Loma Negra Compania Industrial Argentina Q1 2024 Earnings Report

Loma Negra Compania Industrial Argentina EPS Results

• Actual EPS: $0.52
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: $0.24

Loma Negra Compania Industrial Argentina Revenue Results

• Actual Revenue: $137.71 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Loma Negra Compania Industrial Argentina Announcement Details

• Quarter: Q1 2024
• Date: 5/9/2024
• Time: After Market Closes
• Conference Call Date: Friday, May 10, 2024
• Conference Call Time: 10:00AM ET

Loma Negra Compañía Industrial Argentina S.A. is the leading cement producer in Argentina, with a history dating back to its founding in Buenos Aires in 1926. The company operates an integrated network of cement and lime plants, as well as quarries and ready-mix concrete facilities. Its operations encompass the extraction of limestone, the production of clinker, hydraulic cement and quicklime, and the distribution of aggregates and concrete for a wide range of construction projects.

The company’s product portfolio serves residential, commercial, industrial and public infrastructure markets across Argentina. Loma Negra’s cement brands are used in everything from highway and bridge projects to urban developments and housing initiatives. In addition to its core cement operations, the company maintains a network of ready-mix concrete plants that enable it to supply customized concrete mixes directly to construction sites, ensuring quality control and logistical efficiency.

With plants located in key provinces such as San Juan, San Luis and Tucumán, Loma Negra also exports cement and clinker to neighboring countries in South America. The company is part of the InterCement group, itself owned by the Camargo Corrêa conglomerate, and benefits from shared expertise in operations, technology and sustainability practices. Headquartered in Buenos Aires, Loma Negra continues to invest in production capacity, supply chain optimization and environmental management to support Argentina’s ongoing infrastructure and development needs.

Loma Negra Compania Industrial Argentina Q1 2024 Earnings Call Transcript

Key Takeaways

• Q1 top line declined by 27% year-on-year, with cement volumes falling 31% due to the macroeconomic stabilization plan and weak construction demand.
• Despite the volume collapse, consolidated EBITDA margin was stable sequentially at 22.6% and EBITDA per ton held at $39.3.
• The balance sheet remains strong with net debt of $207 million, a net debt/EBITDA ratio of 1.3x and a comfortable debt maturity profile.
• Lower thermal and electrical energy costs partially offset the impact of reduced volumes, supporting margins in the cement segment.
• Management expects gradual demand recovery in H2 provided the political transition settles and key economic reforms, such as the omnibus bill, advance.

Presentation

[Operator]

Good morning, and welcome to the Loma Negra First Quarter 2024 conference call and webcast. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Also, Mr. Sergio Faifman will be responding in Spanish immediately following an English translation. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Mr. Diego Jalón, Head of IR. Please, Diego, go ahead.

[Diego Jalón, Head of Investor Relations at Loma Negra]

Thank you. Good morning, and welcome to Loma Negra's earnings conference call. By now, everyone should have access to our earnings press release and the presentation for today's call, both of which were distributed yesterday after market close. Joining me on the call this morning will be Sergio Faifman, our CEO, and Vice President of the Board of Directors, and our CFO, Marcos Gradin. Both of them will be available for the Q&A session. Before we proceed, I would like to make the following safe harbor statements.

[Diego Jalón, Head of Investor Relations at Loma Negra]

Today's call will contain forward-looking statements, and I refer you to the forward-looking statements section of our earnings release and recent filing with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances. This conference call will also include discussion on non-GAAP financial measures. The full reconciliation of the corresponding financial measures is included in the earnings press release. Now, I would like to turn the call over to Sergio.

[Sergio Faifman, CEO and VP of the Board of Directors at Loma Negra]

Thank you, Diego. Hello, everyone, and thank you for joining us this morning. I would like to start my presentation by discussing the highlights of the quarter. Then, Marcos will take you through our market review and financial results. Following that, I will share some final remarks before opening the call to your questions. Starting with Slide 2. We're starting a year full of new challenges, and it is my pleasure to present the highlights of the quarter, which was marked by a significant drop in activity level, amid the follow-up of the stabilization plan carried out by the Milei administration. In a short time, the new government has achieved some hopeful accomplishment, such as reducing inflation and achieving fiscal surplus.

[Sergio Faifman, CEO and VP of the Board of Directors at Loma Negra]

After the sharp devaluation of last December and the correction of relative price, the construction industry has experienced a significant drop in demand, which industry stakeholders are awaiting the consolidation of the new macroeconomic scenario. In this context, Loma has focused on its main strengths, our leadership position, and operational flexibility and efficiency to navigate through this transition period. Our top line stood at ARS 114.9 billion, decreasing 27% in the quarter, with cement volumes down 31%. The consolidated Adjusted EBITDA reached $42 million or ARS 26 billion in the first quarter of the year. The 31% decline in cement shipment tightened our EBITDA margin, which reached 22.6%, contracting by 360 basis points year-on-year. However, it remained stable on a sequential basis, despite the significant drop in volume.

[Sergio Faifman, CEO and VP of the Board of Directors at Loma Negra]

In the same sense, EBITDA per ton stood at $39.3 for the quarter, maintaining a similar level when compared year-on-year and on sequential basis. On the financial side, our balance sheets remain very strong, with net debt of $207 million and a very comfortable maturity schedule. I will now hand off the call to Marcos Gradin, who will walk you through our market review and financial results. Please, Marcos, go ahead.

[Marcos Gradin, CFO at Loma Negra]

Thank you, Sergio. Good morning, everyone. Please turn to Slide 4. As you can see on the lower left chart, the market expectation report from the Central Bank signals that the first quarter might indicate the deepest quarterly contraction of the economy for this year, with a better outlook for the second half. When we dive into the numbers of our industry, we can see that the construction activity indicator shows a significant drop in the first months of the year, deepening the drop in March. The monthly industry cement sales charts shows the same trend, where the effects of the stabilization plan, coupled with weather conditions, also affect cement shipments. The political transition and the consequent effects of the tighter economy policies and the devaluation effects, distortions took a hit on the construction activity.

[Marcos Gradin, CFO at Loma Negra]

The industry's bulk cement dispatches were the most affected by this context, down 33% year-on-year, while bag cement posted a contraction of 27%. When looking at the breakdown by dispatch mode for the quarter, bag shipments represent 41% of the total dispatches, while the bag format regained terrain, reaching 59%, 2 percentage points above the first quarter of 2023. We are cautiously optimistic that in line with the market expectations, we will start to see signals of recovery in the upcoming quarters. Turning to Slide 5 for a review of our top-line performance by segment. The first quarter top line showed a decrease of 27%, mainly attributed to the decline in the cement segment, also followed by the other businesses.

[Marcos Gradin, CFO at Loma Negra]

The cement, masonry cement and lime segment, was down 25.4%, with volumes contracting by 31.3% year-on-year, mainly due to the impact of the economic environment, partially compensated by a solid price performance. Although the contraction impacted both dispatch modes, bulk cement was the most affected in our segmentation of clients. Concrete producers and industries were significantly down, while public works remained halted.

[Marcos Gradin, CFO at Loma Negra]

Concrete revenues decreased by 41% in the quarter due to the 41.7% decrease in dispatches. The larger scale projects, our operations target market, are either halted or experiencing a low level of activity as they seek more stable conditions with the consolidation of economic measures. Aggregate segment show a decrease of 14.5%, with sales volumes down 38.7%, following the trend of the concrete segment.

[Marcos Gradin, CFO at Loma Negra]

Finally, railroad revenues decreased by 19.5% in the quarter. Transported volumes were down by 28.1%, primarily affected by the lower level of activity in the construction sector, which impact our main cargo shippers, especially in aggregates. Additionally, a storm that hit Bahía Blanca in December affected the chemical plants of the region.

[Marcos Gradin, CFO at Loma Negra]

The transporter of chemical was normalized by the end of the quarter. On the other hand, we improved the transported volume of frac sand. Moving on to Slide 7, consolidated gross profit for the quarter declined 32.8%, with a margin contraction of 217 basis points to 25.3%, mainly due to the volume contraction on our core business. Regarding the second segment, the lower volume also impacted the cost per ton due to a low dilution of our fixed cost on a per-ton basis.

[Marcos Gradin, CFO at Loma Negra]

This effect was partially offset by lower energy inputs. We recorded improvements in both thermal and electrical energy cost. Finally, with SG&A, expenses decreased by 6.7% year-on-year, mainly due to lower turnover tax and freight costs related to lower volumes, as well as a decrease in insurance and marketing expenses. As a percentage of sales, it show a year-on-year increase of 251 basis points, reaching 11.5% due to the decrease in the top line. Please turn to Slide 8. Our Adjusted EBITDA for the quarter stood at $42 million. In pesos, Adjusted EBITDA was down 37.1%, reaching ARS 26 billion with a consolidated EBITDA margin of 22.6%, contracting 360 basis points year-on-year. On a sequential basis, the margin remained stable despite the sharp volume decrease.

[Marcos Gradin, CFO at Loma Negra]

Cement segment Adjusted EBITDA margins stood at 26.1%, contracting 356 basis points. The positive price performance and better energy inputs mitigated the lower sales volume. On a per-ton basis, EBITDA reached $39 per ton, with a slight variation year-on-year and remaining flat on a sequential basis. Concrete Adjusted EBITDA decreased ARS 724 million compared to the same quarter of last year, with a margin contraction of 283 basis points, reaching -10%, primarily due to the sharp drop of dispatches. The Adjusted EBITDA margin of aggregates contracted to -1.1% from 17.6% in the first quarter of 2023, mainly due to lower volumes and lower fixed cost absorption.

[Marcos Gradin, CFO at Loma Negra]

Finally, the Adjusted EBITDA margin of the railroad segment expanded to 0.4% in the first quarter from -1.2% a year ago, primarily due to the positive price performance and a better result in other gains that compensated the lower transported volumes. Moving on to the bottom line on Slide 10. This quarter, we posted a net profit attributable to owners of the company of ARS 50.7 billion, compared to a net profit of ARS 20.4 billion in the first quarter of 2023. The higher total net financial gain was boosted by the positive effect of inflation on the net monetary position. This effect was partially offset by a higher net financial expense due to a higher net debt position.

[Marcos Gradin, CFO at Loma Negra]

In the same sense, the foreign exchange loss decreased due to a slower pace of devaluation following the sharp movement of the FX in December. Moving on to the balance sheet, as you can see on Slide 11, we ended the quarter with a cash position of ARS 5.8 billion and a total debt at ARS 183.1 billion. Consequently, our net debt to EBITDA ratio stood at 1.3x compared to 1.4x at the end of 2023. Our operating activities used cash stood at ARS 7.7 billion, where the decrease in the net profit adjusted to reconcile to net cash provided by operational activities was coupled with higher working capital needs, mainly due to an increase in critical inventories that we will use during the upcoming winter.

[Marcos Gradin, CFO at Loma Negra]

During winter, we will minimize our production to avoid higher energy inputs while using the kilns shut down to perform our maintenance. Regarding capital expenditures, we allocated ARS 8.5 billion, mostly for maintaining CapEx. As a result of the slowdown in demand, we are working on adjusting our CapEx and maintenance plans to the current scenario. During the quarter, the company generated cash in financial activities for ARS 16 billion, mainly from new borrowings.

[Marcos Gradin, CFO at Loma Negra]

In dollar terms, our total debt reached $214 million, standing our net debt at $207 million at the end of this quarter, with a duration of 1.3 years. Breaking it down by currency, the total denominated debt represents 65% of the total debt, while the rest is in pesos. Now, for our final remarks, I would like to hand the call back to Sergio. Thank you.

[Sergio Faifman, CEO and VP of the Board of Directors at Loma Negra]

Thank you, Marcos. Now, to finalize the presentation, I please ask you to turn to Slide 13. As we mentioned, we started a new year in a very challenging environment, marked by a significant drop in activity level. The effect of the transition to the new governments, the repercussion of the stabilization plans, and adverse weather condition combined to create a scenario full of challenges for the construction industry.

[Sergio Faifman, CEO and VP of the Board of Directors at Loma Negra]

It is a moment like this where we reaffirm our conviction to bet on future development, relying on our strength and efficiencies. We are convinced that the country has huge growth potential waiting to be unlocked. The decrease in inflation and the normalization of some key economic variables make us believe that we are on the right path to lay the groundwork for addressing the infrastructure gap.

[Sergio Faifman, CEO and VP of the Board of Directors at Loma Negra]

Loma made very important investment in capacity in recent past, that are now contributing to support our result through better efficiencies. We are determined to protect our profitability and very focused on our cash management and reducing our CapEx programs for this transition period. We are confident that we are in an excellent position to embrace the upcoming positive economic cycle. Finally, I would like to thank all our employees for their commitments and extend my gratitude to the rest of our stakeholders. This is end of our prepared remarks. We are now ready to take question. Operator, please open the call for question.

[Operator]

Thank you. We will now conduct a question-and-answer session. If you would like to ask a question, please press star, then one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star, then two, if you would like to remove your line. For participants using speaker equipment, it may be necessary to pick up your handset prior to pressing the keys.

[Operator]

Once again, star one on your telephone keypad. We would also like to ask that you limit your questions to one question and one follow-up. Please, if you have additional questions, you may re-queue for those questions, and they will be addressed. Also, please note that Mr. Sergio Faifman will be responding in Spanish immediately following an English translation. Please hold momentarily while we assemble our roster. The first question comes from Alejandra Obregón with Morgan Stanley. Please go ahead.

[Alejandra Obregón, Equity Research Analyst at Morgan Stanley]

Hi, Loma Negra team. Thank you for taking my question. I guess it's related to your comment on maintenance. You mentioned that you're doing some maintenance during the winter. So I was just wondering if you can talk about how this compares versus last year, meaning how long will it last this time around, and how much of your capacity will be carrying out this sort of maintenance? That's perhaps the first question on my end.

[Translator]

Hi, Alejandra. Thank you for your question. And also, due to the contracts that we signed in the past, the halts in the winter are going to maintain a similar schedule.

[Sergio Faifman, CEO and VP of the Board of Directors at Loma Negra]

[Foreign language]

[Translator]

So during that term, in those four months, probably we're going to use that to more gradually use that period for the maintenance that we have planned.

[Alejandra Obregón, Equity Research Analyst at Morgan Stanley]

Gotcha. That was very clear. And I guess a second question related to your utilization and dispatches. So we're coming from a period where you potentially reached, like, 7 million tons per year. That was the peak of your dispatches during 2022, 2023, maybe. And now we are seeing things normalizing. So what would be, like, a fair assumption? Where do you think dispatches will normalize in the foreseeable future once things stabilize? Is perhaps 6 million tons a run rate level where you guys are thinking of your capacity, or is there any other level that we should think of as a more normalized figure?

[Sergio Faifman, CEO and VP of the Board of Directors at Loma Negra]

[Foreign language]

[Translator]

We are seeing that probably this first quarter is going to be the toughest in terms of level of activity. Not only because of the fallout of the stabilization plan and the transition of the new government, but also due to inclement weather.

[Sergio Faifman, CEO and VP of the Board of Directors at Loma Negra]

[Foreign language]

[Translator]

So looking ahead, we foresee a gradual recovery, obviously, pending on what the next movements of the government and the evolution of the political dynamics.

[Sergio Faifman, CEO and VP of the Board of Directors at Loma Negra]

[Foreign language]

[Translator]

For example, if the omnibus bill passes through the Congress, that would be a third point that would show some more public works in the near future.

[Alejandra Obregón, Equity Research Analyst at Morgan Stanley]

Gotcha. Thank you, thank you for the very comprehensive response, and thank you for taking my question.

[Sergio Faifman, CEO and VP of the Board of Directors at Loma Negra]

You're welcome.

[Operator]

Again, if you have a question, please press star then one. The next question comes from Pedro Maulhardt with Latin Securities. Please go ahead.

[Pedro Maulhardt, Equity Research Analyst at Latin Securities]

Hi, Sergio, Marcos, and Diego. Thank you for taking my question. I want to know if with the help of national public works and lower FX gap, which do you believe will be the main drivers for demand in the coming months?

[Sergio Faifman, CEO and VP of the Board of Directors at Loma Negra]

Hi, Pedro. Thank you for the question. [Foreign language].

[Translator]

We understand that the macro stabilization that we are seeing in terms of FX and inflation could be part of the recovery that we might see in the next couple of months.

[Sergio Faifman, CEO and VP of the Board of Directors at Loma Negra]

[Foreign language].

[Translator]

And for example, the recent news on the offering of mortgage loans could be another sign of this recovery.

[Sergio Faifman, CEO and VP of the Board of Directors at Loma Negra]

[Foreign language].

[Translator]

And that probably, this omnibus bill could be, you know, and the agreements made with the governors could boost the public works in, at a provincial level.

[Sergio Faifman, CEO and VP of the Board of Directors at Loma Negra]

[Foreign language].

[Translator]

And the boost on investment that this law also has, that would be also a driver. There are a lot of, a lot of projects waiting for more favorable conditions in order to start.

[Pedro Maulhardt, Equity Research Analyst at Latin Securities]

Thank you very much for your answer. It was really helpful.

[Sergio Faifman, CEO and VP of the Board of Directors at Loma Negra]

You're welcome.

[Operator]

The next question comes from Daniel Rojas with Bank of America. Please go ahead.

[Daniel Rojas, Equity Research Analyst at Bank of America]

Good morning, gentlemen. Thank you for taking my, my question.... It's really simple. I was just hoping for you guys to give us some sense of the pricing environment, what you've gone through in the last couple of months with the difficult economic environment. How do you see pricing going forward? And then, overall, the industry responding to the challenges you're seeing. Thank you.

[Sergio Faifman, CEO and VP of the Board of Directors at Loma Negra]

Hi, Daniel. Thank you for the question.

[Translator]

Of course, we just mentioned the dynamics of the industry are going to, in terms, for example, in terms of profitability, we should keep more or less the same levels that we have shown. Regarding volumes, we are optimistic that the worst phase might have happened in the first Q, and that we are going to see some gradual improvement in the next few quarters. We are seeing, for the second half of the year, probably some gains in energy inputs that will help us improve our results.

[Daniel Rojas, Equity Research Analyst at Bank of America]

If I may follow up on that one, you mean natural gas prices and the ability to acquire gas at through the natural, right?

[Translator]

Yes, we mean, we mean thermal energy and primarily gas. Even though we have shown in this first part of the year an improvement year on year, probably you're going to see further improvements for the second half of the year with the... When we start using the new contracts.

[Daniel Rojas, Equity Research Analyst at Bank of America]

Okay. Thank you again for taking my questions.

[Sergio Faifman, CEO and VP of the Board of Directors at Loma Negra]

You're welcome.

[Operator]

This concludes our question and answer session. I would like to turn the conference back over to Diego Jalón for closing remarks.

[Diego Jalón, Head of Investor Relations at Loma Negra]

Thank you very much for joining us today. We really appreciate your interest in our company, and we look forward to meeting you again in our next call. In the meantime, we remain available for any questions that you may have. Thank you very much. Bye.

[Operator]

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Participants

Analysts

• Alejandra Obregón, Equity Research Analyst at Morgan Stanley
• Daniel Rojas, Equity Research Analyst at Bank of America
• Diego Jalón, Head of Investor Relations at Loma Negra
• Marcos Gradin, CFO at Loma Negra
• Pedro Maulhardt, Equity Research Analyst at Latin Securities
• Sergio Faifman, CEO and VP of the Board of Directors at Loma Negra
• Translator