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Cemex's 2nd-qtr profit falls on US housing impact

Jul, 23 2008

(MONTERREY, Mexico) - Mexico's Cemex, the world's third-largest cement maker, posted a 27 percent fall in second-quarter net profit to $444 million on Tuesday, below expectations, as the U.S. housing crisis hit operating income.

Cemex, which operates in more than 50 countries, faces a battered U.S. housing market and a slowdown in key European markets such as Spain, where cement volumes slumped 26 percent in the second quarter.

"Tighter credit conditions and a weakening U.S. economy continue to negatively affect demand for our products," the company said in its quarterly report.

Five analysts polled by Reuters had forecast, on average, net profit of $563 million in the quarter.

Cemex, which earns about a quarter of its EBITDA in the United States, said cement volumes in the United States fell 7 percent during the second quarter and U.S. housing starts slid 31 percent in the first five months of the year.

For Cemex, which competes globally with Switzerland's Holcim (HOLN.VX: Quote, Profile, Research) and France's Lafarge (LAFP.PA: Quote, Profile, Research), the impact of the housing crisis comes as Cemex boosted its U.S. market share with last year's $16 billion takeover of Australia's Rinker, which had 80 percent of its operations in the United States.

The bleak U.S. outlook worries investors, who have punished Cemex's stock this year, but falling cement volumes have yet to be reflected in Cemex's revenues.

Cemex said April-to-June revenue rose 29 percent to $6.3 billion due to the Rinker acquisition. Earnings before interest, taxes, depreciation and amortization, or EBITDA, increased 21 percent to $1.4 billion.

"If you strip out Rinker, you would see a decrease in Cemex's (quarterly) EBITDA and sales. For sure the overall economic situation is not reflected in these results," BBVA Bancomer analyst Francisco Chavez said.

The Monterrey-based company began including Rinker in its quarterly earnings data from July last year.

But analysts say Cemex's operations outside the United States, Spain and the UK, where the housing market is also cooling, will help the company.

"We believe that stronger second-half 2008 earnings, free cash flow generation, potential asset sales and slightly better news flow from the U.S. are potential catalysts for Cemex's stock," Citi analyst Steve Trent said in a report, maintaining his "buy" recommendation on the stock.

France, Germany, Portugal and the Netherlands are expected to be strong markets this year and next, while the company is also focused on paying back debt.

Cemex said it repaid $1.2 billion in the second quarter, taking its net debt to $17.6 billion.

By Robin Emmott




SOURCE:  http://uk.reuters.com