Cemex: a 55% profit jump on 12% EBITDA growth

Cemex reported third-quarter net profit of $407 million, up 55% from $264 million a year earlier, on sales up 8% to $4,590 million.[1] Operating EBITDA rose 12% to $990 million, above the average of analyst estimates compiled by Bloomberg, and revenue and net profit also beat forecasts.[1]

It was a good quarter. It was also a quarter in which the headline number grew much faster than the business under it.

Net profit grew more than four times as fast as EBITDA.

Four growth rates for one quarter

Sales rose 8% as reported and 5% like-for-like.[2] Operating EBITDA rose 12% as reported and 9% like-for-like.[2] Operating earnings before other income and expenses rose 19% to $652 million, and net profit rose 55%.[2] Income before tax rose 61%, so most of the gap opens below the operating line rather than in the plants.[2]

The operating improvement is real. Cost of sales fell 1.9 percentage points to 64.5% of sales, which the company credits to efficiencies under Project Cutting Edge.[2] Operating expenses rose 0.6 points to 21.3% of sales.[2] The EBITDA margin improved 0.8 points to 21.6%, which Cemex explains mainly through higher prices, lower energy prices in cement and better profitability in Urbanization Solutions.[2]

The year-to-date figure is a useful check on the 55%. Net profit for January to September was $982 million, down 25%, because last year’s total included $632 million from discontinued operations against $4 million this year.[2] Single lines below the operating result can move a long way in either direction.

Volumes: cement up, the rest down

Domestic gray cement volume rose 3% in the quarter to 11,492 thousand tons.[2] Ready-mix fell 2% and aggregates fell 3%.[2] The company describes improving cement volume trends in most markets, and that is a fair description of cement.[2] It is not a description of everything Cemex sells.

Mexico carried it

Mexican sales rose 16% to $1,299 million, with cement volume up 7% and prices up 5% in pesos.[1] Mexican EBITDA rose 30% to $480 million, or 22% like-for-like, at a 37.0% margin.[2] That is close to half of the group’s EBITDA.

The United States went the other way on profit. Sales rose 5% to $1,373 million, but EBITDA fell 4% to $259 million, after an unplanned outage and higher raw material costs.[1] The margin there slipped from 20.6% to 18.9%.[2]

Cash and debt

Free cash flow from operations was $723 million in the quarter, up 34%.[2] Total debt was $6,075 million, 11% lower than a year earlier.[2] Here the balance sheet supports the good news.

The share

The CPO closed at 18.99 MXN on 26 October, down 0.5% on the day.[3] It is down 8.2% since the start of the year and 18.8% below its twelve-month high of 23.4 MXN, though 10.9% higher than a year ago.[3] Results came out that same day, so this close may not capture the full reaction.[1]

What to watch

• US margin. Whether the outage explains the decline, or the cost pressure stays.
• Ready-mix and aggregates. Cement growth means more if the products further down the chain follow it.
• Mexico’s mix. How long 7% volume and 5% price can run together.

The 55% is the headline. The 12% is the business.