Equity Analysis /
Mexico

Cemex: Quarterly Report 2Q22: Strong margin impact. Slightly lowers its guidance

  • Cemex confirmed greater profitability pressure, aligned with expectations, and a shrank in free cash flow of 81%

  • It lightly cut its 2022 EBITDA guidance, now to a low to medium digit advance (vs. previously mid-digit increase)

  • Global challenges (high inflation, costs rise, and supply chain disruptions) will generate stock price volatility

Jose Itzamna Espitia Hernandez
Jose Itzamna Espitia Hernandez

Senior Equity Research Analyst, Infrastructure, Materials and Transportation

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Banorte
1 August 2022
Published byBanorte

Strong margin impact. Slightly lowers its guidance

  • CEMEX reported a mixed 2Q22, aligned with expectations, achieving revenue gains due to the favorable market dynamics, but with significant profitability pressures affected by current challenges

  • The company slightly lowered its EBITDA guidance given the complex environment, so the stock price could continue to be pressured, despite the attractive valuation (5.1x vs. 6.6x sector’s median)

Margins affected by higher costs, despite strong demand and higher prices. 2Q22 figures registered sales increase, supported by the positive supply and demand dynamic that benefitted product prices, both in local currency and in dollars (in cement double digits on average), although they registered a strong profitability pressure due to higher costs and expenses. In this way, cement volumes decreased 7%, given a high comparable base in Mexico and supply chain disruptions mainly in the US, while concrete and aggregates grew 4% and 1%, respectively. This led to an increase in total revenue of 6.8% y/y. In contrast, EBITDA had a decrease, aligned to the expected, of 10.4% y/y resultant of higher energy costs, freight, imports, distribution expenses, as well as a less favorable product mix, contracting the respective margin by 3.4pp to 17.7%. Meanwhile, free cash flow shrank 81% y/y and the leverage indicator stood at 2.88x vs 2.83x in 1Q22. Growth outlook decreases in light of current challenges. The cement company slightly cut its 2022 EBITDA guidance, now estimating a low to medium digit advance (vs. previously mid-digit increase), which is aligned with our estimate (+4.3%). Although the higher prices strategy, alongside with the attractive valuation, makes us maintain our long-term positive vision for the firm, we believe that the global-level challenges (lower economic growth, high costs in energy and raw materials, and supply chains disruptions) will continue to generate volatility in the stock price.