Earnings Call Transcript - CX Q2 2024

Operator, Operator

Good morning, and welcome to the CEMEX Second Quarter 2024 Conference Call and Webcast. My name is Drew, and I'll be your operator for today. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. And now I will turn the conference over to Lucy Rodriguez, Chief Communications Officer. Please proceed.

Lucy Rodriguez, Chief Communications Officer

Good morning. Thank you for joining us today for our second quarter 2024 conference call and webcast. We hope this call finds you in good health. I'm joined today by Fernando Gonzalez, our CEO; and Maher Al-Haffar, our CFO. As always, we will spend a few minutes reviewing the business, and then we will be happy to take your questions. And now I'll hand it over to Fernando.

Fernando Gonzalez, CEO

Thanks, Lucy, and good day to everyone. I'm pleased with our second quarter results, where EBITDA grew year-over-year despite significant weather challenges in several key markets. Even with the decline in volumes and a strong prior year comparison, EBITDA margin expanded to the highest levels of the last three years, marking five consecutive quarters of expansion. Our pricing strategy adjusting to reflect decelerating cost inflation continues to pay off with a widening price to cost ratio. Bolt-on growth investments, mainly in the U.S. and our urbanization solutions business continued to support EBITDA growth. During the quarter, we achieved another important milestone with our second investment-grade rating from Fitch ratings. Our return on capital in the double-digit area remains comfortably above our cost of capital. In climate action, we are focused on delivering on our future in action roadmap, reducing our Scope 1 CO2 emissions by 3% in the first half of the year relative to the same period of 2023. During the quarter, we were recognized by the World Benchmarking Alliance, a nonprofit organization that assesses and ranks the world's most influential companies on their contribution to the UN sustainable development goals with the highest climate transition score. Net sales were flat impacted by difficult weather conditions in several of our regions. Pricing growth offset the decline in ready-mix and aggregate volumes. EBITDA rose 2%, driven by strong growth in Mexico. EBITDA margin expanded to the highest level since 2016 as our pricing strategy effectively outpaced input cost inflation. Free cash flow after maintenance CapEx declined slightly, driven by the timing of tax payments and lower fixed asset sales. Consolidated cement volumes were flat while ready-mix and aggregate volumes declined 9% and 3%, respectively. The U.S. and Mexico experienced difficult weather conditions, which impacted volumes. Even with the weather headwind, Mexico again stood out in the quarter with strong volume performance, driven by improved bagged cement activity and continued strength in the infrastructure and industrial segments. U.S. volumes were impacted by weather, slowing demand in residential and competitive dynamics in certain micro markets. In EMEA, volumes declined due primarily to the challenging demand environment in Germany, U.K. and France and geopolitical events in the Middle East. Despite the challenging volume backdrop, our consolidated prices rose mid-single-digit year-over-year and were stable on a sequential basis. While price increases are moderating from the prior year, the increases continued to more than offset decelerating costs. In the U.S. and SCAC, cement prices rose sequentially due to price increases in the quarter, while EMEA's mid-single-digit increase is largely explained by geographic mix. Sequential declines in aggregate prices in Mexico and SCAC are related to geographic and product mix effects. I am excited to see the evolution of EBITDA in the quarter where we clearly see the impact of our pricing approach and growth strategy. Our pricing contribution continues to exceed decelerating input cost inflation with the price cost dynamic improving versus the prior year. The deceleration in cost is visible with cost of goods sold as a percentage of sales declining by 1 percentage point. Bolt-on investments made since 2021 continue to be an important component of growth, now accounting for 10% of total EBITDA. EBITDA margin expanded to peak levels driven by our pricing and growth strategy. With a well-balanced geographic and product footprint, urbanization solutions maintained its trend of double-digit EBITDA growth and margin expansion. The main driver of growth came from our Regenera Circularity business, driven by the construction, demolition, and excavation materials activity in Europe. In Mexico, pavements and services, and admixtures continued their growth trajectory, driven by the high level of former construction activity. Although global admixtures volumes declined in sympathy with lower cement and ready-mix sales in several regions, EBITDA increased on the back of double-digit pricing increases. Our efforts to expand the admixture business are meeting with success as sales to third-parties continue to scale. We are very excited about our recently announced partnership with Ellen MacArthur Foundation, the world's leading circular economy network, with the purpose of continuing to accelerate our circularity efforts in the built environment with our Regenera brand. On climate action, we continue to make steady progress in the carbonization with a 3% decline in Scope 1 emissions year-to-date. Our continued success speaks to the effectiveness and profitability of traditional decarbonization levels in our industry and the validity of our 'Reduce before Capture' strategy. Since the launch of our Future in Action program in 2020, we have materially accelerated the pace of our decarbonization, reducing Scope 1 emissions by 14%, a reduction that previously would have taken us more than 15 years to achieve. CEMEX Europe continues to lead the way in this transition with emissions within reach of our 2030 consolidated target six years ahead of time. CEMEX's Europe climate leadership stacks up globally as well with a carbon footprint already well below the European cement industry comparable 2030 target. Finally, I'm very pleased that CEMEX was recognized as the industry's top-scoring company in the World Benchmarking Alliance 2024 Climate and Energy benchmark. CEMEX achieved the highest score of 91 among heavy industrial companies within the cement, aluminum, and steel sectors, demonstrating our leadership in climate action and social impact not only within the cement industry but across several hard-to-abate sectors. And now back to you, Lucy.

Lucy Rodriguez, Chief Communications Officer

Thank you, Fernando. Our Mexican operations once again delivered exceptional results with EBITDA reaching record levels. While bad weather dampened performance, quarterly volume growth remained strong, reflecting the dynamism of both formal and informal construction. Infrastructure showed particular strength in the North and Southeast, continuing to be the principal growth drivers. Bagged cement grew at a mid-single-digit pace, benefiting from increased social spending and a favorable comparison base. Significant expansion in Mexico's EBITDA margin resulted from mid-single-digit price increases as well as decelerating costs, particularly in energy. Implicit in our guidance from the beginning of the year has been an expectation of softening volume in the second half of the year due to an expected decline in government spending post-elections, and the completion of the cement-intensive pavements of the current administration's mega infrastructure projects, coupled with a tougher comparative base. Nevertheless, we have a healthy backlog of projects in formal construction, particularly those related to nearshoring and infrastructure. On the medium-term outlook for our industry in Mexico, we are optimistic. The new federal government's agenda appears supportive with the goal to increase housing by 1 million units as well as focus on building out infrastructure nationally. Social programs, low unemployment rates, and wage growth as well as an increased focus on low-income housing will support cement demand. The new federal government has also expressed interest in capitalizing on the nearshoring opportunity by developing 14 economic corridors across the country as well as additional industrial space. We hope to work with the new federal administration on developing new innovative ways to expand the circular economy, including replicating our work on the repurposing of municipal waste streams in Mexico City. In the U.S., our operations continued to be impacted by bad weather in much of our portfolio. Despite these weather challenges, margins expanded to record levels driven by higher prices and lower cost inflation in the form of fuel and imports. EBITDA declined slightly due to lower volumes and higher maintenance costs. We expect EBITDA to improve in the second half of the year with volume growth, less scheduled maintenance, decelerating costs, and market share recovery. Cement and ready-mix volumes declined 7% and 12%, respectively, due to heavy precipitation, some softening in the residential sector, portfolio rationalization, competitive dynamics in certain markets, and the timing of several large projects. In aggregate, where volumes are less impacted by weather conditions, volumes declined low-single-digits. We estimate the impact of weather conditions on cement accounts for approximately 25% of the volume decline. Pricing for our core products is up mid- to high-single-digits year-over-year. We have implemented cement pricing increases in roughly 70% of our portfolio with increases in all markets, except Northern California and Texas. In the markets where we raised prices, prices were up sequentially between low to mid-single-digit percentages. During July, we implemented mid-single-digit price increases for cement in most of our Texas markets. Year-to-date, we have implemented aggregate price increases in all markets. Pricing in aggregate is up 6 percentage points since December. We are expecting improved volume growth in the second half of the year, supported by positive underlying demand in infrastructure and industrial projects related to onshoring and clean energy as well as easier comps. Finally, we are also excited about our recent joint venture agreement with Couch Aggregates, which will strengthen our aggregate reserves and distribution capabilities in the mid-South market. In EMEA, EBITDA declined, driven by a continued challenging demand backdrop in Europe and geopolitical events in the Middle East, although the magnitude of the drop was considerably less than what we experienced in the first quarter. Last quarter, we announced the sale of our Philippines operations, and we expect to close this transaction by year-end. As a result, our Philippines business has been reclassified as a discontinued operation and is now excluded from our 2024 and 2023 operating results. In Europe, EBITDA declined high single-digits against a tough comp due to volume performance derived from continued sluggish growth in Europe and the current construction ban in Paris in preparation for the Olympics. Importantly, we are seeing a divergence in volume dynamics between Western and Eastern Europe, with the U.K., Germany, and France experiencing large declines while our Eastern European footprint, the Czech Republic, Poland, and Croatia continued to grow significantly. We have responded to conditions in Western Europe over the last two years by adjusting our operations to protect margins as much as possible. We believe we are approaching an inflection point in Western Europe with better economic data and expected decline in interest rates, easier prior year comps, and the lifting of the ban in Paris for new construction post-Olympics. Despite volume headwinds, prices for our products have remained resilient across our European footprint with flattish year-over-year and sequential performance. The reported price declines in ready-mix result from geographic mix with lower ready-mix sales in higher-priced markets such as France and the U.K. EBITDA margin in Europe declined against a difficult record-level comp last year. Our costs continue to decelerate, particularly in energy from the production of cement. On climate action, CEMEX Europe continues to test record low levels of clinker factor, with a reduction of 3 percentage points year-to-date to below 70% using traditional decarbonization levers. Additionally, the sale of lower carbon cement now accounts for over 80% of our total cement sales in Europe, rising almost 5 percentage points year-to-date. Finally, in the Middle East and Africa, EBITDA declined due to ongoing tensions from conflict in the Middle East and from the devaluation of the Egyptian pound. Sales in South, Central America, and the Caribbean grew low-single-digits, driven by a positive pricing contribution from our products across the region. EBITDA in the region declined slightly, driven by timing and maintenance, which more than offset positive pricing contribution as well as lower energy and raw materials costs. Cement volumes were flat with continued growth in bulk cement, supported mainly by the infrastructure sector. The formal sector drove demand in the region with large infrastructure projects, such as highways and metro line projects in Bogota and Panama, construction of the fourth bridge over the Panama Canal, and tourism projects in the Dominican Republic. And now I will pass the call to Maher to review our financial developments.

Maher Al-Haffar, CFO

Thank you, Lucy, and good day to everyone. Sales and EBITDA for the first six months of the year were up 2% and 4%, respectively, versus last year, with a margin expansion of 40 basis points, reaching 20.3%. If we adjust for volumes, our margin would be 70 basis points higher for the first half of the year. Mexico continued performing extraordinarily well with first half EBITDA growing 17%, driven by strong volume and pricing. EBITDA for our U.S. operations was flat during the first half of the year, driven in part by bad weather. Combined, our Mexico and U.S. markets, representing 75% of our EBITDA, delivered EBITDA growth of 10% in the first half of the year, which was offset primarily by weaker volumes in our EMEA region. Our Urbanization Solutions business continues to deliver strong performance, growing 13% year-to-date. This business now represents 10% of our consolidated EBITDA. On the cost side, year-to-date, we saw a 21% decline in fuel costs on a per ton of cement basis versus last year. This was driven by a decline in the price of all of our fuels, our increased proportion of lower-cost and lower-carbon fuels, and our continued reduction in clinker factor. On a sequential basis, consolidated fuel cost per ton of cement declined 8%. Currently, approximately 70% of our hedgeable energy and freight costs are hedged for 2024, and we are well advanced in our 2025 program. Some of our hedges allow us to benefit from price declines while protecting us in case of sharp upward movements in energy prices. Free cash flow after maintenance CapEx for the first six months was $40 million, about $180 million lower than last year. While we had better operating results and lower maintenance expenses, our free cash flow was impacted by higher taxes, primarily in Mexico and Spain. We have been implementing targeted actions to improve working capital, optimizing our inventories and terms of trade throughout the company. And we remain on track to our previously stated guidance of reducing about $300 million in working capital this year. Net income for the first six months of the year was $485 million, 3% lower than last year, driven primarily by FX losses related to the depreciation of the Mexican peso. Given the recent volatility in the Mexican peso, I would like to highlight that we have an ongoing Mexican peso hedging strategy that effectively lowers the volatility of the exchange rate at which we convert pesos into dollars for tenors of up to two years. This program helps smooth out our free cash flow in dollar terms. Our capital structure remains strong with ample liquidity and no material debt maturities until 2026. Our leverage ratio stood at 2.13x, about one-third of a turn lower than last year and slightly lower than the first quarter. We remain fully committed to achieving an even stronger capital structure and reducing leverage by 0.5 turns in the next 24 to 36 months. I would like now to discuss briefly some of the things we're doing to further align our financial strategy with our Future in Action agenda. As you know, we now have over 50% of our debt stack linked to sustainability KPIs, and we are on track to reach our goal of 85% by 2030. In addition, we have recently implemented a variety of programs throughout the company totaling about $300 million that provide a financial incentive to our suppliers and clients that align with our Future in Action goals. These include supplier finance programs with special conditions for suppliers that meet a certain minimum sustainability goal, women-owned businesses, and small companies, as well as incentives for clients that purchase our lower carbon products. And now back to you, Fernando.

Fernando Gonzalez, CEO

I'm happy with our year-to-date performance despite difficult weather conditions in several markets. I am confident with our 2024 low to mid-single-digit EBITDA growth guidance. We remind you that our guidance is for like-to-like operations and now excludes the Philippines and assumes FX as of the end of the quarter for the remainder of the year. We continue to expect favorable price to cost dynamics for the rest of the year. For energy costs per ton of cement, we are upgrading our guidance to a high single-digit decline instead of a mid-single-digit decline. We expect improved volume performance in the U.S. and Europe in the second half and continued pricing resilience in our markets. Please see the annex for our current volume guidance by region. And now back to you, Lucy.

Lucy Rodriguez, Chief Communications Officer

Before we go into our Q&A session, I would like to remind you that any forward-looking statements we make today are based on our current knowledge of the markets in which we operate and could change in the future due to a variety of factors beyond our control. In addition, unless the context indicates otherwise, all references to pricing initiatives, price increases, or decreases refer to prices for our products. And now we will be happy to take your questions.

Alejandra Obregon, Analyst

Hi, good morning, CEMEX team. Thank you for taking my questions. I guess this one is about the U.S. So you did provide some color on residential, but I was wondering if you can talk a little bit more about what you were seeing from the ground for U.S. cement demand from an end-market perspective. And more importantly, as you look at the backlog and the trends into July, could you help us understand how to think of each end market going forward? So we did mention that you expect some improvements for the U.S. here. Thank you.

Lucy Rodriguez, Chief Communications Officer

Thanks, Ale, for the question. I think as we think about this, what we saw in the second quarter was that infrastructure, which, as you know, accounts for about 50% of U.S. demand in street and highway spending, which is the most cement-intensive part of infrastructure, has continued to be quite vibrant. The multiyear projects that have been approved under the IIJA are continuing to roll out. When we look at contract awards at the national level, we continue to see double-digit growth up until last month where it slowed to low-single-digit. But again, these are multiyear projects. So I think that gives you some sense of the momentum in the infrastructure sector. In the case of residential, we did see more of a slowdown than we anticipated in the second quarter. And as you know, residential represents about 30% to 35% of demand. I think we would attribute that slowdown primarily to affordability and to the mortgage rates actually moving above 7% in the second quarter. This is not necessarily particularly surprising. We think in this kind of environment where you see things like benchmark rates going above 7%, that it will lead to a slowdown in residential. But I think it's also important to look beyond into what's driving it. And what's really been driving that slowdown in residential has been primarily multifamily. If you look at single-family start and permit data, that is continuing to rise, and in fact, I think there's only been one month in the last 14 months where on a year-over-year basis, single-family starts and permits declined. So fundamentally, there is still very much of a shortage in terms of housing inventories in total in this country. Our expectation is that as we continue to hopefully see more improvements on the interest rate side and some pricing adjustments in specific markets, residential is going to recover, but it's not on as fast a trajectory at the moment as what we expected at the beginning of the year. Finally, with regard to industrial and commercial, I think there are really no surprises here. We started out the year thinking that commercial would be quite slow, and that has proven to be true. There are some structural issues that probably are going to take a while to resolve as well as, of course, those higher interest rates impacting the profitability of commercial projects. On the industrial side, we do continue to see projects rolling out, particularly with regard to onshoring and manufacturing in our markets. Of course, these are very large projects and can be episodic, but demand is definitely there on the manufacturing side. It has not been enough to offset the weakness that we've seen in commercial. We do expect, as we move into the back half of the year, that things will get better. Number one, the weather impact, which is, and this is a fairly conservative estimate, is not easy to come up with. We estimate it was about 25% of our volume decline in the second quarter, but we believe that that should get better. The comps themselves become easier because we saw volumes declining last year in the back half. Some of our efforts to recover market share should also be paying off in the second half. So I hope that answers your question.

Alejandra Obregon, Analyst

It does, Lucy. Thank you very much.

Lucy Rodriguez, Chief Communications Officer

Thank you. And I think the next question comes from Ben Theurer at Barclays. Ben, please go ahead.

Benjamin Theurer, Analyst

Yes, good morning, Fernando, Lucy, Maher. Thanks for taking my questions. Just wanted to follow-up on some of the components of the guidance and how to get to the EBITDA. And obviously, I noticed the improvement that you're seeing on the energy cost side raising or kind of lowering, but at the same time, it's raising it for EBITDA. The energy cost from mid-single digit to high-single-digit. But at the same time, you spoke about a 20-plus percent decrease in fuel. So I just wanted to understand the moving pieces and the confidence you have regarding the energy costs being what's hedged, what's not hedged. And if there is potential upside risk to the guidance, i.e., that maybe would even be in the low-double-digits instead of the high-single-digit when it comes to energy costs. Thank you.

Maher Al-Haffar, CFO

Yes. Thanks, Ben. Maybe I'll take that, and if you guys want to help me out if I miss anything. Ben, very importantly, throughout the year, we have been pleasantly surprised and better than our expectations in terms of energy cost dynamics, particularly on fuels. And that's being driven by a few things. Number one is that most of the primary fuel market commodities markets have dropped since the beginning of the year. So pet coke and coal have decreased. But also, very importantly, we have been moving away from the more expensive, more carbon content fuels to lower-cost, lower-carbon options, such as nat gas, for instance, which is an important switch in the case of Mexico and in the U.S. We are also substituting in the case of alternative fuels from higher carbon content to lower carbon content and lower cost, particularly in Mexico. So those two trends are very important drivers for the reduction of the cost of fuels. Additionally, as we mentioned, the clinker factor is down as well about 1.2 percentage points. And the expectation is that pretty much on all of these trends will continue either to be stable or to improve in the second half of the year. Now a lot of these changes have taken place, so the expectation for added improvement in the second half of the year is probably not quite the majority of the overall improvement for the full-year basis. The other component of that is that electricity is up slightly. But again, in the first half of the year, we had some very important changes in Europe, in particular, renegotiation of some key contracts that contributed to some of the increase. Electricity was up around 3% once you consider efficiencies that we've introduced in our business. So a combination of better comps in the back half for electricity, continued stable and/or declining markets, and/or substitution into lower-cost fuels gives us the conviction to improve our guidance from what we had at the beginning of the year to the second half.

Benjamin Theurer, Analyst

Got it, thank you.

Maher Al-Haffar, CFO

Thank you.

Lucy Rodriguez, Chief Communications Officer

And the next question comes from the webcast from Paul Roger from Exane BNP Paribas. What criteria did the World Benchmarking Alliance use to rank companies on sustainability? And was there anything specific that won CEMEX the number one ranking?

Fernando Gonzalez, CEO

Yes, Paul, we understand that the criteria of the World Benchmarking Alliance accounts for 60% for climate action activity and 40% for social issues. As you can imagine, we are very pleased to be ranked number one among these three so-called hard-to-abate industries, cement, steel, and aluminum. Unfortunately, I can't describe the specific reasons why we won or what the comparatives were with the other 90 companies considered in the ranking. However, I believe our Future in Action strategy, which was reloaded in 2020, is working very well. Most of the indicators that we are committing to and promising for 2025 and 2030 are evolving positively. Our reduction since 2020 as of the second quarter of this year is already a reduction of Scope 1 CO2 by 14%, which is a very material reduction. We are on track to comply with our 2025 and our 2030 targets, with the 2030 target for our CO2 per ton of cementitious material being a reduction of 47%. On the social part, our social strategy is known and has been a traditional CEMEX focus. Moreover, we had not anticipated this ranking, and we are extremely pleased with the recognition, as it serves as a huge incentive for the CEMEX team to continue in this direction.

Lucy Rodriguez, Chief Communications Officer

Thank you, Fernando. The next question comes from Carlos Peyrelongue from Bank of America.

Carlos Peyrelongue, Analyst

Thank you, Lucy. The question is related to pricing, particularly in Mexico, but if you could also comment on the U.S. for the second half of next year. We've seen very strong volumes in Mexico, obviously. So, do you think there is room for further price increases or have you announced any price increases already in Mexico? Any color on the U.S. would be helpful as well.

Maher Al-Haffar, CFO

Well, Carlos, maybe I'll take that to start with, and then Lucy, maybe you can also help me out. I mean, pricing strategy has been very much driven by the inflation we're experiencing in the different markets and for our different products. Over the last couple of years, as inflation spiked, we successfully took action in our pricing strategy. Now we are seeing a moderation or deceleration in inflation in several of our markets. Therefore, our pricing strategy will moderate as well, always keeping in line with the positive impact we want to have in terms of price minus cost in all of our businesses. Mexico, as you know, has probably one of the highest inflation rates in our markets. Just recently, overall inflation numbers came out, with headline numbers up about 6% and core inflation around 4%. In our business, it's probably even higher. On the back of that and very positive demand, we have announced pricing increases for bagging products at the mid-single-digit level. We are seeing reasonably good traction. So I would keep an eye on inflation indicators in each of our markets. In general, pricing year-to-date has been positively impacted in 75% of our volumes across all of our portfolio in the U.S., Europe, South Central America, and Mexico. In the U.S., we had price increases at the beginning of the year. We've also announced selective increases in July and are witnessing good traction there. Inflation is a little bit less in the case of the U.S., but the markets are sold out with positive supply/demand dynamics. Thus, we expect to see decent traction there. In Europe, we had a similar situation where despite the weakness or headwinds in terms of volumes, inflation, and carbon taxes have led to a fairly resilient pricing market, and we've had good pricing increases in the first half across several of our markets, and we will continue to push as much as possible in the second half. One thing I would like to mention is that even if we don't implement further pricing increases in the second half of the year, we have a couple of percentage points more tailwind in pricing in the back half of the year due to previous price adjustments.

Carlos Peyrelongue, Analyst

Very clear. Thank you, Maher.

Maher Al-Haffar, CFO

Thank you very much, Carlos.

Lucy Rodriguez, Chief Communications Officer

The next question comes from Yassine Touahri from On Field Research. Yassine?

Yassine Touahri, Analyst

Yes, good morning. So just one question on my side. During the CEMEX Market Day, you mentioned that when you looked at the sum of the parts, you believed that CEMEX should trade at 7x to 9x of EBITDA, when you looked at the multiple of peers. Today, you're trading at 5x to 6x, so it's much lower. And we've seen some of your companies in the sector, such as Holcim moving to the U.S., others moving to the U.S., or Titan Cements moving to list a minority stake in the U.S., and they managed to crystallize some of the value of their U.S. assets. When you look at the share price performance and your multiple, how do you think about the future? And what do you think you can do to crystallize this U.S. value, which is not currently reflected in the share price?

Maher Al-Haffar, CFO

Yassine, thank you for your question. I don't want to comment on our competitors' strategies as they might have different factors influencing their valuations. What we can do is focus on driving growth in our business. It's crucial to highlight the progress of our U.S. operations, which are experiencing significant growth and are expected to continue expanding over the next two to three years, despite challenges in volume, favorable pricing, and considerable improvements in margins. We anticipate that our U.S. business will make a significant contribution to our overall EBITDA in that time frame, and we need to maintain that growth and communicate it effectively to the market. Regarding our Mexican operations, despite some volatility, they are achieving record performance in revenue, EBITDA, and margin growth. We've also witnessed more stability recently regarding foreign exchange and dollar generation from our Mexican business compared to previous years. Together, these two markets account for 75% to 80% of our cash flow. Instead of restructuring our capital or complicating our corporate framework, we believe it's more beneficial to stay on our current path and focus on enhancing performance, which should naturally underscore the undervaluation reflected in our North American operations and assist in achieving a better valuation in the future.

Yassine Touahri, Analyst

Would you consider a buyback?

Maher Al-Haffar, CFO

The buyback question, Yassine, is a very good one. And I'd like to tie this back to the comment I made earlier in the year at our Analyst Day. Over the last three years, we've had a robust deployment of capital that has been completed and that is flowing into our growth portfolio and into urbanization solutions. Both of these capital deployments are extremely accretive. Today, we estimate that the EBITDA multiple at which we're deploying capital is between 3.5x and 4x. We're also seeing a robust portfolio of projects that are currently in flight and are expected to deliver similar accretion in the next 12 to 24 months, and perhaps beyond. Given this type of profile from a capital allocation perspective, it makes much more sense for us to continue investing for growth at very attractive multiples, despite our belief that our stock is currently undervalued.

Yassine Touahri, Analyst

Thank you.

Lucy Rodriguez, Chief Communications Officer

The next question comes from the webcast from Anne Milne from Bank of America. Good news on meeting emission targets ahead of schedule in CEMEX Europe. What have been the main drivers of meeting this objective? And will any other regions meet these targets ahead of schedule?

Fernando Gonzalez, CEO

Hi, Anne, thanks for the question. We are very pleased with the results of our Future in Action strategy in Europe and all over the company, but particularly in Europe, given that Europe is the region that is leading and is ahead on the transition towards a low-carbon or carbon-neutral economy. The main drivers, if you remember, I mentioned the term we started using, which emphasizes reducing as much as possible before capturing. So we are making a strong effort to utilize all levers to reduce CO2 generation in cement production. In Europe, we have ambitious targets for 2030, aiming for a 55% reduction. Currently, we have a leading level of alternative fuels in Europe, with relevant biomass content serving as one of the primary drivers, allowing us to make reductions ahead of our targets. Moreover, clinker factor has recently dropped below 70%, one of the lowest in Europe. That is another significant factor explaining why we are achieving our objectives ahead of schedule. Additionally, we are increasing the use of carbonated raw materials to produce clinker and deploying traditional levers such as the use of alternative fuels and improved energy efficiency. In Europe, we’re already selling over 90% of cement and ready-mix with the characteristics of our products which yield at least a 25% reduction in CO2 compared to traditional cement. We are pleased with our leading position in this transition. Other regions are also meeting their targets ahead of schedule. For instance, we expect to sell 50% of our products using low-carbon principles by 2025, but we are already at over 60% in terms of cement. In the case of ready-mix, it’s 55%. So we want to continue making substantial efforts towards reducing emissions and believe that reducing emissions through traditional levers will mean our investments in carbon capture will be smaller. We have already developed six carbon capture projects, mostly in Europe, some in the U.S., set for development in the coming years. Some projects may be operational before 2030, with others following afterwards. It’s crucial to clarify that our 2030 target regarding CO2 reductions is based on current levels and excludes any CO2 reductions achieved through carbon capture.

Lucy Rodriguez, Chief Communications Officer

Thank you, Fernando. And the next question comes from Alberto Valerio from UBS. Alberto?

Alberto Valerio, Analyst

We have seen a little acceleration around the U.S. volumes for this year and also see, as you put in guidance, some easing energy costs for the industry as well. My question is, should the price be as it is at this moment for next year because we see a huge increase in price over the past three years? What would be different this time? In times that we see a little bit of volume softening. What could be different this time around, especially regarding price stability?

Lucy Rodriguez, Chief Communications Officer

Alberto, I just want to clarify that your question is around U.S. pricing and primarily the outlook for 2025, is that correct?

Alberto Valerio, Analyst

Yes, and for the future, Lucy, just to understand the resiliency of the pricing, right? Because we see a little bit of volume weakness across the board. And just to see why prices might remain up this time?

Lucy Rodriguez, Chief Communications Officer

Right. If we first look at what happened in the first six months of this year, we have seen very good pricing traction, especially considering what's been happening regarding cost. So as Maher mentioned, we've had pricing increases in the U.S. that account for about 70% of our volumes. We've announced increases for early July in certain cities in Texas, which was previously one of the markets without announced increases for 2024. When looking at traction in those markets, we observed mid- to high-single-digit sequential increases that we are very pleased with, especially when factoring in steadily decelerating costs primarily driven by energy. As we look to next year, we believe the same resilience will be present in what is a sold-out market. Historically, the first pricing increase you can count on in any market happens early in the year. I can't remember a time when we didn’t see successful first pricing increases in the United States at the national level. It's crucial to think about pricing in connection with our goal of ensuring prices are aligned with input cost inflation, and we hope prices will be above those levels again, which is what we've been achieving this year. Our expectation is that this pattern will also hold in the new year. I don’t know if Maher or Fernando have anything to add.

Maher Al-Haffar, CFO

Yes. Thanks, Lucy. Alberto, I would also like to add one more thing. The market is anticipating rates may ease in the second half of the year. However, there is uncertainty around recent economic data. We expect rates to potentially decline early next year. The housing market has really struggled these past few years. Liquidity in the market has diminished, and while prices have increased, affordability remains a significant concern. For next year, particularly in our markets, we are notably overweight in the housing market relative to the national level. We are optimistic that as clarity regarding the elections emerges, we will see some recovery in the housing market, which has been lagging behind. Also, we are seeing support for positive infrastructure and industrial demand, presenting tight supply-demand conditions conducive for maintaining price stability.

Alberto Valerio, Analyst

That makes sense. Thank you very much, Lucy and Maher.

Lucy Rodriguez, Chief Communications Officer

Thanks, Alberto.

Maher Al-Haffar, CFO

Thank you.

Lucy Rodriguez, Chief Communications Officer

The next question comes from Jorel Guilloty from Goldman Sachs. Jorel, I hope I did not mispronounce your last name?

Jorel Guilloty, Analyst

Thank you for taking my question. This question is similar to what Alejandra asked at the beginning of the call, I just want to focus on Mexico. Specifically, you mentioned that you saw strength in all your end markets—residential, infrastructure, private non-residential—and that drove healthy volume during the quarter. What I wanted to know, however, is if out of those three, if there is one end market that was stronger than the other, perhaps performing ahead of expectations. And connected to that, as you look at your volume expectations, is there a specific end market that you expect to outperform going forward? That's it. Thank you.

Lucy Rodriguez, Chief Communications Officer

And Jorel, this is Mexico-specific, correct?

Maher Al-Haffar, CFO

Jorel, it's nice to meet you. In Mexico, we observed excellent performance across all sectors. Infrastructure has experienced the introduction of some new projects, which are beginning to ramp up, though there may be some intermittency in the flow of products for infrastructure. Overall, positive performance in Mexico. Housing, which had experienced some sluggishness, seems to be picking up. A few days ago, the new President announced a target of about 1 million home starts, and while the timing remains uncertain, we have a constructive outlook regarding the housing sector in Mexico. In terms of the industrial sector, there is a significant portfolio of announced projects underway that we expect to accelerate. The recent news from Tesla indicates a possible delay due to re-evaluation of tariffs and potential changes in administration that may impact clarity. However, we believe that investments in the industrial sector are quite significant and will continue. Furthermore, our ready-mix business has seen a notable increase. We've seen a 50% rise in contracted volumes in the first half of the year. That provides a positive outlook for the industrial sector. Considering these factors, we have strong confidence that, despite this transition phase, we should witness positive trends in performance and pricing in the Mexican market.

Lucy Rodriguez, Chief Communications Officer

I would like to add that we have experienced a significant double-digit increase in our ready-mix contracted volumes. The industrial sector has indeed been driving that. We've seen strong increases in contracted volumes for industrial applications. We appreciate you joining us today for our second quarter results. We hope that you will join us again for our third quarter 2024 webcast on October 28th. If you have any additional questions, please feel free to contact Investor Relations. Many thanks.

Operator, Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.