Let me begin by providing my conclusion on Cemex (NYSE: CX): If you're in search of quality international stocks and are willing to be patient through a somewhat longer-than-normal investment time horizon, you owe it to yourself to take a very careful look at our south-of-the-border friends.
The company reported its results on Tuesday, and while they weren't spectacular, you wouldn't expect them to be, given the slowdowns in building activity in the U.S., the U.K., and Spain. For the quarter, sales increased 29%, but much of that was attributable to the integration of Rinker Materials, which Cemex acquired last July. Profit declined by 27%, with the biggest culprits being the U.S. economy and a brand-spanking-new accounting pronouncement in Mexico that prevents the recognition of inflationary gains.
In the U.S., while housing only accounts for about 20% of cement demand -- that's a third of public works demand and about the same as the commercial sector -- the Rinker acquisition has increased the effects of housing softness somewhat on Cemex. Rinker was heavily into some places that have been hardest hit by residential construction slowdowns, such as Florida.
But Cemex is hardly the Lone Ranger in being affected by U.S. housing softness. A pair of Dallas-based cement producers, Texas Industries (NYSE: TXI) and Eagle Materials (NYSE: EXP), have both reported quarterly earnings declines, which in Eagle's case were worsened by its wallboard business.
Neither is Cemex resting on its laurels during the downturn. As CEO Hector Medina noted during the conference call, management has a two-pronged program for the use of its cash flow for debt reduction and productive capacity increases. In the latter area, Cemex has capital projects in the works everywhere from Latvia to the United Arab Emirates.
As was the case a year ago with such Big Oil players as ExxonMobil (NYSE: XOM), Chevron (NYSE: CVX), and ConocoPhillips (NYSE: COP), Cemex is embroiled in a Hugo Chavez-directed nationalization of its industry in Venezuela. The nationalization will occur at year's end, with an August 17 deadline for the determination of compensation for the companies involved.
All in all, Cemex is a huge international player that is nicely leveraged to benefit from a U.S. housing recovery, a management team that is pulling the right strings to strengthen their company, and a share price that's down roughly 35% in a year. Seems like a recipe for an opportunity.
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