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Cemex: Quarterly Report 3Q22: Cuts guidance due to higher pressure on profitability

  • Cemex showed an increase in revenues, but a contraction in profitability beyond estimates due to cost inflation

  • The cement company lowered its EBITDA guidance again in view of the complex backdrop

  • Global challenges, including the possibility of a recession in 2023, will continue to pressure the stock price

Jose Itzamna Espitia Hernandez
Jose Itzamna Espitia Hernandez

Senior Equity Research Analyst, Infrastructure, Materials and Transportation

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Banorte
27 October 2022
Published byBanorte

Cuts guidance due to higher pressure on profitability

  • Cemex showed an increase in revenues, in line with estimates, due to higher prices. However, profitability contracted more than expected due to cost inflation

  • The cement company lowered its EBITDA guidance again in view of the complex backdrop. Thus, although valuation is attractive (5.0x vs. 6.3x sector median), the stock price will remain under pressure

Higher costs continue to impact profitability despite higher product prices. In 3Q22, Cemex reported higher sales, supported mainly by higher prices in both local currency and dollar terms (double-digit average cement prices) in the face of tight supply, although profitability was under pressure due to higher costs and expenses. Thus, cement volumes fell 7% on a year-over-year basis, given a high comparative base in Mexico and Latam, and considering the impact of hurricane Ian in Florida, but ready-mix and aggregates volumes rose 2% each. This led to an increase in total revenue of 7.1% y/y. In contrast, EBITDA had a decrease, below expectations, of 10.3% y/y due to higher energy, freight and import costs, logistics and distribution expenses, as well as a less favorable product mix, contracting the respective margin by 3.2pp to 16.4%. Meanwhile, free cash flow shrank 72% y/y and the leverage indicator stood at 2.82x vs 2.88x in 2Q22. Growth outlook deteriorates due to a complex backdrop. Cemex lowered its 2022 guidance to an estimated EBITDA of ~US$2.7 billion (representing a decline of more than 5% vs. previous low-to-mid-single-digit growth), below our estimate (-4%). Although higher prices strategy, coupled with an attractive valuation, makes us maintain our long-term positive vision, global challenges, including the possibility of a recession in 2023, will continue to pressure the stock price in the short term. We will be looking forward to Cemex Day on November 16 to adjust our expectations for the company.