CEMEX, S.A.B. De C.V. CEO Discusses Q3 2010 Results - Earnings Call Transcript
CEMEX, S.A.B. de C.V. (
)
Q3 2010 Earnings Call
October 26, 2010 10:00 am ET
Executives
Fernando González - EVP, Planning & Finance
Rodrigo Treviño - CFO
Analysts
Vanessa Quiroga - Credit Suisse
Gordon Lee - UBS
Nick Sebrell - Morgan Stanley
Mike Betts - Jefferies
Dan McGoey - Citigroup
Christopher Buck - Barclays Capital
Jamie Nicholson - Credit Suisse
Gonzalo Fernandez - Santander
Robert Gardiner - Davy
Eduardo Couto - Goldman Sachs
Eric Ollom - Jefferies
Aaron Holsberg – Santander
Presentation
Operator
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Good day ladies and gentlemen and welcome to the CEMEX third quarter 2010 results conference call. My name is Marcella and I’ll be your operator for today. At this time all participants are in a listen-only mode. Later we’ll conduct a question-and-answer session. (Operators Instructions).
I would now like to turn the conference over to your host for today Mr. Fernando Fernando González, Executive Vice President of Planning and Finance. Please proceed.
Fernando
González
Good day to everyone. Thank you for joining us for our third quarter conference call and video webcast. I have been asked to remind you that any forward-looking statements we make today are based on our current knowledge of the markets in which we operate and could change in the future due to a variety of factors beyond our control.
I would like to start with four key messages. First, the leveraging continues to be the focus of our financial strategy. Second, we still believe that economic conditions in most of our markets have stabilized and are bottomed out with the fourth quarter likely to be an infection point on a consolidated basis. However, visibility remains low and the US is expected to take longer to recover than originally anticipated.
Third, after the financing agreement last year, we took the following positive steps on equity offering, the sale of assets and issuance of bonds and compatible securities. We have seen a reduce in our exposure and our financing agreement ahead of schedule. However as slower than expected recovery has translated into lower than expected operating EBITDA generation.
In light of the difficult operating environment and to ensure that we remained in compliance with our covenants, we had conversations with our banks and private placement noteholders that resulted in the amendment of some covenants and our financing agreement. Rodrigo will provide details of these amendments later in the call.
And fourth, we continue to rightsize our business as necessary and are constantly looking for opportunities to reduce cost at both the operating and corporate levels. We are on track to achieve our budgeted $150 million in savings this year, reaching 17% of this benefit by the end of September. We have started our budgeting process for 2011 and are making sure our cost base continues to adjust the prevailing market conditions.
Now, I would like to discuss our third quarter results. Infrastructure and housing continued to be the main drivers of demand for our products during the quarter. Lower volumes and weaker pricing conditions in some of our markets partially mitigated by our cost reduction initiatives affected our quarterly results. The year-over-year pace of decline of quarterly sales and operating EBITDA has been moderating for five straight quarters and will likely reach an inflection point in the fourth quarter.
During the third quarter and on a like-to-like basis for the ongoing operations consolidated domestic gray cement volumes decline by 1%, ready-mix volumes decline by 3% and aggregate volumes decline by 2% versus the same quarter last year. Similar to the year-on-year trend in sales and operating EBITDA, this is also the fifth consecutive quarter in which we have seen lower or equal year-over-year decline in volumes for our products.
In the fourth quarter, we expect consolidated year-over-year volume growth in cement and ready mix. Adjusting for foreign exchange fluctuations, consolidated gray cement and ready-mix prices declined by 2% during the third quarter compared with the third quarter last year and decreased by 1% for aggregate. In Mexico, demand volumes were positive in the third quarter after declines in the first two quarters of the year.
Infrastructure spending was high in 2009 specially in the first half of the year due to expenditures on special government programs to promote growth and employment which totaled about MXN46 billion. CONAVI, the Mexican Housing Council expects investments in formal housing to increase by about 1% in real terms during 2010 led mostly by credit expansion from INFONAVIT, FOVISSSTE, and, to a lesser extent, commercial banks.
We see investment in the self-construction sector contracting slightly this year, reflecting the absence of the extraordinary social programs that were available last year. Recovery in this segment could begin in the fourth quarter after result of an increase in formal employment, underrecovery in monthly remittances from the United States which are now expected to be flat to slightly higher in peso terms for 2010.
We continue to expect total investment in infrastructure including non-cement intensive projects such as energy and electricity to drop by about 1% in real terms for this year. However, investment in cement-intensive projects is expected to decline by about 15%. A potential upside to this estimate is the deployment of federal resources to rebuild public infrastructure destroyed by hurricane Alex in Northeast Mexico.
The reconstruction effort is estimated at around $1.3 billion. Additional resources maybe allocated for reconstruction efforts in other affected areas including Veracruz and Tabasco. The industrial and commercial sector is expected to show mid single-digit growth in the year after two years of decline driven mainly by construction demand from the industrial sector.
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