent a year earlier.
Total sales dropped about 1 percent to $3.68 billion, compared with an estimate of $3.71 billion. Revenue in South America, Central America and the Caribbean fell 10 percent, Europe sales slid 2 percent while Asia, the Middle East and Africa dropped 4 percent.
Cemex lowered its total debt plus perpetual notes by 7 percent from a year earlier to $14.8 billion. The company’s free cash flow for the quarter was $422 million, the highest in a second quarter since 2006.