Cemex: Cementing Global Growth

Mexico-based cement giant Cemex's (NYSE: CX  ) announcement Tuesday of a solid quarter was clearly abetted by its last year's purchase of Australia's Rinker Materials. Along with some operating upgrades at the company, the Rinker purchase appears to bode well for Cemex's future.

For the quarter, Cemex saw its earning leap 43% to $538 million, from the $377 million earned for the same quarter a year earlier. Cemex's fourth-quarter revenues climbed 30% to $5.8 billion.

With the Rinker addition, Cemex, which generated sales of $18.2 billion in 2006, is expected by the Wall Street dart throwers to increase that figure by about a third to approximately $24.4 billion this year. But in addition to simply adding to their company's revenues, management is also focused on operating changes -- including an increased contributions from aggregates, ready-mix, and other concrete products -- and on debt reduction.

In the latter area, for instance, net debt was $18.9 million at the end of the quarter, a decline of $252 million. Furthermore, the ratio of net-debt to earnings before interest, taxes, depreciation, and amortization (EBITDA) was 3.6 times, a metric that management expects to reduce to 2.7 times by as soon as the middle of next year, and ultimately to cut to 2.4 times.

But beyond its sheer size and the global spread of its business, it seems to me that there are several other attractive aspects to Cemex:

  • U.S. pricing is holding up. While housing in the U.S. has had some effect on the local markets, our nation uses far more cement each year than our total domestic capacity. As the company's management indicated during its call, high shipping rates are keeping domestic cement prices from slipping.
  • Housing doesn't use as much cement as you probably assume. A bigger market is public works, such as roads and highways, the spending for which has been supported by a series of highway bills. The latest was the 2005 version, which will ultimately provide about $286.4 billion in funding.
  • When the turn comes, Rinker will benefit Cemex in the U.S. In Florida, for instance, by adding Rinker's two cement plants to its one, Cemex now boasts about 40% of the state's cement manufacturing capacity.

Unlike Cemex, aptly named Texas-based cement manufacturer Texas Industries (NYSE: TXI  ) disappointed investors earlier this month, and so we're now awaiting reports from the likes of Eagle Materials (NYSE: EXP  ) and Vulcan Materials (NYSE: VMC  ) for additional information on the U.S. cement picture. In the meantime, I urge my Foolish friends to think long and hard about Cemex's worldwide presence and its newfound ability to profit from a U.S. housing rebound when it occurs.

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