Construction Boom? Cemex 2Q and 1H Earnings Collapses!!!!

Cemex hasn’t published its quarterly report (17Q) yet. But it issued a press release which was picked up by media.

First, a rewind back to Cemex’s 1Q performance

From Philstar.com May 15, 2017 (bold mine)

Cemex Holdings Philippines Inc., the Philippine subsidiary of the Mexican cement giant, reported a 24 percent drop in its first quarter net income to P350 million.

It said cement volumes were lower by nine percent due to adverse weather conditions that persisted from last year into January and February and a high base of comparison, which was marked by strong construction activity prior to the 2016 elections.

 “The first quarter sales performance has been challenging, but we are encouraged by improvements in cement volumes versus the prior quarter and a strong sales performance in March which was the highest in the last 17 months. As a result, our revenues also increased by two percent versus the prior quarter,” said company president and CEO Pedro Jose Palomino. CHP’s prices declined by seven percent on a year-on-year basis but the lower volume and price were partially mitigated by bettercost of sales and lower financial expenses.

Despite the challenging demand situation, Palomino said the company remains motivated by rosy prospects of the Philippine construction industry, especially in light of government’s pronouncements on infrastructure investments.

Now to the 2Q and 2H report, from the Businessworld.com July 28, 2017

In a quarterly report to the stock exchange on Thursday, the cement manufacturer said its net income plunged 69% to P136.52 million in the April to May period, from the P436.12 million pro forma income it booked in the same period in 2016. Net sales dropped to P5.6 billion in the second quarter, as both cement prices and volumes slowed due to the sector’s competitive environment.

“In terms of the competitive landscape, indications are there are a lot of competition for both volume and price, very robust competitive situation... Markets remain challenged in terms of pricing, and going for demand,” CHP Vice-President for Strategic Planning and Marketing Paul Vincent Arcenas told analysts in a conference call on Thursday.

CHP reported domestic gray cement volumes fell by 3% during the second quarter, and 6% year to date. Domestic gray cement prices also dropped 9% year on year in the second quarter. 

The decline was further attributed to weak demand, marked by the government’s delayed infrastructure spending and growth in the private sector, as well as the shutdown of its APO cement plant in Cebu last May.

“The APO shutdown was equivalent to 15% of our cement capacities, because of the unexpected shutdown,” CHP Treasurer Vincent Paul Piedad said.

This brought the company’s year-to-date earnings to P486 million, 46% lower than what it delivered in the first half of 2016. Net sales slipped 14% during the January to June period to P10.98 billion, from P12.71 billion a year ago….

Mr. Mijares expects an uptick in economic activity in the second half to help boost CHP’s sales, as well as the absence of any scheduled shutdown at the company’s facilities.

Some comments

1. Real economy “low” prices which likewise imputed “low volume” already provided astute observers clues of the industry and the company’s performance.

2. For the 2Q, the company interjected its dismal outcome to COMPETITION. The problem is that competition means the taking of one’s share at the expense of another.   With Holcim and Cemex seemingly plagued by similar slacks of low price and low volume, competition has barely been the relevant case. The shutdown of the APO plant is immaterial.

3. Infrastructure spending should signify a compliment to a private sector led construction boom. Apparently, such inauspicious outcomes indicated otherwise. In fact, a Cemex official interpolated the weak demand of cement to the “growth in the private sector”. Unless the cement industry is unrelated to real estate industry, then just why have property stocks been ablaze???

4. Media focused on the prospective improvements of the industry. They did the same in 1Q, which of course, did not happen. 2Q turned out to be worst.

5. Has the stock market anticipated such turn of events?

The short answer is NO.

 

After a big upside from the July 2016 IPO, Cemex descended only in the middle of the 1Q 2017. Meanwhile, HLCM climbed until March 2017 before it began factoring in the industry’s woes. Eagle even had a strong showing from its IPO last April-May.

The stock market largely remains ebullient over the "infrastructure" led construction industry.

A short note on the Phisix

The Phisix climbed to near record from a week of organized and synchronized pumps and dumps

 

The institutionalization of the price fixing process has truly been incredible.

Construction Boom? HLCM’s 2Q and 1H Sales and EPS Growth Crashed! Frenzied Bids on Property Issues Sends the Phisix to 8,037

Last weekend, I pointed out that the government’s measure of construction material prices - retail (CMRPI) and wholesale (CMWPI) – revealed weakness in the construction industry. And if these numbers showed signs of relevance to reality, then such would likewise be manifested in the financial performance of construction and construction related companies. I zoomed in on the cement industry.

By next month, the major cement manufacturers will be disclosing their performance for the second quarter. We should see if quarterly revenues of these companies will resonate with the quarter’s price activities.

Construction BOOM? The Government’s Construction Material Prices Have Been On a Swoon, Why??? July 24, 2017

Holcim Philippines published their 2Q and 1H activities today.

There you have it.

HLCM’s gross revenues plunged a staggering 20.84% in the 2Q! The 2Q sales crash weighed on the 1H performance, which recorded an enormous 16.74% dive in revenues. 1Q sales tumbled 12.5%.

HLCM’s published 2Q and 1H eps almost halved.

This quarter’s dismal financial performance represents an extension of the previous 2.

The difference has been that the deterioration for the 2Q has only exacerbated.

Now, one company’s misfortune may not reflect on the industry. So I’d have to wait for disclosures from HLCM’speers, namely Aboitiz, Cemex, and Eagle.

Property Fueled Phisix 8,037

After Friday’s wonderful magic of turning ore into gold, the establishment’s campaign for the Phisix to attain a new record comes as no surprise.

Nevertheless, the weight of such task has been borne mostly by the property index.

Today, properties surged by 1.68% on the back of considerable gains by all PSEi components, specifically ALI +1.74%, SMPH +1.76%, MEG +5.5% and RLC +1.62%.

Ayala Land’s fresh record has been an outcome of a gamut of violent pumping (lower window). Prices of many firms have been subjected to similar dynamics.  Vertical prices are signs of price instability.

Curiously, today’s early pumping was met by a mark on close DUMP (right window)!

Pumps and dumps are a healthy sign of markets????

More…

 

Gains from the top 4 of the 5 biggest issues accounted for about 40% of today’s .83% advance. (upper window)

Gains of the sixth to the tenth ranked issues represented about 12%.

In gist, 7 issues delivered more than 50% of the day’s activities, and thereby, Phisix 8,037.

Put differently, the thrust to forcibly heave the Phisix above 8,000 has mostly emanated from a few issues being violently pumped.

By the way, SCC also hit a record high today.

As one would note in the lower window, the cargo of the PSEi’s PER distribution has been focused on a limited set of issues.

The PSEi’s AVERAGE PER was last at 20.8 while the free float weighted PER was at an exorbitant 1996 level of 25.45!

Back Up The Truck at Phisix 8,000?

Greed has come a long way.

I came across a sell-side article promoting the PSEi, despite being very expensive, as a buy!

As a side note, when experts talk about forward PERs expect these to (ritually) overestimate actual performance. Take for example HLCM. Given the infrastructure meme, has anyone predicted a crash in actual financial performance???  Yet, HLCM’s share prices, which apparently remains anchored on the infrastructure story, has hardly reflected on these developments/

Well, articles like these hardly ever say explain why ‘expensive’ merits a buy - of course, except for the overblown G-R-O-W-T-H story.

Such spins never dwell on WHY the PSEi has been ridiculously overpriced in the FIRST PLACE. In spite of evidence, extravagance has been assumed as an anomaly. Such is a manifestation of how theory and empirics have been overwhelmed by blind faith.

There hardly have ever been discussions of HOW marking-the-close PUMPS have contributed to the current valuation levels.

Barely will any of such articles deal with the repercussions of violent price pumps and of excessive speculations!

Additionally, buying very expensive stocks comes with GREATER risk of losses. But for them, risk has mostly been consigned to the dustbin. Free money is unbounded.

Also, the public has been made to believe that there are endless numbers of greater fools.

More importantly, for fiduciary entities, authors hardly ever disclose that buying lavishly priced stocks BENEFIT these institutions at the expense of their clients.

Finally, if there is one notable development, the surge to 8.000 comes with significantly DIMINISHING volume compared to 2016.

Construction BOOM? The Government’s Construction Material Prices Have Been On a Swoon, Why???

As a communication network, the market price system coordinates integrates and harmonizes the value judgments of the consumers, which represents demand, with the cost and revenues for producers in service of the consumers, which accounts for the supply.

Hence, the market price system serves as a very important guide to economic conditions.

The government’s Philippine Statistics Authority (PSA) released a few data last week relevant to the construction industry.

As a side note, though government price indices are hardly reliable because distinct products have different utilities for these to be aggregated or averaged, given that there is hardly any alternative, I will use them anyway.

 

Along with dwindling M3 growth, price indices of construction material retail and wholesale prices have been in a funk.

Construction material wholesale prices seem to endure a bigger price slowdown relative to the retail counterparts. June prices slowed to 1.4% from May’s 2.4%. Here’s the PSA: “Negative annual rates were still noted in the indices of cement at -1.8 percent; plywood, -0.9 percent; and PVC pipes, -0.2 percent.”

From a month on month basis: “The indices of the following commodity groups went down during the month:Cement (-0.5%), Lumber (-0.4%), Reinforcing Steel (-1.4%), Plumbing Fixtures and Accessories/Waterworks (-0.1%), Fuels and Lubricants (-1.5%).”

Cement prices have been falling at the wholesale level??? Why??? Too much inventories accumulated fromultrahigh expectations of a perpetual boom??? Or has such growth deceleration emanated from lackadaisical demand from retail, from the major developers and from the government??? If the latter, just what happened to the proposed aggressive infrastructure spending???

The retail segment of my question is answered below.

Construction material retail price (CMRPI) growth moderated less than the wholesale counterpart. The price index grew .88% in June from 1% in May. Like the wholesale index, since its recent climax last February, retail prices have been in a downtrend

Here’s the PSA: A negative annual rate was still observed in carpentry materials index at -0.7 percent. Moreover, slower annual mark-ups were registered in the indices of the following commodity groups: Electrical Materials (1.1%), Masonry Materials (0.2%), Plumbing Materials (1.8%), Tinsmithry Materials (0.5%)

 

The growth rate of the banking system’s loans to the construction industry increased to 20.85% in May from 19.12% in April. Though the growth rate has been in a cascade since 2013, which registered highs of over 50%, diminishing returns from the previous sharp rate of increases could be part of such dynamics.

By next month, the major cement manufacturers will be disclosing their performance for the second quarter. We should see if quarterly revenues of these companies will resonate with the quarter’s price activities.

This should be interesting.