Q2 2026 CEMEX SAB de CV Earnings Call
Speaker #1: Good morning. Welcome to the CEMEX second quarter 2026 conference call and webcast. My name is Jeannie, and I'll be your operator for today. At this time, all participants are in a listen-only mode.
Speaker #1: Later, we will conduct a question-and-answer session. If at any time you require operator assistance, please press star followed by zero, and we will be happy to assist you.
Speaker #1: And now I will turn the call over to Lucy Rodriguez, Chief Communications Officer. Please proceed.
Speaker #2: Good morning, and thank you for joining us for our second quarter 2026 conference call and webcast. We hope this call finds you well. I'm joined today by Jaime Nogueira, our CEO, and by Maher Al-Hassar, our CFO.
Speaker #2: We will start our call by reviewing our second quarter results, followed by our expectations for the full year, and updated guidance. And then we will be happy to take your questions.
Speaker #2: As a reminder, we expect to close the announced sale of some of our operating assets, in Colombia, by the end of the year. Until such time, for accounting purposes, the transaction will be treated as a partial sale of an operation, and we will continue to fully consolidate these operations in our P&L.
Speaker #2: In addition, following our acquisition of Omega earlier in the year, we began consolidating the business as of April 1. And now I will hand the call over to Jaime.
Speaker #3: Thank you, Lucy. I'm good day to everyone. I am pleased to be here today to present strong second quarter results. Reflecting significant progress in our ongoing transformation.
Speaker #3: As well as organic growth in most markets. What stands out most is the clear evidence of that progress in our results. With meaningful gains against our new KPIs.
Speaker #3: And at a pace that is running ahead of our own expectations. I would like to recognize my colleagues, who have embraced this transformation and remain open to the profound cultural change it requires.
Speaker #3: Our transformation is well underway, and is already delivering on our goal of a structurally higher earnings quality as reflected in margins and free cash flow.
Speaker #3: We still have much work to do and continue to uncover new opportunities under Project Cutting Edge, which I will elaborate on shortly. Consolidated EBITDA in the quarter exceeded $1 billion.
Speaker #3: And included a favorable one-off settlement of an outstanding claim in Europe of $42 million. As our efficiencies compound, the benefits become increasingly evident across the P&L and cash flow.
Speaker #3: Pointing to a significant improvement in our earnings quality. Adjusting for the one-off sales grew 11%, while EBITDA expanded 19%, almost twice as fast. And EBIT, a key metric of our transformation, grew 29%.
Speaker #3: Almost three times the pace of sales growth. Again, adjusting for the one-off, consolidated EBITDA margin expanded 1.4 percentage points to 21.4%, while EBIT margin rose almost 2 percentage points.
Speaker #3: Free cash flow is also benefiting from these higher-quality earnings streams. Our free cash flow from operations reached a second-quarter record of $651 million.
Speaker #3: Up more than 400 million dollars year on year. After adjusting for severance and discontinued operations. This lifted our trailing 12-month free cash flow from operations conversion rate to 60%, also on an adjusted basis.
Speaker #3: Turning to our decarbonization pathway, we continue to advance profitably reducing growth, CO2 emissions by 1% year to date, supported by a lower clinker factor.
Speaker #3: And with that, let me discuss our results in more detail. EBITDA grew 18% on a like-to-like basis, driven by project Cutting Edge efficiencies during the quarter of $60 million and organic growth in most regions.
Speaker #3: Performance was broad-based, with three of our four regions contributing double-digit EBITDA and EBIT growth, and boasting margin expansion in excess of 2 and 3 percentage points, respectively.
Speaker #3: For the second quarter in a row, Mexico led regional results with continued volume recovery, efficiency gains, and an easy prior-year comparison. In the U.S., disruptions in our operations related to bad weather in Texas, together with rising materials and freight costs, weighed on EBITDA and margin in the quarter.
Speaker #3: In EMEA, despite softer demand in Europe, the region continued to benefit from pricing and project cutting edge savings. South, Central America, and the Caribbean rounded out the picture with significant margin.
Speaker #3: Related to cost efficiencies. As a result of project cutting edge, free cash flow from operations tripled year over year, lifting our trailing 12-month conversion rate to 60% on an adjusted basis.
Speaker #3: At the consolidated level, volumes were broadly stable, with performance in Mexico largely offsetting lower volumes in EMEA. In Mexico, the recovery continued to build, boasting the second consecutive quarter of year-on-year cement volume growth.
Speaker #3: In the US, despite unseasonable weather in some key markets that brought operational disruptions, volumes remain resilient across all products. In Europe, country volume performance was mixed, calling into question the recovery we were expecting in certain markets.
Speaker #3: Volumes were further impacted by the severe heat wave throughout much of Europe, which resulted in restrictions on work at construction sites in many markets.
Speaker #3: Within South, Central America, and the Caribbean, both Colombia and Jamaica saw higher cement volumes, which offset performance in other markets. Building on the low-to-mid single-digit sequential price increases secured in the first quarter, consolidated prices for our three core products advanced an additional 1% in the second quarter.
Speaker #3: In both EMEA and Mexico, year-to-date pricing gains continue to offset increasing inflationary costs and in the case of Europe, rising carbon costs for the industry.
Speaker #3: In the US, our cement prices rose sequentially, led by increases in the Mid-South, while ready-mix prices climbed 2%, reflecting fuel surcharges. With limited visibility, of a clear end to the run wall, we remain vigilant on closely monitoring and offsetting overtime any persistent input cost inflation through our pricing strategy.
Speaker #3: For the second consecutive quarter, EBITDA growth was supported by positive contributions across all levers. Incremental savings under project cutting edge accounted for approximately 40% of our like-to-like EBITDA growth.
Speaker #3: These self-help measures, factors that are under our control, are serving as an important cushion against microeconomic volatility and delayed cyclical recovery in several of our markets.
Speaker #3: Pricing was another important contributor while organic growth in our core products as well as our urbanization solutions portfolio also supported EBITDA. Finally, we continue to benefit from a more favorable FX environment which resulted in a 50 million dollar tailwind in the quarter.
Speaker #3: Prior year FX comparables will become more challenging as we move into the second half. EBITDA margin expanded by 2.1 percentage points, reflecting a structural efficiencies rising discipline and benefit from operating leverage as volumes recover in Mexico.
Speaker #3: I am pleased with the progress we have achieved on our 400 million dollar cost savings program with 80% of the initial target already achieved.
Speaker #3: In the first half, cost savings under the program have supported a 1.6-percentage-point improvement in our consolidated operating expenses as a percentage of sales, with all regions contributing.
Speaker #3: Cost of sales as a percentage of sales also declined approximately 1.4 percentage points. Following up on the commitment I made in our last earnings call, we are confident today in raising our overall savings target under Project Cutting Edge from $400 million to $475 million.
Speaker #3: We expect most of the new savings to be realized in 2027. In terms of composition, a small portion relates to further overhead optimization while the majority comes from procurement as we fundamentally transform how we approach third-party spend across our business.
Speaker #3: Subject to potential slippage resulting from possible cost headwinds from the Iran war that may impact some previously identified savings, I strongly believe that we have savings initiatives going forward.
Speaker #3: It has been one year since I laid out our transformation plan and I would like to give you an update on where we stand.
Speaker #3: Project Cutting Edge is a multi-year transformation effort designed to reduce overhead, achieve operational excellence, improve earnings quality, and enhance asset efficiency in line with best-in-class performance in our industry.
Speaker #3: In the first year, we moved quickly to eliminate overhead and improve operational efficiency through our cost savings program. These efforts helped jump-start our results while we laid the groundwork for more time-consuming transformation initiatives.
Speaker #3: We also introduced a new capital allocation framework designed to keep shareholders at the center of our decision-making while revamping our growth strategy. As we move into 2027, other initiatives under project cutting edge should support progress towards our transformation goals.
Speaker #3: Our asset pruning exercise designed to improve the quality of our earnings should begin to pay off in material ways. Additionally, some of our recent bolt-on acquisitions should also support these goals.
Speaker #3: In the quarter, we continued to move forward on our asset pruning exercise by disposing of an additional 12 facilities. Efforts to reduce certain elements of our free cash flow spend should also take hold as we move to lower growth capex and intangible investments, while aligning our maintenance spending to best-in-class performance.
Speaker #3: We estimate a potential opportunity space of 300 million dollars in free cash flow. We also are actively pursuing additional savings afforded by the introduction of AI into our operations.
Speaker #3: And we believe these efforts will be an important lever for growth in 2028 and beyond. We see particular benefits in planned management, energy efficiency, and the way we work.
Speaker #3: Our balconist plan in Texas has been the pilot for the use of AI in our operations. And we're making important advances. Our success there will then be scaled globally.
Speaker #3: Since we launched project cutting edge last year, I have been impressed by the engagement and creativity our teams continue to demonstrate in identifying new opportunities to improve efficiency and performance.
Speaker #3: And with that, back to you, Lucy.
Speaker #1: Thank you, Jaime. Mexico continued to build on recent momentum delivering solid results on the back of cost efficiencies, improving demand, operating leverage, and a pricing strategy designed to offset cost inflation.
Speaker #1: For a second consecutive quarter, cement volumes posted year-over-year growth. Self-construction and government-backed social programs, such as rural roads and housing, continued to underpin bagged cement demand, with bulk cement volumes largely driven by residential activity.
Speaker #1: During the quarter, our cement volumes continued to benefit temporarily from competitor outages in the central part of the country. This situation is expected to normalize in the second half.
Speaker #1: Prices on a sequential basis increased by a low single digit for our three core products, reflecting our strategy to recover input cost inflation. Over the past year, our team in Mexico has worked relentlessly to identify efficiencies and rethink our business model to achieve best-in-class operations.
Speaker #1: They have consolidated our operations and overhead while implementing important changes in logistics, freight, and energy strategy. These structural improvements are a large contributor to the EBITDA growth and margin expansion we are experiencing.
Speaker #1: Our results also benefited from more transitory factors, including lower-than-expected energy costs and FX tailwinds during the quarter. The social housing program continues to scale and is a meaningful lever of growth in our business.
Speaker #1: With the target of 1.8 million units through 2030, our participation keeps expanding. To date, we have been awarded approximately 135,000 units, up 12% from the prior quarter, and we are in active negotiations for an additional 145,000 units.
Speaker #1: Infrastructure is becoming an encouraging part of the story for 2027. We have seen a significant increase in contracted volumes in our ready-mix order book, tied to large-scale projects such as railroads, highways, and dams.
Speaker #1: But project execution has been slow to date. We are already participating in some of these projects, such as Presa El Novillo in La Paz, the elevated viaduct in Tijuana, and the Saltillo–Nuevo Laredo railroad.
Speaker #1: Given their scale and complexity, however, they will take time to translate into meaningful demand. And we therefore expect infrastructure to become a more relevant driver next year.
Speaker #1: With regard to our decarbonization efforts, we achieved another clinker factor record in Mexico of 62.6% in the quarter. Underscoring our ongoing commitment to profitably reduce CO2 emissions.
Speaker #1: As we move into the second half of the year, we do expect some normalization in growth rates. As prior-year comparisons become more demanding, temporary market share gains due to competitor outages reverse, and growth relies increasingly on formal construction, which is inherently more difficult to time.
Speaker #1: In our U.S. operations, demand remained resilient despite unusually wet conditions in Texas and parts of the Mid-South. Adjusting for weather-related disruption, we estimate that cement and ready-mix volumes would have both grown 1%, while aggregates would have expanded 7%.
Speaker #1: Cement volumes were supported by the integration of our new mortars business, Omega, for two months in the quarter. Cement prices improved 1% sequentially, reflecting successful price increases across micro-markets and geographic mix.
Speaker #1: In ready-mix, prices increased 2%, reflecting effective implementation of fuel surcharges. In aggregates, adjusted for mix, prices have increased at a mid-single-digit rate compared to year-end 2025.
Speaker #1: Disruptions in our operations related to bad weather in Texas, together with rising materials and freight costs, weighed on EBITDA and margin in the quarter.
Speaker #1: Demand continues to be led mainly by infrastructure, supported by the ongoing rollout of IIJA projects, with about 50% of allocated funds already spent. Activity levels remain healthy, and we continue to see a solid pipeline of infrastructure opportunities across our footprint.
Speaker #1: We are encouraged by the proposed Build America 250 Act, which contemplates funding levels for streets and highways slightly up compared with the current program.
Speaker #1: While increasing investment in cement-intensive areas such as bridges more significantly. We expect IIJA funds, as well as rising state highway funding in our key states, to continue to support demand in the foreseeable future as we await passage and implementation of new transportation bills.
Speaker #1: Industrial demand, particularly that related to large data centers, semiconductor chip facilities, and manufacturing, continues to grow. We estimate that about 35% of mega data center projects which are investments exceeding $500 million currently planned or under construction are located within our footprint.
Speaker #1: Rising investment in the power sector to meet growing AI electricity needs should also support demand. Residential construction remains challenged by affordability constraints and elevated housing inventories in certain markets.
Speaker #1: However, pent-up demand a chronic housing deficit and favorable demographic trends should be supportive of residential recovery over the medium term. Against this backdrop, we remain focused on the factors we can control.
Speaker #1: Operational excellence, higher kiln productivity, and asset efficiency. Positioning the business to benefit from operating leverage when volume recovery accelerates. Our operations in EMEA delivered positive results, driven by cost efficiencies and pricing.
Speaker #1: As Jaime mentioned, we had a positive one-off in the quarter of $42 million related to the favorable resolution of an outstanding commercial claim in Europe.
Speaker #1: Adjusting for the one-off benefit, EMEA EBITDA expanded 9%, with margin flat year over year, as lower volumes weighed on results. In Europe, country volume performance reflected meaningful divergence, with recent heat waves, project delays, and slower demand recovery impacting construction activity across several markets.
Speaker #1: Continued growth in cement volumes in Spain and the Czech Republic partially offset softer performance in other countries. Residential activity across much of Europe remains tepid.
Speaker #1: With higher interest rates, we are still pointing to a more gradual recovery. Spain continues to be the notable exception, where housing remains a source of strength.
Speaker #1: Infrastructure has been resilient, albeit with delays in some markets. But the medium-term potential is clear, with Poland expected to benefit from EU funds and Germany from its infrastructure stimulus.
Speaker #1: Turning to prices, while sequential variation across our three core products shows a muted performance, this is largely explained by a geographic mix effect as most of our markets felt stable to higher prices.
Speaker #1: On a cumulative basis, compared to the fourth quarter of 2025, cement and ready-mix prices are up 3%, and aggregate prices are up 7%. The implementation of fuel surcharges or price increases on the majority of our ready-mix volumes in Europe is further helping to offset energy cost inflation.
Speaker #1: We remain optimistic on pricing in continental Europe. The introduction of the Carbon Border Adjustment Mechanism, together with the gradual reduction of free CO2 allowances under the EU ETS, has been—and should continue to be—supportive of higher prices going forward.
Speaker #1: We believe the recently announced proposed modifications to the EU ETS continue to provide a favorable framework for our decarbonization pathway in Europe. The Middle East and Africa region continues delivering strong results, with EBITDA growing 34%, driven by cutting-edge projects and improved pricing.
Speaker #1: Encouragingly, our operations in Israel and the UAE remain resilient amid regional tension. With ready-mix and aggregate volumes up 14 and 5%, respectively. In Egypt, while cement volumes were pressured in the quarter, we are beginning to see signs of stabilization and remain optimistic on market dynamics into the second half of the year.
Speaker #1: In South, Central America and the Caribbean, we posted another strong quarter, with EBITDA growing double digits, driven largely by disciplined cost management. These efforts translated into a robust margin expansion of more than 4 percentage points.
Speaker #1: Cement demand in the region was led by the informal sector, with Jamaica also benefiting from a pickup in reconstruction efforts related to last year's Hurricane Melissa.
Speaker #1: As well as from tourism-related projects. Higher cement volumes in Colombia and Jamaica are offsetting softer performance in other markets. Looking ahead, we remain optimistic on the fundamentals of the region, supported by resilient informal construction.
Speaker #1: And with that, I will now turn the call over to Maher to review our financial development.
Speaker #2: Thank you, Lucy, and good day to everyone. As Jaime noted, our self-help measures continue to deliver record results, with quarterly EBITDA exceeding $1 billion.
Speaker #2: EBITDA margin improved by 2.1 percentage points to its highest level since 2008, and free cash flow generation accelerated at a significant pace. Free cash flow from operations for the first half increased by more than $730 million, to $666 million, as we continue to make our operations and administrative functions more efficient.
Speaker #2: Excluding severance payments and discontinued operations, our free cash flow from operations conversion rate for the trailing 12 months reached 60%, compared to 33% for the same period a year ago.
Speaker #2: This growth is explained by exceptional EBITDA growth, along with important reductions in working capital, CapEx, net interest expense paid, and other cash expenditures. Year to date, investment in working capital was $175 million, lower than last year, driven by improvements in Mexico and the US.
Speaker #2: Working capital days for the first half stood at negative nine days, one additional day versus the first half of 2025. Project Cutting Edge continued delivering tangible results in our cost structure.
Speaker #2: Cost of sales and operating expenses, as a percentage of sales during the quarter, were down 106 basis points and 167 basis points year over year, respectively.
Speaker #2: Energy cost per ton of cement produced declined 6% in the quarter, compared to last year. Driven by a double-digit reduction in fuel costs. Partially offset by slightly higher electricity costs.
Speaker #2: Our diesel hedging program helped offset $32 million of diesel costs year to date. Underscoring the value of our risk management strategy in a volatile market environment.
Speaker #2: As of today, about 80% of our 2027 diesel consumption is hedged. Taking into account the more favorable energy cost trend year to date, and expectations for the second half, we are improving our full-year outlook and now expect energy cost in cement to increase by only a low single-digit percentage versus last year.
Speaker #2: Controlling net income for the quarter was 9% higher. The year-to-date decline in net income is due to the gain on the sale of our Dominican Republic operations during the first quarter of 2025.
Speaker #2: Excluding this effect last year, first half net income would have been more than 40% higher year over year. During the quarter, we executed several transactions aimed at reducing our interest expense and lengthening our average life of debt.
Speaker #2: We repaid approximately $1.5 billion of bank term loans denominated in dollars and euros. And we redeemed our $1 billion 5.8 subordinated notes. We funded these repayments with cash on hand and a $1.5 billion 10-year senior note carrying a 5.75% coupon.
Speaker #2: Our first SEC-registered notes offering. Priced at the tightest spread to US Treasuries in our history. $500 million of these new notes were swapped to euros.
Speaker #2: To better align our debt-currency mix with our cash generation profile, and in addition, to improve our liquidity, we replaced two revolving credit facilities denominated in dollars and euros, totaling $2.3 billion, with a new $3 billion revolving credit facility with a five-year bullet maturity.
Speaker #2: Featuring pricing linked to our credit rating and tied to CO2 reduction targets. Despite strong free cash flow generation in the first half of the year, net debt plus subordinated notes increased approximately $270 million.
Speaker #2: Since December. Due to the omega acquisition, share buybacks, and dividends. Importantly, these capital allocation decisions reflect our commitment to disciplined and progressive shareholder returns, and value creating acquisitions.
Speaker #2: Underscoring our confidence in the sustainability of our improved cash generation. As we generate incremental free cash flow in the second half of the year, benefiting from the expected reversal of most of our year to date working capital investments and other factors, we expect to end the year with a lower level of net debt plus subordinate notes than at the year-end 2025.
Speaker #2: Our net financial leverage, including the subordinated perpetual notes, stood at 2.08 times, a decrease of 0.22 times relative to the first quarter. Our goal is to further improve our capital structure to reach a solid BBB rating.
Speaker #2: We continue improving our free cash flow and free cash flow conversion, maximizing value for our shareholders. Due to stronger free cash flow generation and our continued liability management, we now expect to pay lower interest this year than we had previously guided.
Speaker #2: We expect interest paid plus coupons on our subordinated notes to decline by about $40 million versus last year, for a total of about $455 million this year.
Speaker #2: We are a structurally stronger and more cash-generative CEMEX, and we are confident there is more to come. And now, back to you, Jaime.
Speaker #1: Thank you, Majer. I am proud of the results—an achievement in the quarter and incremental evidence of the power of our transformation efforts. Based on first-half performance, our expectations for the remainder of the year, and the continued contribution from Project Cutting Edge, I am confident in raising our full-year EBITDA guidance to a range of 16% to 17% year-over-year growth.
Speaker #1: Importantly, our guidance is based on a peso FX rate of 1,825 to 1,850 for the second half of the year. Our updated EBITDA guidance, together with the expectation for lower interest expense, should support higher free cash flow generation for the year.
Speaker #1: Looking ahead, we remain committed to advancing our transformation capturing the recently announced savings under project cutting edge and identifying new opportunities. We will also continue to execute on the action plans arising from our asset reviews and free cash flow initiatives, with a focus on improving earnings quality asset efficiency and cash generation.
Speaker #1: While microeconomic volatility is likely to persist, the progress we've made to date coupled with the critical role self-help mergers play in our strategic plan reinforces my confidence in our strategy and our ability to reach our transformation KPIs.
Speaker #1: Our transformation is still ongoing, and I remain excited about the opportunities ahead. And now, back to you, Lucy.
Speaker #3: Before we go into our Q&A session, I would like to remind you that any forward-looking statements we will 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.
Speaker #3: In addition, unless the context indicates otherwise, all references to pricing initiatives, price increases, or decreases refer to our prices for our products. And now, we will be happy to take your questions.
Speaker #3: In the interest of time, and to give other people an opportunity to participate, we kindly ask that you limit yourself to only one question.
Speaker #3: If you wish to ask a question, please press star followed by one on your touchstone telephone. If your question is already been answered or you wish to withdraw your question, press star followed by two.
Speaker #3: Press star one to begin. The first question comes from Adrián Huerta from JPMorgan. Adrián?
Speaker #2: Thank you, Lucy. Hi, Jaime. My question has to do with the project cutting edge program, where you announced this additional $75 million in savings, which is a positive surprise.
Speaker #2: And in addition to that, you also announced an opportunity for additional savings at the free cash flow level of $300 million plus other initiatives, asset reviews, AI benefits, et cetera.
Speaker #2: You mentioned a couple of things on this, but can you elaborate a bit further on these efforts and what is next on the project cutting edge?
Speaker #1: Adrián, good morning. Thank you for your question. So, first, Cutting Edge is a holistic, full transformation that is driven by a few pillars: operational excellence, changing culture, relentless focus on the leverage that we control, no distraction, toeing the line, empowerment, accountability, and relentless pursuit of improvement on earnings quality, expressed in terms of free cash flow conversion and free cash flow margin to sales.
Speaker #1: Regarding the savings side of our transformation, I was pleased to see that our innovation and our relentless focus on operational excellence are driving incremental savings.
Speaker #1: The $475 million by 2027 are split into two significant chapters. Number one is overhead headcount reduction. This is only overhead, including corporates everywhere, in central, and overheads in the regions.
Speaker #1: That will be around $230 million by end of the program. And then the rest is $245 million which is operating efficiencies. For 2026, the total number is $185 million.
Speaker #1: Allow me to remind you that last year we captured $200 million, and then for the full year 2027, we're expecting around $90 million. What are we doing there?
Speaker #1: Were the incremental savings are coming from, it's our transformation and how we address third-party addressable spend. And that is under the procurement leadership, but also outside where upscaling, strengthening the team, using more AI technologies, so on and so forth.
Speaker #1: So that's an exciting aspect of it. And the other aspect is on operating strength, on operational excellence, things such as energy management, logistics, supply chain, cement operations, efficiencies in the US, so on and so forth.
Speaker #1: So that's one element of it. The other very relevant aspect of our transformation is our asset pruning. This means not only asset pruning—one is asset pruning.
Speaker #1: The other one is managing assets. So here, Adrián, we're looking at all lines of the business, not just EBITDA, but also EBIT, ROIC, and free cash flow.
Speaker #1: So, going back to EBIT, now our teams are accountable for their asset base. They are properly incentivized through compensation incentives to get rid of idle assets.
Speaker #1: In addition, right, we are doing our pruning which will contribute from 2027, but most of contributions will happen 2028 and beyond, because it takes time.
Speaker #1: We will do a few interesting moves this year, but we need to be patient. What does this mean? It means that we are deconsolidating by different ways of disposing of unprofitable, underperforming businesses, particularly a few ready-mix operations in the US, a few quarries, and the bulk is in Europe in ready-mix.
Speaker #1: And we're doing it without putting at risk our vertical integration strategy. As we do asset pruning, this means that we have lower asset base, our businesses that were consuming CapEx and burning cash.
Speaker #1: So that will lead to optimization of CapEx and an increase in free cash flow conversion. That's how relevant that is now. When you think about the rest of free cash flow, what we're doing right now is appointing a leader at the ExCo level, reporting to me and accountable for every line of free cash flow.
Speaker #1: I think I said in a previous call that eventually we will move to a new free cash flow metric of total free cash flow.
Speaker #1: I just need to decide with the team when to do that. But what we're aiming is at getting to the benchmarks of the best-in-class peers in our industry on total free cash flow conversion and total free cash flow margin to sales.
Speaker #1: And elements of it are optimization of platform CapEx, right, and significantly less strategic CapEx as we pivot our growth strategy to bolt-on M&A.
Speaker #1: Now, on AI, we are just beginning to tap that opportunity. All of our overhead savings are unrelated to AI. But we do see opportunities for further transformation through AI. It takes time, because we need to focus on whole domains, but we already know where we're going to start.
Speaker #1: And then we have the AI, particularly in cement operations, starting in the US, because we have a significant upside to continue improving operational efficiencies in that business.
Speaker #1: That can be that can contribute materially to future incremental EBITDA starting in 2028 and beyond. So it's a comprehensive plan, Adrián is a full transformation that encompasses as well cultural transformation.
Speaker #1: Having the right conversations, candid discussions, relentless focus on operational excellence, automatic operating metrics, business performance reviews, accountability, so on and so forth. So I hope that I answered your question, Adrián.
Speaker #2: Indeed, Jaime. And I was glad to see margins and potentially for this year reaching about 20%. And hopefully with this additional initiatives by 2028, we can be talking about mid-20s.
Speaker #2: Thank you, Jaime.
Speaker #1: That's the goal. Thank you.
Speaker #2: Thank you.
Speaker #3: And the next question comes from Gordon Lee from BTG Pactual. Gordon?
Speaker #4: Hi, good morning. Thank you very much for the call. A quick question on Mexico, Jaime. The performance has been impressive year to date, and I think particularly because it's been bucking what seems like overall macro weakness.
Speaker #4: So I was wondering if you could give us a sense looking at your backlog, how confident you are that both the volume trend and the expansion in margins in Mexico is sustainable as we go into the second half and into 2027.
Speaker #4: Thank you.
Speaker #1: Yeah, thank you, Gordon. Our expectation is that our operations in Mexico in the second half of the year will not operate at that margin level.
Speaker #1: What we see a small drop. However, it will continue to be very solid. Now, the reason for that is because as we highlighted before, we did benefit from a temporary market share gain due to operating disruptions by a few competitors.
Speaker #1: I don't expect to keep that for the second semester, right along for next year. The other thing, Gordon, is that we have a very favorable back-to-bulk mix in the first semester.
Speaker #1: And as the formal sector in infrastructure begins to pick up, which is the segment that has been I'll say disappointing because of delays in breaking grounds on infrastructure jobs, we shall see an increased in the bulk volume.
Speaker #1: Therefore, the mix will be less favorable. And we also have to complete a few more annual maintenance outages. In the second semester. So those things will soften a bit the margins.
Speaker #1: And finally, right, I think that we're going to have a less strong energy tailwind on fuel cost, which in the first half was very, very impressive.
Speaker #1: So, I hope that I answered your question.
Speaker #4: Yes, perfectly. Thank you very much.
Speaker #3: Thanks, Gordon. The next question comes from Ben Thurr from Barclays. Ben?
Speaker #5: Yeah, good morning, Lucy, and thanks for taking my question. Jaime Maher, good morning. Just a quick one on EMEA, and very particularly, Europe here.
Speaker #5: Securely, you have that one-time benefit on margins, those give or take $42 million. Adjusting for that, margins would actually have been a little bit softer, somewhat like flattish.
Speaker #5: So maybe help us understand and explain a little bit more about the drivers of that, and how much of some of the headwinds were more of a short-term nature—thinking of energy, heat wave.
Speaker #5: You've mentioned that versus what were on the other side, the benefits from project cutting edge that were supposed to start to come in more meaningful, particularly in Europe in 2026.
Speaker #5: Thank you.
Speaker #1: Ben, thanks, and sorry. Thanks for your question. Looking at the first semester, we were unable to fully realize the benefit from operating leverage because in the first quarter, we had a very difficult winter.
Speaker #1: And then right in the second quarter, on one hand, we saw some of our markets softening and on the other hand, we had these dramatic heat wave that restricted ours on job sites.
Speaker #1: And that affected volume. So, I think that could be a temporary, short-term impact, provided that we have a normal weather pattern in the third and fourth quarters.
Speaker #1: I also have to say that there is a little bit of a lack of visibility on where the demand is heading due to the geopolitical situation.
Speaker #1: I'm not concerned about our project cutting edge savings in EMEA. They are happening and they're happening quite materially. I also must share with you that in the second quarter, we did have a negative one of 6 million dollars of a write-off of engineering projects of CAPEX investments that we decided to cancel because they do not need our new financial thresholds.
Speaker #1: That is a temporary effect on profitability. So overall, if weather normalizes, we should see a bit more operating leverage out there. Project Cutting Edge would deliver in the region, and we shouldn't have incremental write-offs that should surprise us in the margin.
Speaker #1: So, I hope I answered your question, Ben.
Speaker #5: Yes, you did. Thank you very much, Jaime.
Speaker #3: Thank you. The next question comes from Alejandra Obregon from Morgan Stanley. Ali?
Speaker #6: Hi, good morning. Jaime Maher, Lucy, thank you for taking my question. It actually relates to the key upside and downside risks to your outlook, especially in Europe and Mexico.
Speaker #6: And to be more specific, in Europe, I was hoping if you could share your latest thoughts on the ETS review proposal announced last week.
Speaker #6: And in Mexico, if you can talk a little bit about the current competitive dynamics and your outlook for new capacity coming back online here.
Speaker #6: Thank you.
Speaker #1: Alejandra, thank you for your question. I'll maybe start with the latter part of your question, which relates to new capacity in Mexico. We're closely monitoring that potential increase in capacity.
Speaker #1: This is a plan that was shut down years ago, and there is various public information that the plan might come back in the last quarter.
Speaker #1: Of this year. How I see it is this: on one hand, we do expect volumes to continue growing as infrastructure begins to gain traction in Mexico, while the informal and formal sectors stay resilient.
Speaker #1: And that should help absorb, partially, that new capacity. On the other aspect that we're monitoring is that when that plant was shut down a few years ago, we didn't see—in our case, nor with public data on others—significant changes, internally calculated with public data or market shares.
Speaker #1: And that is because the one who lost that plant reshuffled their operations to continue supplying the market. So, I do expect some responsible recommissioning of that capacity going forward.
Speaker #1: The second part of your question is Europe ETS. And I'm pleased with the European Union proposal. There are a few things that could be improved.
Speaker #1: We will be working on it on advocacy. But overall, it's very supportive of value creation in Europe, particularly for the leaders who have done the job and continue, seriously, to profitably decarbonize, and we're one of them.
Speaker #1: In fact, as of last year, we have the lowest CO₂ kilos per ton of cement in Europe. And I say this because of the following.
Speaker #1: On one hand, right, the new system widens the gap in the CO2 cost curve between the leaders and the laggards, including local producers in Europe and importers.
Speaker #1: The new system incentivizes the leaders to raise, even at higher speed, with much more financing-granting type of support. And that should continue to widen the differences in the CO2 cost curves, which means that we will have a lower CO2 cost relative to competitors.
Speaker #1: The other thing is that I think that the system is supportive or of mid high single digit mid single digit, sorry, mid single digit compound price increases.
Speaker #1: To sustain margins—and that's an important aspect. The other aspect is that, although there could be a one-year delay due to the very small reduction percentage, the wind-down of free allowances removals for '28, '29. But the point is that by 2029, or at the latest, there’s no reason to keep some capacity running—trading for the halt to get free allowances—because the fixed cost relative to that equation will not justify that strategy, unlike in the past.
Speaker #1: So that's also very positive. So overall, I think that we're just gaining four years for hard-to-abate industries to decarbonize. The European Union continues to commit to net zero by 2050, right?
Speaker #1: And I was positively surprised by the post-reform, so I hope that I answered the question, Alejandra.
Speaker #6: It does. Thank you very much. That was very clear.
Speaker #3: Thanks, Ali. The next question comes from Paul Rogers from BNP Paribas, and this is via the webcast, so I will read it. What underpins confidence that energy costs will now only be up low single digits in 2026, despite geopolitical uncertainties and rising oil prices?
Speaker #1: Paul, thank you for your question. The reason is this: it's really based on the very good performance on fuel costs in the first semester of the year, and particularly in the second quarter.
Speaker #1: So, fuels in the second quarter were down 12%. For the first half of the year, fuels are down, on a cost per ton basis, by 10%.
Speaker #1: So we do have a strong carry-forward that led us to update the guidance in such a way. But we're not excluding—and we know—that in the second semester, we will face a much less favorable fuel cost.
Speaker #1: But overall, when you do the math, we feel comfortable with our guidance. There is also something else, which is that we can ramp up alternative fuels as a hedge to increases in primary fuels, and particularly, we can do that right in Mexico.
Speaker #1: So the low single-digit increase guidance implies about 4% growth in the second semester, with a negative impact of around $20 million. But the math is the math, and we're happy with what we delivered in the first semester of the year.
Speaker #3: Well, sorry. The next—yes, thank you very much, finally. The next question comes from Danielle Rojas from Bank of America. Danielle?
Speaker #4: Buenos días, good morning. I'm Marcel Lucy. I have a bit of a follow-up on Gordon's analysis question on Mexico. Looking at the second half of the year, I was curious what to expect on the industrial and commercial side, and informal residential.
Speaker #4: This is especially true in a context where we're seeing Mexican corporates report a picture of weak consumer growth, and I'm interested in seeing what the outlook is for the second half.
Speaker #4: Thank you.
Speaker #1: Danielle, thank you for your question. Well, that's an interesting point when you talked about weaker Mexican corporate reports. When you think about Plan Mexico, and you think about what happened last year—last year, our industry, construction and heavy building materials, suffered very materially.
Speaker #1: So, while the rest of the economy could be struggling, construction is recovering from a very low base. Unlike other industries, last year its value chains were not as disrupted.
Speaker #1: So we're benefiting from that. The other aspect is that Plan Mexico uses construction as a lever to drive growth in Mexico, around energy and infrastructure.
Speaker #1: Which lacked, somehow. And also social housing. So, it's an economic lever that the government is using to improve the Mexican GDP, and that's what's happening.
Speaker #1: So right now, we continue to see social housing is strong. We continue to improve and increase our backlog around social housing. Very disappointing, the speed at which we see the deployment on infrastructure, particularly rail projects.
Speaker #1: But we have a leading indicator, which is the backlog in concrete. That is improving. And when you look at our ready-mix volumes, they've been disappointing.
Speaker #1: Driven by that lack of infrastructure, and also because we've done some asset pruning also in Mexico. But we're seeing a better outlook in the second semester, as we see—I think at the very end of the year—finally some of those infrastructure projects happening.
Speaker #1: And I think that that's the one that is going to be more resilient next year, as those job sites start breaking ground. For the time being, I'm also positive about the informal sector.
Speaker #1: Salaries and wages are increasing, and that's also helping. Remittances, although they've been softer, continue to be at very good levels. The Mexican economy continues to export very materially to the U.S.
Speaker #1: So, I feel confident that there is good momentum right now in construction.
Speaker #4: Gracias, Jaime.
Speaker #3: Thanks. Thanks, Danielle. The next question comes from Francisco Suarez from Scotiabank.
Speaker #5: Hey, good morning. Congrats on the results, and thanks for the call. Thinking ahead on this remarkable transformation at CEMEX, how do you think investors should interpret your free cash flow conversion ratio, achieved at 60%, excluding severance payments?
Speaker #5: In other words, can savings earmarked under your program—cutting edge and higher prices, including surcharges—make this metric sustainable? Can you elaborate a little bit more on what to expect?
Speaker #5: Thank you.
Speaker #1: Francisco, thanks for your question. One way we are pursuing operational excellence is by looking at best-in-class operators—some outside the industry, and for sure the likes of Heidelberg, Holcim, CRH, and others with much stronger levels of free cash flow conversion.
Speaker #1: The whole transformation, Francisco, aims at improving earnings quality. And that must happen by measuring less cyclicality of our portfolio, but also much stronger free cash flow conversion.
Speaker #1: And in our transformation, we introduce two key metrics. The first is total free cash flow. That is, free cash flow before we pay debt, return cash to shareholders, or do M&A.
Speaker #1: And that's the one that really matters to me. And that's the one that has great potential to improve. The other metric is free cash flow to sales.
Speaker #1: And when I look at our peers and I do an average, they deliver consistently around 36% to 40% of total free cash flow conversion.
Speaker #1: And their margin, if I do the average as well, is around 8%. I don't think we should do any worse than that, and that's the goal of the transformation.
Speaker #1: It will take time, Francisco, but that's where we're heading. And we are demonstrating that we're making progress not only on free cash flow conversion to operations as reported right now, but also on total free cash flow and free cash flow margin.
Speaker #1: And one very important aspect of that is going to be, of course, margin expansion at the EBITDA level as we do our asset pruning.
Speaker #1: And we use BOTONs to reshape our portfolio, only doing BOTONs, M&A, and M&A when we improve earnings quality—not growth and growing revenue for the sake of it.
Speaker #1: But rather, margin expansion. And the other aspect is that, again, we had too many underperforming businesses for too long, using capex and burning cash.
Speaker #1: And that's not happening anymore. But that takes time. So, all these combined make us feel very excited that we should pursue and we should deliver the best-in-class metrics.
Speaker #1: And that's what we're working for. But be patient; it will take a little bit of time.
Speaker #5: Fantastic. Thank you. Congrats again.
Speaker #3: Thanks. Thanks, Paco. The next question comes from Arnaud Pinatel from Onfield, via webcast, and I'm going to read it from the webcast. Outlook in H2 for the US.
Speaker #3: Do you see an improvement in performance compared to H1? Have the price increases announced in July been executed successfully? Do you have any news on tariffs, or potential new tariffs, on imports from Vietnam or Turkey following the 301 investigations?
Speaker #1: Arnaud, thank you very much for your questions. Allow me to start with the latter part of it. Regarding the 301, I don't have any news on that effort.
Speaker #1: We continue to see that process unfolding nicely because we have provided feedback, through the American Cement Association, and we're also engaging on anti-dumping processes against some of the sources from countries that you've mentioned.
Speaker #1: The but no news for the time being. The other thing about prices, we did increase prices in the Mid-South in the second quarter. Well benefit from and that includes Gulf Coast, Tennessee and the Carolinas and will benefit from a bit of carry forward there.
Speaker #1: And we did announce a mill single-digit price increase in Southern California and Arizona, July onwards. It remains to be seen how much traction we get there.
Speaker #1: But I think that the most important part, thinking about the outlook for H2 in the USA, is on cost. And if you think about our second quarter performance, the volumes, despite weather, were pretty resilient.
Speaker #1: And prices even improved sequentially, and that is because of our fuel surcharges doing the job in cement, ready-mix, and aggregates. But the issues basically were on variable costs.
Speaker #1: And that was because of a few things. Number one, for very good reasons, in Arizona, where we gained a significant job on a semiconductor project, we had to temporarily purchase aggregates to support selling to retail and increase our inventories to be ready to supply larger volumes of ready-mix concrete and with our own aggregates to that semiconductor project.
Speaker #1: So that did affect margins in aggregates. The other thing was the timing of cement import consumption, which in the second quarter increased by 7%.
Speaker #1: I don't expect that to happen for the rest of the year in that manner. And definitely the weather. So Arnaud, excluding any negative impact from the hurricane season, we did have a major disruption in weather in Texas, in our quarry in Balcones.
Speaker #1: This also disrupted our operations in aggregates, and obviously impacted volume. So, had that not happened, our aggregate volumes would have grown by around 7%. That would have made a big difference.
Speaker #1: And what happened was that we were not selling, but because of our backlog, we agreed and we decided to move rock to yards, to be ready to supply as the weather improved.
Speaker #1: So that also had an impact on freight, which will recover. So I am expecting a better margin in our performance in the second half, provided that we don't have any dramatic impact during the hurricane season.
Speaker #1: Thanks for the question, Arnaud.
Speaker #3: Thanks, Tony. The next question comes from Jorel Gioti from Goldman Sachs. Jorel, are you with us?
Speaker #4: Yes. Hello, everyone. Thank you for taking my question. I wanted to ask about the AI infrastructure opportunity. You highlighted data centers, chip plants, and rising power sector investments.
Speaker #4: You noted that there was 35% of planned mega projects sitting in your footprint. What I wanted to understand, though, is how do you actually stand to benefit here?
Speaker #4: Are there any rough rules of thumb for how much cement or aggregates these projects, speaking generally, will require? And when do you expect them to start moving the needle for you?
Speaker #4: And in which specific markets are they mostly landing in? Thank you.
Speaker #1: Jorel, thank you for your question. Yes. We have estimated, internal estimates though, that the data centers US data centers could lead to an increased of around 2% of annual national cement consumption.
Speaker #1: Between 2026 and 2030. Now, when you think about where it's happening, it all began in Virginia, but then the projects are extending elsewhere. And we see an annualized construction spend, if it continues, of around $50 billion.
Speaker #1: And we see a significant size of projects in Texas, California, Arizona. We also see some in Washington up north, where we don't participate. In Georgia, also in the Mid-South, where we do participate.
Speaker #1: And up north in Ohio, and so on and so forth. So, how we benefit, obviously, is by that figure that I gave you, which again is internal estimates of 2% to, and for, national demand growth.
Speaker #1: But the way we benefit is through our ready-mix concrete value propositions. We began supplying very little in 2024. In 2025, that volume grew by 185%, but it is still not material.
Speaker #1: And so far this year, we've doubled that volume, and the trend looks positive. So far, the team is achieving a 60% project win rate on every bid.
Speaker #1: So, how it works is that we gain ready-mix volume, and we gain the upstream throughput of cement, aggregates, and admixtures. So, I hope that I answered your question.
Speaker #4: No, that was great. Thank you very much.
Speaker #3: So we have time for one last question, and it is coming from Ann Milne from Bank of America. Ann?
Speaker #5: Thank you. Good morning—well, I guess it's afternoon now. So, thanks very much for the call and for the great results. It was very impressive.
Speaker #5: I sort of checked my old models, and I hadn't seen an LTM EBITDA number like you reported this quarter—except for before the global financial crisis, which I can barely recall at this point in time.
Speaker #5: It was so long ago. But anyway, my question is probably for Maher. I'm looking at your debt profile, which continues to evolve. I see that as of the second quarter you mostly have outstanding now leases and fixed income, which I assume is the bond market.
Speaker #5: So it looks like only 10% of your total is now with your bank agreements. I was just wondering if you could talk about if this is a—well, first of all, I’m very happy to see you’re extending out your debt profile, because I think that was always something that—I won’t call it a weakness—but I think having a longer profile is definitely healthier for a company the size of CEMEX.
Speaker #5: So that's positive. Is this a strategy going forward? Does it depend on cost? Were your banks upset because you didn't have as much outstanding with them?
Speaker #5: Is it a smaller facility now? And then, just if you— I know you mentioned during the call that your pricing is linked to some sustainability indicators.
Speaker #5: Could you provide any indication on what the range of that pricing looks like? Thank you.
Speaker #2: Yeah. Thank you, Ann, for the question. And yes, I mean, we have a very concerted strategy that is targeted at increasing our average life from the current level of close to six years to probably out as long as we can take it.
Speaker #2: I mean, I would say in the near term, in the next 12 to 24 months, we should expand that—probably by a year to two years.
Speaker #2: Hitting around the eight-year mark, of course, we're always conscious of pricing. But clearly, improving tenor and pushing out and terming out our maturities is a goal.
Speaker #2: So I would definitely look to see more bond market participation. We have some potential liability management coming up next year in our 5.45 notes.
Speaker #2: As you know, they become callable at par next year. The following year, we have another note that becomes due at par—the 5.2%. And we're also looking at reducing interest expense as a percentage of EBITDA.
Speaker #2: So, clearly, the type of instruments, the type of market, and the currency mix that we're looking at will also drive our strategy. So, it's a dual-pronged strategy: extending tenors, reducing interest expense, improving, as Jaime said, focusing on improving quality of earnings as measured by free cash flow conversion, and interest expense is a very important part of that.
Speaker #2: Today, we're probably at the highest level in terms of the percentage of EBITDA going to interest expense, and we'd like to bring it down—probably a couple of percentage points—from where we are right now.
Speaker #2: Now, of course, interest rates—especially looking at them today—are not helping on the fixed-rate side. But remember, also, we are roughly 85% fixed and 15% floating.
Speaker #2: So, as the interest rate cycle evolves, there may be possibilities to start maybe switching a little bit away from being so overweight in fixed to floating.
Speaker #2: And that should also positively impact our cost and we think there are very interesting possibilities for longer term solutions in that direction. So yes, you should be you should be expecting to see us continuing to push maturities out.
Speaker #2: You should continue to see us relying more on the capital markets. Yes, the banks were a little bit disappointed that we reduced our exposure so materially to them.
Speaker #2: Of course, as you know, we swapped our revolving credit facility from a shorter from a smaller revolving credit facility to a 3 billion dollar revolving credit facility with a grid pricing and it has a sustainability linkage.
Speaker #2: It's a plus five basis points, minus five basis points depending on the targets. Targets are CO2 emissions, essentially. So it's not very aggressive, but we do also look forward to meeting those targets.
Speaker #2: So, we don't expect that to hit us in any negative way. And under that facility, any drawdowns, all the way down to the maturity of the facility, can become five-year bullet maturities.
Speaker #2: The pricing of the facility is set for our current rating, so that's at plus 100. It could get better if we move up to triple B; of course, it could also get worse if our rating gets downgraded from triple B minus.
Speaker #2: So, I hope I answered that question, Ann.
Speaker #5: Yeah, I think you answered pretty much all the components. Thank you very much, Maher.
Speaker #2: Great. Thank you very much, Ann. Yep.
Speaker #1: Thank you for joining us today for our second quarter results. We hope that you will come back for our third quarter 2026 earnings call, which is scheduled for October 26.
Speaker #1: If you have any additional questions, please feel free to reach out to the Investor Relations team. Many thanks. Bye-bye.
