Zacks_Analysts' Blog : CEMEX Reduces Debt - Analyst Blog

Mexican cement maker, CEMEX, S.A.B. de C.V. (CX) completed the sale of its assets in Kentucky to Bluegrass Materials Company, LLC, a subsidiary of Panadero Aggregates Holdings LLC, for $90 million.

 

Assets include seven aggregate quarries, three resale aggregate distribution centers, and one concrete block manufacturing facility, which were acquired by CEMEX as part of the Rinker acquisition in 2007.

 

The net proceeds from the sale will be used by CEMEX to reduce its debt. CEMEX continues to strive for a leaner debt structure reducing its total debt to $16.6 billion as recorded at the end of the second quarter of fiscal 2010 from $19.1 billion at the end of the year-ago quarter.

 

CEMEX expects cement, ready-mix and aggregates volumes in the U.S. to increase by 5% year over year. However, consolidated domestic cement and aggregates volumes are expected to drop by 4% year over year, and ready-mix volumes are expected to decline by 8%.

 

CEMEX has trimmed its EBITDA outlook for fiscal 2010 to $2.65 billion from its earlier guidance of $2.75 billion and now expects free cash flow (FCF) at $680 million from $800 million expected earlier.

 

CEMEX competes globally with France’s Lafarge SA (LFRGY) and Switzerland’s Holcim Ltd. (HCMLY). It has been struggling in a sluggish U.S. housing market, in a weak Spanish market and with a debt overload. However, following its debt refinancing, equity capital issuance, sale of assets in Rinker and the Australian operations, and cost-reduction efforts it is strategically aligning itself to become more lean and agile.

 

Looking forward, the company will remain focused on paying down its debt and regaining its financial flexibility. CEMEX expects to use $400 million of the fiscal 2010 FCF to pay back its debt. We expect the company to benefit from the gradual economic recovery. Thus, we maintain our Neutral recommendation on the stock. The stock currently retains its short term “Sell rating, equivalent to the Zacks #4 Rank.