About Us - Press Release - CEMEX provides guidance for the third quarter of 2008
September 11, 2008
CEMEX, S.A.B. de C.V. (NYSE: CX) announced today that it expects EBITDA for the quarter ending September 30, 2008 to be about US$1.25 billion, a decrease of about 3% on a like-to-like basis for the ongoing operations versus the same period last year, while operating income is expected to be close to US$800 million. CEMEX expects sales for the third quarter to be about US$5.9 billion, flat on a like-to-like basis versus the same period last year. For the first nine months of the year and on a like-to-like basis, CEMEX expects EBITDA of about US$3.55 billion, an 8% decline versus the same period last year, while revenue is expected at about US$17.6 billion, a 2% increase in the same period.
Like-to-like basis comparisons include the effects of: the consolidation of Rinker starting July 1, 2008; the sale of some U.S. assets as required by the U.S. Department of Justice related to the Rinker acquisition; the sale of certain U.S. assets to our joint venture with Ready Mix USA; as well as the exclusion of our Venezuelan operations starting August 1, 2008, reflecting the nationalization of our assets in that country, despite the fact that CEMEX's compensation has not yet been determined.
"We continue to face a challenging economic environment in most of our markets. Volumes during the quarter have been negatively affected by the continuing downturn in markets such as the United States, Spain, and the United Kingdom. In addition, foreign-exchange fluctuations have also had an impact on our full-year estimates, as the Mexican peso has depreciated since the end of the second quarter," said Rodrigo Treviño, CEMEX's Chief Financial Officer.
Realized synergies and cost-cutting initiatives to improve efficiency have helped to partially offset the sharp increase in energy and transportation costs. Furthermore, average pricing for our products remained resilient and has helped mitigate input-cost inflation.
For 2008 we now expect EBITDA to be between US$4.6 and US$4.7 billion. About half of the drop in our EBITDA guidance is the result of the lower expected performance from our U.S. operations. We also expect lower EBITDA contribution from our Spanish and UK operations. Additionally, this guidance reflects the exclusion of our Venezuelan operations starting in August, as well as a negative foreign-exchange effect of close to US$100 million, primarily as a result of the weaker Euro. We expect free cash flow after maintenance capital expenditures to be about US$2.6 billion for the year.
Our net-debt-to-EBITDA ratio was slightly below 3.5 times by the end of the second quarter. We expect to continue to be in compliance of this ratio going forward.
During the third quarter, CEMEX expects domestic cement and ready-mix sales volumes in Mexico to decrease by about 3% and 1%, respectively, versus the comparable period last year. For the first nine months of the year volumes are expected to decrease by about 3% and 7%, respectively, versus the same period of last year. The main driver of cement demand in the country continues to be the formal residential sector. Higher input cost inflation has negatively affected the self-construction sector. In addition, the infrastructure sector continues to be affected by a delay in project starts, which are expected to pick up in the last quarter of 2008. Finally, adverse weather conditions throughout the country have affected volumes during the quarter. Given this performance in volumes for the first nine months of the year, we now expect domestic cement volumes in Mexico to decrease by about 1% for the full year 2008, and ready-mix volumes to decrease by approximately 2% for the full year 2008.
Cement, ready-mix, and aggregates volumes for CEMEX's operations in the United States are expected to decrease by about 17%, 34%, and 39%, respectively, during the third quarter versus the same period last year. For the first nine months of the year, cement volumes are expected to decrease by about 10%, ready-mix volumes are expected to decrease by about 1%, and aggregates volumes are expected to increase by about 20% versus the same period last year.
On a like-to-like basis for the ongoing operations, ready-mix volumes are expected to decrease by about 29%, and aggregates volumes are expected to decrease by about 31% for the quarter versus the comparable period last year. For the first nine months of the year, also on a like-to-like basis for the ongoing operations, cement volumes are expected to decrease by about 19%, ready-mix volumes are expected to decrease by about 29%, and aggregates volumes are expected to decrease by about 28% for the quarter versus the comparable period last year.
Given this performance in volumes for the first nine months of the year, we now expect domestic cement volume in the U.S. to decrease, on a like-to-like basis, by around 18%, ready-mix volume to decrease by about 28% and aggregates volumes to decrease by around 28% for the full year 2008.
The expected decline in volumes for the quarter was driven mainly by the continued decline in the residential sector, which has negatively impacted other demand sectors. In the industrial-and-commercial sector while nominal spending is up, contract awards have fallen by double-digit figures due to the spillover effect of the residential sector. The public sector continues to see increases in construction put in place in nominal terms, but these increases have been fully offset by input-cost inflation. In addition, adverse weather conditions, mainly in Florida, the Carolinas, Arizona and many parts of Texas have also affected our volumes during the quarter. We continue with our cost cutting initiatives as well as with the implementation of synergies from the Rinker integration process.
Cement and ready-mix volumes for CEMEX's operations in Spain, are expected to decline by about 30% and 23% respectively, during the third quarter versus the comparable period of last year. For the first nine months of 2008, cement volumes are expected to decrease by about 24% while ready-mix volumes are expected to decrease by about 20% versus the same period in 2007. The decline in volumes was driven mainly by the continued decline in the residential sector. In addition, infrastructure projects continue to be on stand-by due to weaker than expected overall economic conditions and tighter lending policies for construction companies. Given this performance in volumes for the first nine months of the year, we now expect domestic cement volumes to decrease by about 24% and ready-mix volumes to decline by around 22% for the full year 2008.
During the quarter, CEMEX expects cement, ready-mix and aggregates volumes in the United Kingdom to decrease by about 17%, 24%, and 10%, respectively, versus the same period last year. On a like-to-like basis for the ongoing operations-adjusting for the divestments done during 2007-ready-mix volumes are expected to decrease by about 20% versus the comparable period of last year. For the first nine months of the year, cement, ready-mix and aggregates volumes are expected to decrease by about 13%, 17%, and 7%, respectively, versus the same period in 2007. Activity across all sectors continues to soften as overall economic conditions in the country have weakened and are signaling towards a recession. Given this performance in volumes for the first nine months of the year, we now expect domestic cement volume in the U.K. to decrease by around 14% and aggregates volumes to decrease by around 8% for the full year 2008. On a like-to-like basis-adjusting for the divestments made during 2007-ready-mix volumes are expected to decrease by about 14% versus the comparable period in 2007.
On September 9, 2008, the Mexican Supreme Court ruled against CEMEX's constitutional challenge of the controlled foreign corporation tax rules in effect in Mexico for tax years 2005 to 2007. CEMEX has not yet determined the amount of tax it will have to pay as a result, but its preliminary estimates indicate that this amount will not be material, although no assurance can be given that additional analysis will not lead to a different conclusion. If the tax authorities do not agree with CEMEX's self-assessment, they may assess additional amounts, which may be material.
During the third quarter, we experienced a significant reduction in our average funding cost of debt reflecting the lower interest-rate environment. Interest expense for the second half of this year is expected to be about US$100 million lower than that of the first half. As of the end of the second quarter, 24% of our total debt was denominated in Euros. Since then, the Euro has depreciated 11%, translating into a conversion-effect gain of about US$400 million. In addition, the estimated aggregate fair market value of our derivative instruments-excluding those associated with our perpetual instruments-has improved from US$414 million at the end of the second quarter to US$496 million as of yesterday.
Given the sharper-than-expected drop in our main operations, we have instituted a third round of cost-cutting initiatives at the operating level to rightsize our business and reduce fixed costs reflecting the continued deterioration in several of our markets. We will update the market as we have an estimate of the expected savings from these efforts. Additionally, we will continue to use free cash flow to delever and pursue different initiatives to divest non-core operations. We are also lowering our capital-expenditures program for this and next year.
Guidance and historic numbers are calculated on the basis of the average of monthly exchange rates through August 2008 and market close exchange rates as of September 10, 2008 for subsequent guidance periods. Given the volatility of foreign exchange rates and the exposure of our operations to factors beyond our control, our actual results could be materially different from our indicative guidance.
CEMEX is a growing global building materials company that provides high quality products and reliable service to customers and communities in more than 50 countries throughout the world. CEMEX has a rich history of improving the well-being of those it serves through its efforts to pursue innovative industry solutions and efficiency advancements and to promote a sustainable future. For more information, visit www.cemex.com.
This press release contains forward-looking statements and information that are necessarily subject to risks, uncertainties and assumptions. Many factors could cause the actual results, performance or achievements of CEMEX to be materially different from those expressed or implied in this release, including, among others, changes in general economic, political, governmental and business conditions globally and in the countries in which CEMEX does business, changes in interest rates, changes in inflation rates, changes in exchange rates, the level of construction generally, changes in cement demand and prices, changes in raw material and energy prices, weather conditions, changes in business strategy and various other factors. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein. CEMEX assumes no obligation to update or correct the information contained in this press release.
EBITDA is defined as operating income plus depreciation and amortization. Free Cash Flow is defined as EBITDA minus net interest expense, maintenance capital expenditures, change in working capital, taxes paid, and other cash items (net other expenses less proceeds from the disposal of obsolete and/or substantially depleted operating fixed assets that are no longer in operation). Net debt is defined as total debt minus the fair value of cross-currency swaps associated with debt minus cash and cash equivalents. The net debt to EBITDA ratio is calculated by dividing net debt at the end of the quarter by EBITDA for the last twelve months. All of the above items are derived from generally accepted accounting principles in Mexico. EBITDA and Free Cash Flow (as defined above) are presented herein because CEMEX believes that they are widely accepted as financial indicators of CEMEX's ability to internally fund capital expenditures and service or incur debt. EBITDA and Free Cash Flow should not be considered as indicators of CEMEX's financial performance, as alternatives to cash flow, as measures of liquidity or as being comparable to other similarly titled measures of other companies.