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Cementos Argos: solid Q3

Oct, 25 2012

(Columbia) -- Colombia’s leading cement producer, Cementos Argos, unveiled forecast-beating third-quarter results on Tuesday, as strong demand in its home market and the Caribbean helped boost sales and profits.

Operating revenues were up 23 per cent at 1.1tn pesos ($610m) for the three months to September 30, compared with 921bn pesos ($510m) during the same period last year.

Net income for the quarter was 67bn pesos ($37m) compared with a net loss in Q3 last year of 44bn pesos ($24m), which was generated for non-recurring impairments from their assets in the United States.

Earnings before interest, tax, depreciation and amortization, was 225bn pesos ($125m), a 25 per cent increase from last year – the highest ebitda in the history of Cementos Argos, according to the company.

Barclays Capital analysts Benjamin Theurer, Pablo Monsivais, and Guilherme Vilazante said the “major highlight” was that Cementos Argos’s Colombia business. The group managed to offset the volume decline in the cement business in its home market with a price increase in some of their products – such as ready-mix – , which helped boost the unit’s revenues by 16 per cent, year-on-year.

In the Caribbean, Cementos Argos kept growing, with a 12 per cent increase in operating revenues year-on-year.

The US – its second biggest division by revenues after Colombia – was the main drag. Cement volume was down 5 per cent compared to the second quarter. The company, which last year snapped up the US southeast assets of France’s Lafarge, the world’s largest cement producer, in a deal with an enterprise value of $760m, is betting in a rebound of the US housing market.

Jorge Velásquez, president of Cementos Argos, said it sees “encouraging signs” that the worst of the housing crisis has passed.

The US housing market “will have a significant recovery,” Velasquez told Bloomberg in late September. “It will happen sooner rather than later, and the size of the recovery will be important for our business.”

The view appeared to be shared by CELFIN Capital, a Medellín-based brokerage, which noted that housing starts in the latest US data for September were up 15 per cent on a year-on-year basis, compared with market expectations of 2.7 per cent. Building permits, up 11.6 percent year-on-year for the quarter, also shattered market expectations of 1.1 per cent.

CELFIN said:

Housing starts and building permits have now reached their highest level since July ’08 but still remain 40% below 2006 peaks. Gains were stronger in the South than for the country average, growing +19.9% YoY in the South. Roughly 50% of US home building occurs in the South and it is exclusively where Cemargos is positioned … We believe the financial results were strong considering the still weak performance of the US market (although are the latest housing starts signaling the beginning of a strong improvement?)

Shares in Cementos Argos fell 2.5 per cent to 9,040 pesos in Bogota on Tuesday.

By Andres Schipani
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