EM LATAM CREDIT: Mexico's Cemex (CEMEX; NR / BBB- / BBB-) 1Q 2025 Earnings
“Cemex Profit Plunges on Lower Sales Volumes in US, Mexico” – BBG
Neutral for spreads
• Mexico based global building products company Cemex announced disappointing results with lower sales and EBITDA margin blamed on the election cycle in Mexico and weather in the U.S.
• Mexico sales fell 25% while the EBITDA margin compressed minimally to 31.4% YoY blamed on strength in first quarter 2024 from an increase in government spending prior to the presidential election.
• U.S. sales dropped 4% while the EBITDA margin compressed 330bps to 15.9% YoY due to what the company referred to as unusually cold weather in many of their key markets.
• Overall, total sales declined 7% while operating EBITDA fell 18% YoY. That drop in EBITDA led to negative free cash flow of USD270mn but was offset by proceeds from the disposal of the company’s Dominican Republic operations of USD862mn leading to a sequential reduction in debt of USD252mn and a leverage ratio of 1.9x, an improvement from 2.18x first quarter 2024 and up from 1.8x 4Q 2024.
• The U.S. comprises 33% of Cemex sales and 32% of EBITDA. We think the impact from tariffs is limited as the company has significant operations in the U.S. Its U.S. network includes 10 cement plants, close to 50 strategically located cement terminals, nearly 50 aggregate quarries and more than 280 ready-mix concrete plants.
• Benchmark 2031s were last quoted T+ 215 bps, 22 bps wider MTD, and about 37bps wide to the Mexico sovereign (MEX; Baa2neg /BBB /BBB-).
• While reported earnings were disappointing, we don’t see them as changing the credit profile of the company, especially given the disposal of non-core assets to reduce debt.
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USDCAD TECHS: Bullish Outlook
- RES 4: 1.4700 Round number resistance
- RES 3: 1.4641 76.4% retracement of the Feb 3 - 14 bear leg
- RES 2: 1.4452/4543 High Mar 13 / 4 and a bull trigger
- RES 1: 1.4402 High Mar 20
- PRICE: 1.4292 @ 16:50 GMT Mar 28
- SUP 1: 1.4235 Low Mar 26 and a key near-term support
- SUP 2: 1.4151/4107 Low Feb 14 / 50.0% of Sep 25 - Feb 3 bull run
- SUP 3: 1.4011 Low Dec 5 ‘24
- SUP 4: 1.3944 61.8% retracement of the Sep 25 ‘24 - Feb 3 bull cycle
USDCAD traded through support at 1.4242 on Wednesday but has recovered. A return lower and clearance of this level would undermine the bull theme and instead highlight potential for a test of 1.4151, the Feb 14 low and a bear trigger. Moving average studies continue to highlight a dominant uptrend. A reversal higher would refocus attention on the bull trigger at 1.4543, the Mar 4 high. First resistance is 1.4402, the Mar 20 high.
US FISCAL: Debt Limit "Extraordinary Measures" Pick Up, But Cash Dipping Pre-Tax
Treasury data shows that there were $207B of "extraordinary measures" available to circumvent hitting the debt limit as of Wednesday Mar 26.
- That's the most since Jan 27th and up from $163B a week earlier, from a total $376B available.
- However, Treasury cash in the TGA fell to $316B as of the 26th (and was down to $280B on Thursday), meaning there were a combined $523B of resources available to avert the debt limit, the lowest since the impasse began in January (and half of the starting amount of just over $1T).
- The next couple of weeks will be very important for Treasury, as they represent the biggest tax take of the year. The Congressional Budget Office reported this week that per its estimates "if the debt limit [$36.1T] remains unchanged, the government's ability to borrow using extraordinary measures will probably be exhausted in August or September 2025." Treasury wrote to Congress this month that they would be able to provide an update on the x-date in the first half of May, after the conclusion of tax season.
AUDUSD TECHS: Remains Above Support
- RES 4: 0.6429 High Dec 12 ‘24
- RES 3: 0.6414 38.2% retracement of the Sep 30 ‘24 - Feb 3 bear leg
- RES 2: 0.6409 High Feb 21 and a bull trigger
- RES 1: 0.6391 High Mar 17 / 18
- PRICE: 0.6291 @ 16:46 GMT Mar 28
- SUP 1: 0.6258 Low Mar 21
- SUP 2: 0.6187 Low Feb 4
- SUP 3: 0.6171/6088 Low Feb 4 / 3 and a key support
- SUP 4: 0.6045 1.500 proj of the Sep 30 - Nov 6 - 7 price swing
AUDUSD is unchanged. A short-term bull theme is intact and the latest move down appears corrective. Key short-term support to watch is 0.6187, the Mar 4 low. Clearance of this level would reinstate a bear threat. First support is at 0.6258, the Mar 21 low. A stronger recovery would refocus attention on 0.6409, the Feb 21 high. Clearance of this hurdle would strengthen the bull cycle and resume the uptrend that started Feb 3.
