While the U.S. hosuing market continues to be a drag, the Mexico-based cement giant is thriving elsewhere amid a global building boom
A worldwide building boom is helping Cemex (CX) prosper despite the weakness in cement sales to the crippled U.S. housing market.
The Mexican building-material giant said Monday that third quarter profits were on track for a 16% increase, bringing operating income to $950 million. Earnings before interest, taxes, depreciation and amortization is expected to rise 22% to $1.35 billion, and sales should grow 29% to about $6 billion.
Those numbers sound impressive, but they do include Cemex's just-completed acquisition of Australian cement firm Rinker for $15.3 billion this year.
Some analysts were worried because both Rinker and Cemex had a heavy exposure to parts of the U.S. hard hit by the housing slowdown.
In a statement, Cemex chief financial officer Rodrigo Tevino said "the correction and the timing for the eventual recovery of the residential sector in the United States continues to be uncertain."
The company cited underperformance in both the U.S. and Spain. Those are two of the firm's three biggest markets, Morningstar (MORN) analyst Matthew Warren points out. Mexico is the third.
However, Mexico and other corners of the globe are helping out: Growth is strongest is Venezuela, Columbia, Poland and Croatia, the firm says.
"Any concerns about a dramatic drop-off are not showing themselves," Warren says.
Cemex' American Depositary Shares were off 1.54% by midday on Sept. 17, down 45 cents to $28.72. The stock has had a wild ride this year. Shares surged 23% in the first half of 2007, peaking above $40 per share in June. Since then, the stock has fallen sharply, and it's now down 13% for the year.
Also Monday, Cemex said it was ready to sell off parts of its operations to Ireland-based CRH (CRH). The value of the deal could be a larger-than-expected $3.5 to $4.5 billion, Cemex said.
In response to antitrust concerns, the U.S. Department of Justice required Cemex to sell some of Rinker's businesses in the U.S., especially those in Florida and Arizona. But apparently Cemex is wiling to sell off more, and CRH is willing to pay more, than many analysts were expecting.
Cemex has grown into one of the world's largest cement makers by making big acquisitions, putting on debt and then paying it off over time. The possible CRH deal should bring down the debt on the Rinker deal substantially, Warren says. That helps dispel "any concerns that were out there about the size of the leverage."
The U.S., where homebuilders are stopping new construction amid a glut of for-sale signs in many markets, continues to be a concern. "We do know it's going to be pretty ugly," Warren says of the residential slowdown.
However, not everything looks bleak for cement companies, even in the U.S. Nonresidential construction remains "rather strong," and infrastructure projects are "hanging in there," Warren says.