Bloomberg News

Cemex Surges as Company Seen Meeting Covenant: Mexico City Mover

February 03, 2012

Feb. 2 (Bloomberg) -- Cemex SAB, the largest cement maker in the Americas, rose the most in more than two months as the company provided a roadmap to meeting its debt covenants.

Operating cash flow will grow 1 percent to 4 percent in the first half, Cemex said in a statement today after its earnings report. That will help it meet a covenant requiring a ratio of total funded debt to earnings before interest, taxes, depreciation and amortization -- a measure known as Ebitda -- to be below 6.5 by June 30, the company said. Cemex also laid out steps to achieve the ratio of 5.75 required by Dec. 31, including possible asset sales.

“It looks very possible that they’ll meet their covenants,” Carlos Hermosillo, an analyst with Grupo Financiero Banorte SAB in Mexico City, said today in a telephone interview. “You now have a lot fewer doubts.”

The shares advanced 9.7 percent to 9.98 pesos today in Mexico City trading, the most since Nov. 28. Yields on the company’s dollar bonds due 2016 tumbled 33 basis points, or 0.33 percentage point, according to data compiled by Bloomberg.

Cemex’s debt to Ebitda dropped to 6.64 times in the fourth quarter, from 7.43 times a year earlier and 7.2 times in the third quarter, the company said in a separate report earlier today. The year-end 2011 covenant required that the ratio be under 7 times.

Net Loss

Its fourth-quarter loss narrowed after a pickup in production volume helped offset a slump in Mexico’s peso.

The net loss was $146.2 million, or 14 cents per American depositary receipt, compared to a year-earlier loss of $573.6 million, or 57 cents, the Monterrey, Mexico-based company said. Analysts had projected a loss of 17 cents, the average of eight estimates compiled by Bloomberg.

“This leads us to think that the worst is behind us,” Chief Financial Officer Fernando Gonzalez said on a conference call with reporters from San Pedro Garza Garcia, a suburb of Monterrey. “We are seeing an important inflection point, especially in the last quarter, and we expect this will translate into a sustained recovery.”

Cemex hasn’t had a profit for nine straight quarters. Its results deteriorated amid a U.S. construction recession after the $14.2 billion acquisition in 2007 of Rinker Group Ltd., which got more than 80 percent of sales in the U.S.

Operating Ebitda rose 13 percent from a year earlier to $542.5 million. Sales rose 6.1 percent to $3.7 billion.

Asset Sales

The company sold $225 million in assets in 2011, and Cemex expects to sell an additional $500 million this year, according to the statement.

The Mexican peso lost 11.4 percent against the U.S. dollar in 2011, the worst performance among major Latin American currencies.

The cement maker reduced staffing by 5 percent to 44,104 in the fourth quarter.

Cemex projects consolidated cement volume will rise 2 percent this year. In addition to asset sales, it may also use free cash flow and money received last year as compensation for assets seized by the Venezuelan government to cut debt.

During the first half of the year, Cemex said it expects the Americas, including Mexico and the U.S., to help compensate for challenges including a “weak Mediterranean region.”

The cement maker’s stock has surged 34 percent this year through today, making it the best performer on the benchmark IPC index of 35 Mexican stocks.

--Editors: Niamh Ring, Stephen West

To contact the reporters on this story: Jonathan J. Levin in Mexico City at jlevin20@bloomberg.net; Jose Enrique Arrioja in Mexico City at jarrioja@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net


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