Q1 2022 Cemex SAB de CV Earnings Call
Mortgage volumes are increasing in all markets except for Scott.
We are quite pleased with the pricing performance.
Against the backdrop of the worst inflation headwinds since the eighties.
We realized a record sequential cement price growth for cement.
Consolidated cement prices were up 12% year over year.
While ready mix and aggregates rose eight 7%, respectively. Importantly, our January price increases so important traction with sequential consolidated prices up between mid single to high single digits for all products.
All regions contributed to pricing gains.
Despite the January pricing achievement, we still have work to do to compensate for rising costs.
We have implemented April pricing increases for those markets in the U S and Europe that did not have a January increase and we expect similar results.
In addition, we have already announced subsequent increases in many markets for the summer months.
Pricing, however is not the only lever we remained focused on costs.
Our diversified energy supply chain on climate action strategies are paying off.
EBITDA for the quarter increased 3% driven primarily by prices and growth in our EMEA region.
EBITDA from organization solutions grew double digits and we expect this growth to continue in 2022.
Our growth investment portfolio ramps up and more projects come online.
The contribution of pricing to EBITDA fully offsets the increase in variable costs and inputs.
We're driving volumes. However, it was not sufficient to maintained year over year margins.
Consolidated margins declined one seven percentage points.
In mid 2021.
We began to see significant inflation in the business stemming largely from rising energy and transportation costs.
We updated.
Our pricing strategy to take this into account and began to see the benefits of our efforts in fourth quarter.
While there is of course seasonality in our results I'm pleased that consolidated margins in the first quarter increased sequentially.
We are cautious and we know of the inflation challenges ahead of us.
But we are carefully managing costs and our pricing strategy has been recalibrated to reflect the new cost environment.
Our goal is to recover margins in line with our operation resilience target of at least 20%.
And now back to you Lucy.
Thank you Fernando.
Largely sold out domestic market our U S operations experienced impressive growth across all products sales expanding 18% on the back of high single digit volume growth for the three products.
This growth reflects strong demand from the residential and industrial sectors as well as milder winter.
Pricing gains contributed significantly to sales with cement prices increasing 10%.
January increases were highly successful.
In markets, which account for 40% of our new estimate volumes and in pricing.
Eight and 10%.
In April our remaining markets received their first pricing increase of the year. We are optimistic the traction will be in line with January .
We have already announced additional price increases for the summer in all markets and we have been advised customers further price increases may be necessary.
On the comp side imports logistics and energy continued to be the biggest headwinds to margins with largely sold out markets and rising shipping rates are increasing reliance on imports negatively impacts margin.
While EBITDA margin declined year over year sequential margin improved almost one percentage point.
With today's challenging global shipping market, we will take full advantage of imports by rail and water from our Mexican operation in order to meet customer needs.
We remain optimistic with regard to the outlook for the U S.
Spiked rising interest rates, we have not seen evidence of softening residential demand in our markets the industrial and commercial sector shows important recovery due to onshoring of manufacturing activity in the resurgence of the oil industry.
We expect these industrial trends to persist with additional supply chain pressures from the Ukraine more.
Finally for infrastructure, we expect the new infrastructure investment and job back to yield incremental demand for our products towards the end of 2022.
In Mexico net sales grew 5% driven by a successful pricing strategy.
At January cement price announcements saw record attraction with cement prices rising 9% sequentially.
Volume dynamics continue to reflect the rebalancing of demand between the informal and formal construction sectors as we move out from pandemic restrictions.
Cement volumes declined 8%, reflecting weaker demand in bagged cement, while ready mix volumes grew 9%.
The decline in bagged cement volumes results from a difficult 2021 comparison base with a high level of pandemic home improvements and pre electoral spending.
Going forward, we expect bagged cement volumes to stabilize at a normalized market share.
In the formal sector activity is driven by the industrial and commercial sector informal residential.
We continue to see the build out of manufacturing and warehousing facilities in northern states with companies, taking advantage of near shoring opportunities.
Demand for industrial space is growing significantly led by cities, such as Tijuana and Monterrey.
The commercial sector has been supported by hotel construction in tourism corridors as the industry responds to a post pandemic influx of tourists.
This strong pricing performance is still not sufficient to offset the significant inflation in our operations driven largely by energy.
Rising energy costs, coupled with product mix, including a rapidly expanding urbanization solutions business were largely responsible for the decline in EBITDA margin.
We expect our pricing strategy and cost containment initiatives to address the inflation challenges, we announced a second price increase of 11% in bag cement effective April one.
To date, the increase is showing similar traction to our January price action.
Our climate action right now is also helping us respond to cost pressures alternative fuel usage with clear cost advantages over fossil fuels posted new record highs.
So it's to reduce clinker factor improved thermal efficiency of our plants is also supportive.
<unk> sold out the U S market not only allows us to support the needs of our U S business in a cost effective manner, but also to maintain high capacity utilization in Mexico.
We will.
<unk> pushing for additional price increases as necessary to compensate for cost headwinds.
EMEA posted excellent results with sales and EBITDA rising double digits topline growth was driven by double digit growth in price and mid single digit growth in volume from cement Europe is responsible for much of the improvement with cement volumes rising 16%.
Led by infrastructure and residential activity as well as milder winter weather.
Prices for our three core products increase between nine and 13% sequentially, reflecting strong January price increases in.
In April we implemented price increases in those markets, which represented about 40% of European cement volumes.
Not have a January increase.
We have already announced a second round of price increases to be implemented during the second quarter.
We are fortunate that our business in Europe is relatively insulated from the Ukraine more both in terms of footprint supply chain and cost pressures.
As a result of our one <unk> strategy implemented in 2019, and the consolidation of our cement footprint our plant network today runs at high capacity utilization.
The business is well diversified with our less energy intensive products other than cement contributing about 50% of regional EBITDA.
Within our cement business alternative fuels, a chunk from its two thirds of our total fuel mix, allowing us to minimize fossil fuel volatility.
Recent modifications to our plants in the UK, Germany, and the Czech Republic will allow us to boost alternative fuels, even further up to 70% by mid year.
We have a surplus of <unk> allowances that we expect will last through 2025.
And on the demand side, the renovation ways and other infrastructure programs totaling approximately one four trillion.
Coupled with expected new investment in energy and defense should support volumes.
Moving to the rest of the region in the Philippines cement volumes declined 6% impacted by disruptions caused by typhoon no debt in December and Covid Lockdown measures.
Cement prices improved 3% sequentially, marking four consecutive quarters of growth for more information. Please see our CHP quarterly earnings which will be available. This evening.
In Israel construction activity was strong with ready mix and aggregate volumes growing while sequential pricing for our products rose between mid to high single digits.
Finally in Egypt, we continue to see strong EBITDA growth driven by the industry rationalization plan announced by the government in mid year 2021.
In our south Central American and Caribbean operations net sales increased 9%. This strong top line growth was driven by strong pricing with high capacity utilization in most countries regional cement prices increased 9% year over year similar to Mexico the formal sector.
Continuous recovering from the pandemic, while bagged cement growth moderates.
The decline in regional EBITDA and margins is mainly due to increases in energy costs.
We announced a second round of price increases effective April 1st in markets that represent around 30% of cement volumes.
We also are taking full advantage of the ability of our plants to switch between multiple tools as well as increasing alternative fuels in order to dampen the effect of rising energy prices.
In Colombia cement volumes increased 4% supported by housing self construction and infrastructure the outlook in the country remains positive with the continued rollout of <unk> highway projects and a healthy formal housing sector.
In the Dominican Republic cement volumes declined 4% led by a reduction in <unk> sales.
A difficult comparison base lower remittances and higher inflation explained the moderation in activity in the self construction sector.
The formal sector. However continues to recover driven by tourism and formal housing.
<unk>.
In April we reopened a kiln in our plant, which will increase our production capacity by a third underscoring our growth strategy and commitment to the development of the country.
With higher global shipping cost and are largely sold out region. We believe our strong logistics network, coupled with our cement capacity additions will be an important competitive advantage.
Each review <unk> quarterly results, which were also published today and now I will pass the call to <unk> review, our financial developments.
Thank you Lucy and good day to everyone.
As Fernando mentioned, we are very pleased with our first quarter performance, despite higher EBITDA and lower financial expense free cash flow after maintenance capex declined versus the prior year due to higher investment in working capital and maintenance Capex.
Investment in working capital increased due to higher sales plus higher inventory to support customer demand as markets continue to face supply chain bottlenecks.
We have been redesigning and introducing new technologies in our collections processes to make them more efficient.
The credit quality and the turnover efficiency of our receivables are at record levels.
This has led to a significant improvement in our receivables collection cycle.
I would like to highlight that our working capital cycle is seasonal and investments in the first quarter typically turnaround in the early part of the second half.
The increase in maintenance Capex relates primarily to the delayed delivery of mobile equipment. Originally slated for 2021. This is mostly due to supply chain disruptions.
As a result of positive operating performance and lower financial expenses net income for the quarter more than tripled when compared to that of last year. After adjusting for gains from sale of assets.
Return on capital employed for the last 12 months stood at 13, 7% excluding goodwill.
Well above our cost of capital.
Inflation for US has been felt mostly in energy and the production of cement, which represents approximately 30% of our total cement production costs.
During the quarter it increased 37% year over year.
Unitary fuel cost is up 53% driven primarily by the increase in pet Coke and coal and partially mitigated by an increase in alternative fuel usage.
This quarter the alternative fuel substitution rate was 33, 3% seven three percentage points higher than last year.
We expect our substitution rate to further increase during the year.
Unitary electricity cost is up 21% driven principally by our operations in Europe .
While we experienced an important increase in the cost of energy. It continued to have a much lower volatility than our key energy indices.
This was due to a combination of factors first a portion of our fuel and electricity contracts are negotiated on a fixed price basis. So there is some lag in the repricing of these contracts and second as mentioned before about a third of our fuels, our alternative fuels, which have different price dynamics than fossil fuels.
<unk>.
Apart from energy used in the production of cement, we're also exposed to energy in the form of transportation needs for all our products.
We've had a diesel hedging program in place since 2016, and which we cover our direct diesel exposure for the next 12 months to 24 months, depending on market conditions.
Now with respect to our capital structure and risk management.
As I commented last quarter, we entered 2022 with a very strong financial position with no refinancing needs for the next three years, a strong liquidity position and minimal exposure to interest rates at 90% of our debt is at fixed rates.
We will continue to be prudent in our financial strategy, maintaining an adequate risk profile consistent with an investment grade capital structure.
During the quarter, we executed a series of transactions taking advantage of the current environment.
With the rise in interest rates, we launched a tender offer to purchase up to $500 million of three of our bonds at very attractive prices.
So we will defend a process, which closed after the end of the quarter, we repurchased approximately $440 million in notes at an attractive discount.
This exercise will result in more than $11 million in annual interest expense savings and will be funded through our revolving credit facility at a much lower rate than the yield of the notes.
We also activated our share buyback program in the quarter in which we repurchased $111 million of our stock.
Since 2018, we have returned approximately $470 million to shareholders through a combination of share buybacks and cash dividends.
As mentioned before we do not have any refinancing needs. This year. However.
Anticipation of a rising interest rate environment, we executed $300 million in interest rate locks to partially mitigate interest rate risk in connection with potential liability management transactions in the future.
These rate locks were executed when the 10 year Treasury yield was approximately at one 7% so as as of today.
Have a positive mark to market.
The result of this transaction will be amortized in financial expense over the life of a new potential bond when issued.
We continue with our goal to align our capital structure to our sustainability targets.
During this quarter, we introduced our sustainability framework into our accounts receivable securitization programs in the UK and France for approximately $250 million.
And now back to Fernando.
We are quite pleased with first quarter performance, which exceeded our expectations underlying our February guidance.
Today, we are not seeing signs of slowdown in the order of operations on pricing has accelerated significantly.
We realize that first quarter is not always a good indicator of full year performance.
Industry.
We are maintaining our EBITDA guidance of mid single digit growth.
Although given the current environment, there might be some downside risk.
However.
We are confident that we will grow year over year.
Growth should be driven primarily by pricing with flat to mid single digit consolidated volume increases.
Given the successful price correction, we have seen as well as additional pricing announcements. We believe that we can continue closing the gap between cost and prices.
We are increasing our guidance for energy in the production of cement to 35% on a per ton of cement produced basis, assuming no further escalation in energy costs.
We now expect Capex of $1 2 billion with $700 million going to maintenance on $500 million going to strategic.
If global supply chain issues improve we could accelerate this capex spending.
Our strategic Capex that will be primarily directed towards bolt on margin enhancement projects.
We continue to expect 100 million bonus with incremental EBITDA for this year from our growth investments.
Such as ready mix block plants in Florida alternative fuels upgrade.
B plant in the UK sustainable waste management on more of the production in Mexico among others.
Cash taxes are now expected to be $200 million.
We recognize that cost headwinds will be a challenge, but we anticipate a favorable environment with moderate volume growth and strong pricing dynamics supported by high capacity utilization.
While it may take longer than we initially expected we aim to recover margins in line with our operation Brazilian scope.
And now back to you Lucy.
Before we go into our Q&A session I would like 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 in.
In addition, unless the context indicates otherwise all references to pricing initiatives price increases or decreases with further prices for our products.
And now we will be happy to take your questions.
In the interest of time indicate other people an opportunity to participate we kindly ask that you learn.
It yourself to only one question.
If you wish to ask a question. Please press star followed by one on your Touchtone telephone.
If your question has been answered or you wish to withdraw your question Press Star followed by Q.
Press Star one to begin.
And the first question comes from Francisco Suarez from Scotiabank.
Please go ahead.
Diverse that allows you to have this positive price cost this quarter on hand, Youre sequential margin improvement as a personal impressive.
Still relates to the cost side of your equation on the arm based neighbors Thats you are playing with.
They just see a room for upside Swiss scheme, better fossil fuel substitution rates, perhaps clinker factors, particularly outside Europe and perhaps this is actually linked to it.
Statements made by the beginning on the incremental margin improvement investments that you are having to pipeline.
For that and congrats again.
Thank you Francisco, let me.
Let me comment on.
Sure.
On the plus on the cost side, and you were referring, particularly I think to higher dilution.
In fuels and lower clinker factor.
And.
The answer to your question is definitely yes.
We do have room, and we have been investing and preparing to.
<unk>.
More progress is those particular.
<unk>.
Both contributing economically.
On both contributing to our targets.
In our transition towards a lower.
Carbon economy.
We commented that increasing alternative fuels on a consolidated basis.
One seven percentage points.
It's from about 27% first quarter last year to 32% this year.
Now that will continue growing.
A few explanations.
We have already.
Made installations in all our European plants to inject hydrogen.
Improve the combustion of RDF.
Our main.
That's one reason.
The other one is that.
It was recently announced I think it was.
Weak.
Our role in Spain that will be very positive in order to promote the use of RDF.
In our cement plants in Spain.
Pain, where we have the lowest substitution rate.
And the other reason why we will increase because we have already finished the projects to increase the use of alternative fuels.
Our.
Two of our largest plants in Europe .
In Germany in the UK.
So that is done.
Starting to see much higher levels of soft substitution in those plants close to 89% similar to what we have.
In Poland.
Now as you know.
So institutional grades or the use of alternative fuels in Europe .
Are the ones contributing the most economically.
So as of the first quarter, our substitution worth around 65%, which is in the very high end of.
This was <unk>, we understand that is in the industry in Europe .
And because of the variables I just mentioned these new rules in Spain, injecting hydrogen to improve combustion on the two projects. We just finished.
We are going to be moving.
Around or above 70% substitution in Europe .
We don't have.
In.
Regarding all the levers that we understand the average in Europe is around 50%. So we did 70%.
We might be leaving.
Sure.
European substitution grade of alternative fuels.
On the other hand clinker factor.
We continued reducing clinker factor.
And you know we've been we've been for instance, as an example.
We are being.
Switching from type one cement lines from cement and other types of blended cement in the U S.
So we are reducing clinker factor and in the U S.
Using materials.
Our lower cost when compared to keep good itself. So.
So that is also.
On top of contributing to the reduction that is contributing to.
Our competitiveness.
We have the lowest.
Stinker.
Factors during the first quarter and we do expect.
Continue reducing it as we have said before.
The driving force in these two main variables is our commitments on SKU reduction and as you know last year, we reduced more than 4% first quarter, an additional reduction of about 4%. So we have.
A very comprehensive roadmap we're executing.
Okay.
This.
This projects.
Because of being full we are sharing.
You can see that it is working we're moving forward effectively.
Okay.
Yes.
And it's somewhat Fernando.
Sorry for that do you think that the market might be overlooking those positive.
Potential advantages that you may have in Europe .
Hard to know what I, what I've seen.
Is that what's in the expectation of Europe being.
Charlie.
Or.
Good reasons, meaning for obvious reasons.
The war.
Inflation.
In wholesome fuels.
Inflation in electricity because of this reference.
Electricity prices being base gas prices.
But.
What I can comment.
In our case.
In the case of Europe about 50% of our EBITDA comes from cement.
The other 50% comes from ready mix aggregates.
<unk> solution businesses that are less impacted by inflation in fuels.
This 50%.
As I already mentioned.
<unk>.
Which in the case of Europe .
Their cost is much lower than fossil fuels.
In most instances.
Alternative fuels or even an income stream.
The.
<unk>.
The real impact of inflation.
Fossil fuels for us.
And Europe is on 35% of cement production.
Or are related to 35% of EBITDA.
So the potential impact at.
At least a soft first quarter.
It was.
Because of the inflation in cost in fuels was 18% of our EBITDA in Europe .
What do we kind of expect because of what.
What I have just explained.
Im going to repeat that is given that we are going to continue increasing the use of alternative fuels in Europe and in other regions.
That exposure that 80% will be lower.
Yeah.
Okay.
Hard to say if these packs have been other look but.
This is what I can comment.
Thank you so much collateral maybe.
But maybe I would just add to that because I think you asked a question about alternative mutates, even outside of Europe , and while we saw a 12% increase I think year over year and alternatives.
In Europe , we shouldn't neglect, Mexico, where we've had almost a 10% increase in alternative channels, such as well year over year.
Keep that or not.
The next question comes from Paul Roger from BNP Paribas and the question is from the web so I'll read it it's a continuation of Europe , what impact will the GAAP stoppage in Europe have on Pemex, assuming it also pushes the power cost what's the hedging position figure.
European electricity.
The group has seen any project cancellation and is there a risk of demand destruction due to higher prices.
Well on the first part.
First clarification, we don't use gas for cement production, so gas shortages shouldn't impact directly.
Our production processes.
Facility.
As we have said, 65% probably fuels, our rds, mainly alternative fuels.
The rest is pet coke and coal.
So that is not one is not a part of our mix.
In in Europe regarding electricity.
About 60% of our electricity is contracted for the year.
The good news is that.
In Spain, where we don't have these type of contracts for the year. There was a bit of recent news on an agreement.
Made by Spain, and Portugal to.
The European Union with the European Union regarding this posted this idea of fixing.
Electricity prices based on gas prices so.
Better reason decision will have a material impact in prices of electricity.
Spain material, meaning material, meaning.
Maybe half.
To be seen so does the situation.
Regarding our fuels inflation coverage or the.
Hedge in the logistics.
And there was a second part to that question.
Great.
A project cancellation.
No we have not seen.
Material cancellations, what we have seen through time, but this may not be the new.
Is that because of supply chain issues. There are delays there are delays in projects that are delays in development and construction.
Now the latest news latest meaning.
Conflict between Ukraine, and Russia that might add to that the process of delays. So far order books are strong we still don't see any sizeable.
Deterioration, but of course, we will continue monitoring that situation.
Okay.
The next question comes from our homegrown aside from <unk>.
Good morning, and a number of markets and Lucy.
Okay.
Mining front on the pricing side, if you could remind us where have you made a second price increase like in Mexico.
<unk>.
And where you've already announced one.
And yes there.
There is a possibility of a third price increase during the year and some of your markets. Thank you.
Yes.
Sure. Thanks for your question.
Let me take the opportunity to do.
If a better explanation or clarification on our pricing strategy because this year, we have very high inflation.
Syed.
Already qualified the hyperinflation in our industry.
So our pricing strategy is.
The most important.
Yeah.
The 7% increase sequentially from December to March that we commenced that.
Whats achieve impacting only 60% of our cement volumes consolidated at a consolidated level.
Because of the timing of price increases in different markets.
So in the case of the U S.
This price increase impacted 40% of our volumes in the case of Europe is 60%.
On in April , which is still part of our first half pricing strategy, our pricing strategy is not instituted in one single quarter.
So in April we are increasing again double digit increases in 50% of our cement volumes.
Now in the case of the U S and Europe .
Increases in April .
The first increases in certain regions.
In other countries.
Like like Mexico, like Germany, Poland, Croatia Carla.
Colombia and other markets this might be the second price.
Increase is not in 100% of all cement products in the most relevant part of them.
Now with these price increases in April .
In May and June will be we will be completing the first phase.
Our.
2022 pricing strategy.
We believe the same way we achieve.
Price increase in double digit price increases in the first quarter.
That will be the same case.
When comparing.
December two yoon, meaning double digit price increases and that will be half of our pricing strategy.
We have already announced price increases for the summer Young June .
July .
In the case of the U S and Europe will be the second price increase in northern markets might be the third.
Price increase.
And that is the main reason why we feel so confident on affirming our guidance of $3 billion EBITDA.
Prices our pricing strategy.
Our pricing strategy is based.
And the idea of recovering margins can recover in 2021 months and so far so good is it is.
It has been.
Effectively.
<unk> implemented.
Okay.
Very clear thank.
Thank you very much.
Thanks.
And then.
And then next question comes from Ben Theurer Barclays.
Please go ahead.
Perfect. Thank you very much lower fee from MMR congrats on the results.
I wanted to follow up on some of the comments you made during your prepared remarks on the import dynamics from Mexico into the United States and the advantages you have.
Proximity point of view a disruption in logistics.
If I remember right a year ago.
<unk> to face some issues because you havent had contracted enough on the logistics sites and hence the import margin came down can you share any comments on the dynamics here and where we stand on input margins now given that you knew about the need for logistics or maybe you've been able to lock that in is there any incremental color you are please.
Let me make some general comments and I will ask Martin to complement it.
Necessary.
As you can as you can imagine.
Savings from Mexico, the needs of our customers in the south part of the U S is much more convenient because this is.
Sort of a near shore.
The supply chain.
Tissue.
That means.
Response times are much shorter than a much faster.
<unk> is less exposed to.
Nowadays.
High inflation levels, and referring particularly to maritime transportation instead of them.
Serving this volumes from Mexico, we are bringing from <unk>.
Patient countries' order from other.
Middle Eastern European countries.
<unk> exposure to maritime.
Cost is huge.
So that is very convenient.
In that case, both Mexico and for the U S.
Margins on these.
Imports or exports.
Are much more attractive than the ones that we do from third parties.
<unk> Maritime transportation.
I don't know if you want to complement anything market.
On the cost or the margin specifically.
I cannot hear you.
Okay.
I think you're on mute.
Okay.
While market regains his voice, maybe I'll add one comment.
Yes go ahead, and then I'll add.
Sorry.
I don't know what happened I must have hit the phone the wrong way or something like that.
Sorry, Ben I mean.
One thing of course, we're expecting in <unk>.
Two to grow.
In last year imports into the U S were about $2 5 million.
Expecting this year to be.
Close to about 4 million tons of imports and of course, we as you know have ramped up our production for the export market from Mexico significantly through CPM Yaqui plant time OEM dorion.
These are all plants that have very good.
Transportation logistics into very attractive markets within the U S that are showing probably some of the highest growth and some of the strongest pricing dynamics.
So fortunately we're.
Almost doubling the amount of imports for the year.
From Mexico directly into into the U S and capturing clearly a big chunk of B B.
The third party, let's say profit within consolidated some ex profits.
We don't break out the specific details in terms of margins of third party imports in some ex imports and all of that but clearly the imports are.
Are not as profitable as the domestically produced cement, but they are very profitable and it's very important that we are using them to satisfy.
Demand from our customers, which is which is extremely important.
We're able to shorten our supply chain.
It gives us assurance assurance of good quality cement.
We've heard of some traders for instance, because of a lot of reasons have not been able to deliver on their contract. So I think that reduces the decreases the certainty of being able to and to deliver.
And so because of that we think it's important.
We continue to do that in Mexican imports are probably almost 30% less expensive.
Then third party imports so you could imagine.
<unk> benefits swing from last year to this year. When you see volumes are growing and you see the substitution of third party product by some X product coming in from from Mexico.
Those are the.
I guess.
I don't think we will see is there anything else that we need to add to that question.
I would just add maybe one or two comments I mean number one.
Very clear is that the issue in the United States right now one is supply and we are trying our hardest to meet customer demand and this is a very important source for us of our ability to do that in a quicker reaction time.
But that is the goal I know, we have some frustrated customers because of the shortages, but we are doing our best to ramp up again.
As much as possible.
Secondly, I think the other message that.
But I will say here is that in first quarter, specifically last year in the first quarter, we weren't importing as much as we did this year in first quarter and the inputs that we were bringing in last year. This was before we began to see the ramp up in transportation and energy costs. So it was at a very low cost.
Relative to we did contract obviously ahead of time for this year as we always do so we're seeing better transportation cost, but on a year over year basis, we have a hard comp versus first quarter, but just to keep that in mind.
Perfect very clear thank you very much.
Thank you next question.
It's from ASEAN wetter from Jpmorgan. Please go ahead.
Thank you Lucy high market on for Randall.
My question is also with prices.
When you gave guidance after <unk> results and you're reiterating the guidance now for EBITDA growth of mid single digits.
Did your price assumption I know you don't give guidance on pricing, but how much did the price increase assumption change from then.
Up until now.
Let me start.
With a few comments and then either the market or losing my my comp.
Complement.
And again I think.
We all have seen how things have changed.
Since early last year, meaning we started last year with a regular now we can call it low inflation.
We had a very positive outlook.
And then at about mid year, we saw an inflection point meeting.
Inflation started to escalate, particularly.
Power tools.
<unk>.
On growth expectations.
Spectation started to be adjusted to lower levels.
When we saw that we adjusted out as much as you can do it in July or August of a year, but we adjusted our pricing strategy to cope.
With that newer.
Yeah.
Assumptions of inflation that we did.
As much as we could meaning that the increasing presence again.
In July or September .
Then we prepared our pricing strategy for this year and we started executing agenda the first.
The trends continue being more or less the same.
Just to find out in February the 24 of the 25th there was a war.
On top of.
Your money time paying that comes with it.
What we saw is this trends higher inflation and growth deterioration GDP grow deterioration.
In accelerated.
So the prices we executed in January .
Didn't have yet the food or.
For the current assumptions for inflation that we are updating you on this call.
Now the rest of price increases in our strategy have been updated to the newest estimates of inflation that you saw we are increasing materially the assumptions.
Installation of the fields.
So we have.
Adopted.
Our strategy.
And I think we have.
We have considered that for the rest of the year, we will continue having these high level of inflation.
And we are prepared.
The elements of the first phase and Colin first phase our full pricing strategy for the first half second phase the second.
Rice increases into the second half inbound we are prepared to continue monitoring and continue adjusting.
Our our pricing strategy.
Under the base that our aim is to recover margins.
That's that's what we are.
Amy for that's what we are adjusting thats, a wilder objective what we're executing.
I hope that answers your question.
Thank you Fernando.
And the next question comes from <unk> from Bank of America and please go ahead.
Good morning, Thank you very much Fernando Maya Lindsay.
Want to ask a question related to higher interest rates I know that Fernando.
Earlier that so far you haven't seen our mega firsthand and impact on the housing market in the U S and maybe other markets, but I was wondering where do you see the impact of higher interest rates.
Mohan I know you said that most of the debt is fixed rate so.
Until you have the opportunity to call. These are.
On that small percentage that's <unk>.
Floating where do you see the impact of interest rates on the business and maybe Mark could you just give us a little bit more information on the interest rate lock.
Scott.
Yes.
Sure.
Brandon do you want me to address.
The impact of interest rate.
And I imagine and Youre youre talking about the impact of interest rate on potentially demand destruction.
On one side and then on the financing side.
The area that that potentially it could impact it.
It's probably more in the U S. In the residential market, but affordability continues to be I would say, okay. It's less it's less affordable because prices have gone up quite a bit.
Rentals have gone up quite a bit but if you take a look at inventories of existing houses and if you take a look at.
Inventories of new homes, they continued to be very tight.
I mean, we certainly have seen a slowdown in refinancings, but but demand for housing continues to be quite good. So we haven't seen yet by drop in demand in that perspective, and the order book in the U S.
<unk> to be to be good, but clearly there is there is expected moderation right I mean.
Clearly is going to is going to happen, but then on the other hand, we're seeing on industrial and commercial actually doing better frankly, if we take a look at.
Certainly now and forward looking we take a look at the order book and in terms of infrastructure. We also think we're very well positioned when we take a look at our own.
At four largest markets in the U S.
Dot budgets for the year are all either stable to growing I mean.
That's that's also very healthy so for the time being we are not seeing and we're not expecting.
Any major demand destruction as a consequence of the interest rate environment in the U S and Mexico.
Again, I think the housing area continues to.
Affordability from a from a financing perspective continues to be fairly good.
Fairly affordable we.
We continue to have.
<unk> trend in remittances into Mexico, which goes into the residential market, which is the market that is highest.
The highest risk in terms of interest.
Sensitivity to it so we don't see that and certainly.
That's not something that you're getting in.
Any important way in Europe . So so the areas that are interest rate sensitive.
We're not seeing that being impacted which is the residential market frankly from our perspective now in terms of our capital structure, our financing our debt stack.
We're it.
Depending on how you look at the numbers were somewhere between 80, 687% to 90% fixed rate.
Already.
And the reason I'm, giving you the range is because of the tender offer that we did recently that's being funded through our <unk>.
Our revolving credit facility, which is which is of course floating but the anticipation either from asset sales that are closing or from operating cash flow generation is that that amount would be paid throughout the year and theres really no need for us to be bothering to tactically kind of fix that component of our exposure.
Now in terms of.
Forward looking frankly.
We don't have any financing needs, but we do think that there may be opportunities in terms of liability management and it's precisely because of that that we were fairly proactive and of course, we do expect those I would say everybody in our expectations kind of came through of higher interest rates going into into next year and so we.
Took advantage of that.
At a very attractive window, and we entered into essentially a rate forward rate locks for 10 year treasuries.
Starting June of next year.
At a rate I mean at the time that we did the rate locks. The treasuries were probably at one of their lowest moments in the last few months and we locked in a level of one 735, which is very attractive because I haven't looked at treasuries. This morning, but we've been hovering between $2 7 million to eight to nine.
And the expectations maybe is that it would go higher now why did we do that because starting next year.
Alluding.
The discounting from some of our bonds in the market because the market activity.
Some of our bonds become callable and so we want to position ourselves to do liability management with attractive cost in advance I mean, we would've liked to have done more rate locks, but 300 is better than nothing.
And.
And so that's what that's what we did I'm not suggesting that we're necessarily going to be.
Calling any bonds and of course, we continue to see some very interesting pricing in our bonds in the market I mean, they are continuing to trade at a discount not because of our credit worthiness.
Merely because of the increase in rates I would say more than anything else.
I don't know if that answered your question Ann Yes.
Yes, no very good thanks, very much Manhattan.
Thank you.
Obviously, we can't hear you.
I might just add quickly on the U S side that volume in the first quarter were up 9% year over year, and maybe people will think that somehow reflects an easy comp.
<unk> first quarter 'twenty. One volumes were also up 9%, we did have a weather impact in 2021 in Texas with a great screens, but interestingly enough, Texas out of our four key states had the lowest growth rate year exclusive here. So there's more going on here at residential like not here.
Industrial and commercial we are seeing a lot.
Resourcing activity going on Youre seeing chip manufacturers in Arizona.
There has been a real pick up on that industrial and commercial side in residential continues to grow a lot of this is given our footprint because so much of our footprint.
On migration pandemic migrations has benefited.
Just to keep that in mind, yes of course, we're keeping our eyes out for weakness on the residential side in the U S. But we certainly haven't seen it so far.
And the next question, Kevin, Yes, seeing Joey on scale.
Good morning.
Just one question for me.
<unk> seen on the postponed rooms of constellation.
Constructional works.
In Europe and in the U S or in Latin America.
Cause of increasing cost of building all because of building apparel shortages.
Hi, guys.
Sure.
Briefly commented before.
No we have not seen it our order books are strong.
What we have seen.
But it is not that.
<unk>, new meaning you didn't.
Started happening in the last couple of months.
There are several issues construction did impacted by supply chain issues. So there are delays.
In certain jobs and certain developments.
But not to the point of suspension.
Now.
The context, particularly in the case of Europe because of the work.
Yes.
It is a concern I mean, the weather wasn't going to be happening.
And it will depend on the config the duration. So many so many things, but so far.
We have not seen.
Duration.
Our suspension in those type of projects.
Thank you very much.
Thank you.
Thank you Kevin.
Thanks Jesse.
We have time for one last question and this comes from Vanessa Quiroga from Credit Suisse. Vanessa. Please go ahead.
Alright, thank you.
Congrats on the results.
Thank you.
I guess I will ask you about the U S.
The volume in that rate quarter to rise from the applied and guidance for the full year, even more conservative than that so what do you expect to happen during the rest of the year.
To get to the guidance or do you think there is upside.
Your claim volume guidance.
Thank you.
The gentleman I'll, let you answer that one.
Okay.
Yeah.
Yes, I think Vanessa.
You talked about the strength that we're seeing in the U S.
I think that our guidance, while we haven't seen any any weakening in terms of demand, but I think it is being cautious and we are taking into account that there might be some softening of the residential in the future.
Think that Thats.
A quarter or two out I don't think if it does happen, it's not going to be immediate because we had a lot.
A lot of orders already on the books or residential and industrial and commercial continues to pick up we could make a pretty good argument today with what's happening in Europe that supply chain issues are only going to get worse in the future.
I would also add that the oil industry, while we don't directly sell but you are seeing a pickup in western Texas again.
On the sales side, and we benefit from that from our aggregates business and the benefit from it it can be CT scan of a large exposure in Houston, where a lot of oil related companies are.
But again, Texas limited slower of the growth you had a lot of other states that it contributed more in Arizona I would call out where there are two chip manufacturing facilities. These are enormous that are being constructed and we are involved in either one or both of those.
So strong demand some onshoring I think we're seeing the same thing in Mexico that will benefit but.
What we're seeing in Europe is only going to make its onshoring trend even stronger we believe going forward. So.
That would be my commentary.
Sure.
Okay. Okay, now that's great and about going in for Bill.
We're starting to get already some backlog.
Okay.
Maybe.
Frontloading a project related to that deal.
We are seeing contract contract awards rising which of course is the step before getting.
But we are seeing those why sterling, we're roughly at least as of February .
So I think that we are optimistic that towards the end of the year and primarily beginning in 2020, we will start seeing the benefit of that infrastructure remember that this year's guidance is primarily based on kind of more moderated volume growth in residential.
<unk> growth in industrial and commercial primarily the industrial team for the first time in a number of years, we're seeing that sector come.
Come back.
Yes.
Thank you very much Nancy.
Okay.
Okay. Thank you.
Okay.
Well, we appreciate you joining us today for our first quarter webcast and conference call. If you have any additional questions. Please feel free to contact Investor Relations and we look forward to seeing you again on our second quarter results webcast. Many thanks.
Thank you for your participation in today's conference. This concludes the presentation you may now disconnect good day.
Okay.
Yes.
Yes.