Cemex S.A.B. de C.V. 2026 Q3 Earnings Call

Please proceed. Good morning, and thank you for joining us for our third quarter 2026 conference call and webcast.

We hope this call finds you well. I am joined today by Jaime Muguiro, our CEO, and by Maher Al-Haffar, our CFO. We will start our call by reviewing our third quarter results, followed by our expectations for the remainder of the year. Then we will be happy to take your questions. As a reminder, the previously announced sale of some of our operating assets in Colombia has not closed. Until the transaction closes, for accounting purposes, this will be treated as a partial sale of an operation, and we will continue to fully consolidate these operations in our P&L. In addition, during the quarter, we completed the sale of certain ready-mix and recycled concrete assets in the Atlanta region in the U.S., with these operations deconsolidated as of September 30.

In France, in connection with the proposed divestment of certain ready-mix and aggregate assets, we shall continue to consolidate these operations in our P&L until the transaction closes. Now, I will hand the call over to Jaime.

Thank you, Lucy, and good day to everyone. I am pleased to be here today to discuss our third quarter results. Despite a volatile macro environment marked by higher interest rates, energy costs, and reduced economic visibility, our teams have remained agile and focused on what we can control, delivering on a transformation plan while identifying further opportunities for improvement. With Project Cutting Edge as our foundation, we achieved another quarter of solid performance and sustainable progress on our strategic priorities. What I find particularly encouraging is that our results continue to reflect the structural changes we are making in our drive to become more efficient, profitable, and customer-centric. While recovery across our markets remains uneven, we continue delivering on our objective of a structurally higher earnings quality.

The operational improvements under Project Cutting Edge are increasingly evident in our results, with EBITDA and EBIT once again growing faster than revenue, and free cash flow from operations expanding at even stronger pace. In fact, for the second consecutive quarter, our adjusted trailing 12-month free cash flow from operations conversion rate reached approximately 60%. Our asset pruning efforts under Project Cutting Edge are delivering the first tangible results, with completed and announced strategic divestitures largely focused on ready-mix assets in the U.S. and Europe in the quarter. Furthermore, we have made good progress towards our 2027 targets set out at the CEMEX Day earlier this year, with expansion in year-to-date EBITDA and EBIT margins, as well as free cash flow conversion rate ahead of our 2027 targets. All of this is happening at a faster pace than we originally expected.

Turning to our decarbonization pathway, we have profitably reduced our year-to-date gross CO2 emissions by 1%, supported by a lower clinker factor. Taken together, these results reinforce our confidence that the actions we're taking today are building a stronger and more resilient CEMEX, better prepared to weather this volatile macro environment. At the same time, our work is far from complete. We still have important elements of Project Cutting Edge to deliver and are continuing to identify new opportunities to improve operational performance and asset efficiency. As we advance these efforts, we're also preparing for the next phase of our transformation, driven by digitalization and AI. With that, let me discuss our results in more detail. Our results once again reflect the benefits of our transformation, translating into stronger profitability and cash generation.

Net sales grew approximately 8%, supported by higher consolidated prices and improving cement volume trends in most markets. As Project Cutting Edge efficiencies continue to build and operational improvements gain traction, EBITDA and EBIT increased 12% and 19% respectively. This performance marks our fifth consecutive quarter of double-digit EBITDA and EBIT growth, as well as margin expansion, underscoring the consistency of the progress we're making across the business. Mexico remained a key contributor to consolidated growth during the quarter, as demand recovery continued to gain momentum, further supported by our transformation initiatives. The steps we're taking under Project Cutting Edge are producing materially stronger cash generation. Year-to-date, free cash flow from operations increased by more than $900 million year-over-year. On a trailing 12-month basis, adjusted free cash flow from operations reached a record level of $2.2 billion with an adjusted conversion rate of approximately 62%.

Consolidated cement volumes increased 3% year-on-year, supported by improving demand trends across most of our markets. In Mexico, residential demand, supported by government-sponsored social programs and continued competitor outages, drove cement growth. In the U.S., cement volumes increased, driven by the acquisition of Omega and specific project works. In Europe, severe heat waves and a fragile recovery in several markets weighed in volumes across all products. Within South, Central America and the Caribbean, cement volume growth was supported by demand in Colombia and Jamaica. Consolidated prices for our three core products increased by a low single-digit percentage year-over-year, supported by pricing actions implemented in the first half of the year. On a sequential basis, cement price performance reflected geographic and product mix effects, as well as price erosion in certain markets.

In the case of ready-mix, prices continue to benefit from fuel surcharges in U.S. and Europe, and a strong pricing traction in Middle East and Africa. With limited visibility on a clear resolution to the Iran war, we remain vigilant and focused on preserving margins and offsetting input cost inflation through our pricing strategy over time. EBITDA increased 12% year-over-year, reflecting the combined benefits of our transformation alongside higher pricing, growing cement volumes, and favorable FX movements. We estimate that Project Cutting Edge contributed approximately $60 million in incremental savings in the quarter. Pricing remained the main contributor to EBITDA growth, offsetting increased costs and expenses, largely related to higher maintenance and distribution costs. While pricing was sufficient to offset costs, for the first time in six quarters, we are seeing an increase in year-on-year total costs, reflecting a pickup in inflation.

On energy, despite the significant hike in global energy prices, year-to-date energy costs in cement production declined 2%, well within our full-year guidance of a low single-digit increase. This is a result of our comprehensive energy strategy, protecting us in the short term from volatility on fuels and electricity. Going forward into 2027, while we have already put in place relevant hedges, we do expect to face higher energy costs, which we aim to mitigate through our pricing strategy. Beyond these factors, EBITDA growth was also supported by our Urbanization Solutions business, where EBITDA increased 25% year-on-year, mainly driven by mortars in the U.S. following the acquisition of Omega. Together, these levers drove another quarter of margin expansion and further demonstrate the sustainable improvements we are delivering across the business. I am pleased with the continued execution of our cost savings program.

This quarter, we achieved $60 million in recurring savings, including $20 million originally expected in the fourth quarter and beyond. We have now achieved 80% of our $475 million cost savings target, with the remaining $95 million expected to primarily benefit 2027 results. Year to date, this initiative has supported a tangible improvement in our cost of sales and operating expenses as a percentage of sales, with both declining by 1.6 and 0.8 percentage points, respectively. As we near completion of our cost savings program, we will enter a new phase in our transformation, focused on unlocking additional value through digitalization and AI. We have made important advances on our asset pruning initiative. As you know, this effort is designed to enhance asset efficiency, focusing on our three key metrics, EBIT, free cash flow, and return over cost of capital.

Since we launched Project Cutting Edge, we have reviewed every asset in our portfolio, identified those not meeting our return criteria, and established action plans for remediation. This process takes time, as each asset requires a detailed assessment, including its cyclical performance, micro-market dynamics, and vertical integration implications. The actions coming out of this review may include performance plans, disposals, closures, or an optimization of our operating network, which also can take time. The actions taken on each asset will bring different benefits to these metrics. Some may improve free cash flow, while others focus on return on capital. We estimate the potential benefit from this initiative to be between $100 million and $150 million in incremental recurring free cash flow. We also have advanced faster than we anticipated, and during the quarter, we made some important progress.

We divested ready-mix assets in the Atlanta market with a long-term cement and admixture supply agreement. We also initiated exclusive negotiations with Vicat Group for the proposed sale of certain ready-mix and aggregates assets in southeastern France. Since launching this initiative last year, estimated cash proceeds, including both completed and announced transactions, total more than $200 million and include more than 140 facilities. While these actions deliver immediate improvement in EBIT, free cash flow, or return on invested capital, the proceeds can also be recycled into more strategic and accretive investment opportunities in the future. All of this is further evidence that we are increasingly disciplined about where we deploy our capital, ensuring our investments generate attractive returns. As we move into 2027, our focus remains on advancing Project Cutting Edge and the variables we can control to improve earnings quality, cash generation, and shareholder returns.