Cost-cutting buoys Cemex Holdings' profits as building yet to restart
MANILA, Philippines — Earnings by cement manufacturer Cemex Holdings Philippines Inc. bounced back in the third quarter but hardly due an economic restart that was expected to reboot construction activities and more because of lower costs.
The company’s consolidated net income rose more than seven-fold to P623 million from July to September after operating costs declined, Cemex Holdings said in a disclosure to the stock exchange on Thursday.
That the improvement was largely a result of declining expenses reflected an economy struggling to recover from lockdowns that put a halt on state infrastructure projects supporting Cemex Holdings and the cement sector.
More specifically, distribution expenses decreased a tenth to P935.07 million in the previous quarter, while selling and administrative disbursements dipped 1% to P753.97 million in similar period.
On the flip side, Cemex Holdings’ cash inflows were hit by a double whammy of weak demand and low prices. Local cement volumes dipped 3% year-on-year in the three months to September, while prices inched down 1% “due to the effects of the ongoing COVID-19 pandemic.”
Net sales decreased 6% from year-ago levels to P5.5 billion during the same period, and Cemex Holdings said this was due to a “re-imposition of stricter lockdown measures during the quarter” which lasted for 15 days in Metro Manila and neighboring areas last August.
“As the country takes steps towards reopening the economy, the impact of the pandemic remains a concern,” Ignacio Mijares, company president and chief executive, said.
“We must continue to adapt to the challenges and limitations brought about by COVID-19," Mijares added.
Indeed, the third-quarter rebound was not sufficient to bring the company back to black year-to-date. From January to September, consolidated net income dropped 10.5% year-on-year to P758.1 million after local cement supplies dipped 12%.
Cemex Holdings said lower sales volumes and prices were “partially offset by lower costs and cost containment measures, including maintenance cost deferrals.” Nine-month distribution and administrative costs sank 14% and 8%, respectively.
For Luis Limlingan, head of sales at Manila-based brokerage Regina Capital, Cemex Holdings’ performance was not that bad. “Though income was lower, it was above our expectations,” Limlingan said in a Viber message.
“An expansion in margins led to positive gross profits and net income in third quarter, despite the lower net cement sales during the period,” he added.
Moving forward, Mijares is banking on the “full execution of the government’s infrastructure plan” to sustain Cemex Holdings’ profits. It remains to be seen whether this would materialize however, as stimulus spending has been stuck on securing approvals as well as a potential disruption from President Rodrigo Duterte’s corruption probe.
“Nevertheless, we continue to be optimistic on the long-term growth prospects of the Philippines,” Mijares said.
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