Earnings Report /

Cemex: Quarterly Report 4Q21: Price environment mitigates costs challenges

  • Operating progress continued, although at a slower pace, and profitability showed a slight fall due to cost pressure

  • Although growth expectations have moderated, favorable pricing environment should help mitigate higher costs

  • In our opinion, current valuation does not reflect the longer-term strong fundamentals

Jose Itzamna Espitia Hernandez
Jose Itzamna Espitia Hernandez

Senior Equity Research Analyst, Infrastructure, Materials and Transportation

11 February 2022
Published byBanorte
  • CEMEX operating progress continued due to the strong industry performance, although at a slower pace, and EBITDA margin showed a slight decrease due to cost pressure

  • Company's EBITDA 2022e guidance incorporates lower growth; however, we believe that the attractive valuation due to the drop in the share price does not reflect the longer-term strong fundamentals

Moderated progress and with slight pressure on profitability.  4Q21 figures showed advances, although to a lesser extent vs. previous quarters, supported by positive supply and demand dynamics that benefited product prices, although with a slight fall in profitability due to inflation costs. Given a difficult comparative base, especially in the US and Mexico, cement volumes fell 5%, ready-mix rose 1% and aggregates remained unchanged. This was more than offset by higher prices on average, in local currency and dollars, which led to a 3.5% y/y increase in revenues. In turn, EBITDA rose, to a lesser extent, 2.7% y/y due to higher costs of energy, raw materials and purchased cement, resulting in a 0.1pp decline in EBITDA margin to 18.0%, in line with our expectations. Meanwhile, free cash flow decreased 54% y/y and the leverage ratio improved to 2.73x vs 2.80x in 3Q21.  Finally, CEMEX released its EBITDA 2022e guidance with a mid-single-digit increase, slightly below our estimate.  Price increases would help mitigate cost pressures.  Despite the challenges of lower economic dynamism, higher energy and raw material costs, as well as disruptions in supply chains, company's strategy seems to be the right one.  Although growth expectations have moderated, the favorable price environment should help mitigate higher costs, pointing to better results for 2H22. This, coupled with an attractive valuation (6.0x FV/EBITDA vs. 8.6x in the sector), means that we remain positive about the company.