CEMEX(US:CX)2023-05-02 19:54Financial Data and Key Metrics - Net sales rose high single digit due to the company's pricing strategy, with EBITDA growing by 6% despite a difficult prior year comparison [110] - EBITDA margin expanded sequentially by almost two percentage points, with a slight year-over-year decline being the smallest in five quarters [31] - Cost of goods sold as a percent of sales was 1.1 percentage points lower than the prior year, driven by easing inflationary pressures [8] - Leverage ratio improved to 2.62 times, a sequential reduction of 0.22 times, due to the issuance of a green subordinated perpetual note [9] - Net income was $225 million, 14% higher than the prior year, driven by better operational results and a positive foreign exchange effect [44] Business Line Performance - Cement volumes declined double-digit primarily due to severe winter weather in the U.S., with weather conditions explaining approximately 60% of the decline [29] - Ready-mix and aggregate volumes grew double-digit and mid-single-digit respectively, reflecting the dynamism of formal construction in Mexico [40] - The urbanization solutions business showed remarkable performance, with EBITDA rising 34% and the admixtures business growing more than 60% [113][82] - In Europe, cement pricing traction remained strong with prices up 35% year-over-year, and EBITDA grew 46% [83] - Middle East and Africa saw double-digit EBITDA growth, driven by strong pricing and margin performance in Egypt [30] Market Performance - U.S. volumes declined due to severe winter weather, but recovery is expected as weather conditions improve [10][36] - Mexico showed strong pricing traction with double-digit growth in sales and high single-digit growth in EBITDA, supported by industrial and infrastructure demand [89][21] - Europe delivered strong financial results despite a challenging volume backdrop, with sales and EBITDA growing double-digit [116] - South, Central America, and the Caribbean region saw 4% net sales growth, driven by disciplined pricing, though cement volumes remained pressured [30] Strategic Direction and Industry Competition - The company upgraded its 2030 and 2050 climate goals, validated by SBTi under the one and a half degree scenario, emphasizing decarbonization as a profitable transition [3] - The company is investing in green projects, with $1 billion in green subordinated perpetual notes issued, aligning with its sustainability agenda [93][32] - The U.S. market is moving towards composite cement, which requires less clinker and aligns with lower carbon product trends [13][14] - The company is focusing on recovering 2021 margins, with pricing strategies aimed at offsetting inflationary pressures [11][34] Management Commentary on Operating Environment and Outlook - Management believes the quarter marks an inflection point in margin recovery, with cost inflation easing and pricing traction improving [11][109] - The company expects improving margins going forward, driven by easing energy cost inflation and lower imports [31][120] - The U.S. industrial sector is a strong driver of demand, benefiting from the CHIPS Act, Inflation Reduction Act, and infrastructure spending [50][98] - The company remains optimistic about Europe's medium-term outlook, supported by decarbonization and urbanization solutions [83][131] Other Important Information - The company achieved record CO2 reduction levels, with a 3% decline versus the first quarter of 2022, driven by alternative fuel usage and a record low clinker factor [9][104] - Working capital days increased by eight versus the prior year, primarily due to inflationary impacts on inventories [44] - The company completed the acquisition of Atlantic Minerals Limited, expanding U.S. aggregate reserves by 20% [105] Q&A Session Summary Question: How is the company managing debt structure changes? - The company reduced bank debt and called a $1 billion bond, with 35% of debt being bank debt and 32% high yield notes as of Q1 2023 [19][61] Question: What are the expectations for U.S. volume recovery? - The company expects recovery in U.S. volumes aligned with guidance, driven by industrial and infrastructure demand, despite weather-related challenges [36][50] Question: How sustainable are margin improvements in Mexico? - Margins in Mexico are expected to remain strong, with double-digit pricing tailwinds and positive demand dynamics [62][89] Question: What are the risks to sequential margin expansion? - Risks include potential maintenance works and labor logistics delays, though input cost deceleration is expected to support margins [119][120] Question: How is the company addressing decarbonization in the U.S.? - The company is transforming cement plants to produce lower carbon products, such as composite cement, aligning with U.S. market trends [13][14] Question: What are the pricing strategies for the U.S. market? - The company announced high single-digit pricing increases for 65% of U.S. volumes, excluding California and Arizona, effective July 2023 [64][65]