Loma Negra Compania Industrial Argentina Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
August 8, 2025

Key Takeaways

  • Positive Sentiment: Volume recovery accelerated in Q2 with 11.1% growth in cement dispatches and a 11% overall increase in volumes, supporting early economic recovery despite competitive pricing pressures.
  • Negative Sentiment: Second quarter revenues declined by 8% year over year and consolidated gross margin contracted by 659 basis points to 20.4%, reflecting a challenging pricing environment in the current low-inflation phase.
  • Negative Sentiment: Adjusted EBITDA reached $34 million, down 31% in real pesos, and the EBITDA margin contracted to 21.2% as softer top-line performance outpaced cost controls.
  • Positive Sentiment: The balance sheet remains solid with net debt/EBITDA at 1.34x, and a new $114 million corporate bond was issued to refinance upcoming maturities and extend debt duration.
  • Positive Sentiment: Management expects double-digit volume growth in 2025, anticipates pricing recovery in H2, and sees long-term support from infrastructure and public works initiatives.
AI Generated. May Contain Errors.
Earnings Conference Call
Loma Negra Compania Industrial Argentina Q2 2025
00:00 / 00:00

There are 10 speakers on the call.

Operator

Good morning, and welcome to the Loma Negra Second Quarter twenty twenty five Conference Call and Webcast. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Also, Mr. Sergio Faizman will be responding in Spanish immediately following an English translation.

Operator

Please note this event is being recorded. I would now like to turn the conference over to Mr. Diego Halon, Head of IR. Please, Diego, go ahead.

Speaker 1

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 Feifman, our CEO and Vice President of the Board of Directors and our CFO, Marco Hradin. Both of them will be available for the Q and A session.

Speaker 1

Before we proceed, I would like to make the following safe harbor statements. 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.

Speaker 1

Now I would like to turn the call over to Sergio.

Speaker 2

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 Marco will take you through our market review and financial result. Following that, I will share some final remarks before opening the call to your question.

Speaker 2

Starting with Slide two, as the Argentine economy continued to recover and reflected in the last GDP figure rise from index from the first quarter, Cement dispatches in the history are accompanying this trend, supporting the growth seen in the first three months of the year and maintaining a positive trajectory. That side, there is still a long way to go, and we are currently navigating the initial phase of recovery. However, in term of results, I'm waiting still early stage recovery for the sector. Margin for the quarter stood at 21.2 on consolidated basis, showing a year over year decline. This was mainly driven by the impact of a more challenging competitive environment, typical of the recovery that is not yet fully consolidated.

Speaker 2

An 11% increase in volumes during the quarter helped offset the more difficult pricing dynamic that affected the top line. We are transiting into a lower inflation scenario, where price adjustments are more spaced out and more limited under current market condition. We achieved an adjustment EBITDA of $34,000,000 down 31% in real terms when measured in pesos. EBITDA margin contracted primarily due to a softer top line through a strict cost control helping mitigate the impact. On the financial front, our balance sheet remains solid.

Speaker 2

During the quarter, net debt increased secondly to $215,000,000 as the first half of the year is typical more capital intensive. Our net debt to EBITDA ratio remained at a comfortable level, reaching 1.34 times. Following debt of the second quarter, we successfully issued a new corporate bond for $112,900,000 The process will be used to address upcoming debt maturity, extending our debt duration and improving our maturity profile. I will now hand off the call to Marco Radin, who will review our market review and financial results. Please, Marcos, go ahead.

Speaker 3

Thank you, Sergio. Good morning, everyone. Please turn to Slide four. The results for Argentina economy in the first quarter were very positive, with year over year growth reaching 5.8%. Current forecast for the full year remained around 5%, sustaining optimism in this recovery process.

Speaker 3

However, it is important to note that the recovery is not uniform across all sectors. In particular, the ISAC, the Construction Activity Index, continues to signal a positive rebound in our industry. Regarding cement dispatch during the second quarter, volumes grew by 14% year over year, with a strong recovery in bulk cement compared to bagged cement. As a result, bagged cement gained three percentage points in the overall dispatch mix, reflecting a rebound in this segment. For the first half of the year, commodity growth reached 13%.

Speaker 3

As we've mentioned previously, we are still in the early stages of recovery, with a midterm election on the horizon that could introduce some political volatility. Nonetheless, we remain optimistic that the consolidation of the current economic model will lead to a more stable environment, enabling sustaining growth over time. Turning to Slide five for a review of our top line performance by segment. Second quarter top line declined by 8%, primarily due to a weaker performance in the Cement segment, followed by softer results across the remaining segments. The Cement, Majority Cement and Line segment posted a 9.9% revenue decline, despite an 11.1% year over year increases in volumes, continuing the recovery trend observed in the first quarter.

Speaker 3

Pulp cement dispatches began to show stronger momentum, driven by industrial and commercial projects as well as larger housing developments. Additionally, certain provisional level public works started to gain traction, although they remained at a very early stage. Bag seven volumes continued the trend seen in the first quarter, posting single digit year over year growth. However, the positive impact of higher volumes was offset by softer pricing conditions. In the context of an early stage recovery and a new low inflation environment, the competitive landscape continues to limit pricing dynamics.

Speaker 3

Concrete revenues declined by 1.1% in the quarter as a 44 increase in volumes was offset by price pressures stemming from a more competitive market. Volume growth was supported by private projects, mainly related to logistic infrastructure and residential development, as well as a moderate uptick in public works. On the other hand, the Aggregates segment posted a slight 0.8% revenues increase, A 44% increase in volumes, driven mainly by higher road construction activity in the province of Buenos Aires and Santa Fe, offset the impact of softer pricing. Prices were also affected by the sales mix, as the road construction projects primarily require fine aggregates, which carry a lower unit price and reduce the overall average. Railroad revenues declined by 8.6% in the quarter.

Speaker 3

A 10.6% increase in transported volumes helped mitigate the effect of weaker pricing, with volume growth primarily driven by higher transport of construction materials. However, the disruption of the railway line in Bahia Blanca in March particularly affected longer haul traffic, mainly grains, gypsum and frac sand, reducing ton kilometers transported and, consequently, revenue generation. Moving on to slide seven. Consolidated gross profit declined 30.5%, while gross margin contracted by six fifty nine basis points year over year, reaching 20.4%. In the Cement segment, cost of sales decreased by 0.8% year over year despite decreasing sales volumes.

Speaker 3

Effective cost management and lower depreciation impact helped offset the weaker pricing environment. Additionally, lower maintenance costs and improved energy input prices contributed positively to the quarterly cost structure. Continuing the trend from previous quarter, the company continues to benefit from thermal energy contracts with year over year tariff reductions, including short term agreements linked to oil production. Margins also declined across the remaining business segments with the exception of Railroad, which experienced a margin expansion. Finally, SG and A expenses increased by 5.3%, mainly driven by higher salaries and insurance costs, partially offset by lower marketing expenses.

Speaker 3

As a percentage of sales, SG and A reached 10.7%, representing a year over year increase of 135 basis points. Please turn to Slide eight. Consolidated adjusted EBITDA for the quarter stood at $34,000,000 while in pesos it reached $47,000,000,000 reflecting a 30.6 year over year decline. This decrease was primarily driven by lower EBITDA generation in the Cement segment. In line with this, the consolidated EBITDA margin contracted to 21.2%, representing a six ninety one basis points decline year over year.

Speaker 3

In the segment, the adjusted EBITDA margin contracted to 24.8%, down six seventy eight basis points, mainly due to a softer pricing environment. Cost declined by 10.7% on a per ton basis, supported by lower energy input prices and maintaining cost. These efficiencies, together with higher sales volume, partially offset the weaker top line. The concrete segment saw its adjusted EBITDA margin decline by seven seventy three basis points, reaching minus 14% compared to minus 5.3% in the 2024. Although higher volumes and cost efficiencies contributed positively, they were not sufficient to fully offset the negative pricing impact.

Speaker 3

In the aggregate segment, adjusted EBITDA margin fell to minus 27.3% compared to minus 10.8% in the same quarter last year. While volumes continue to recover, a still challenging competitive environment and an unfavorable product mix weighed on the segment profitability. On the other hand, the Railroad segment reported an adjusted EBITDA margin expansion increasing by three fifty one basis points to 9.8%, up from 6.3% in the same period of 02/2024. Volume growth, driven by increased shipments of construction materials and cost control, supported the performance. However, the disruption of the railway line in Bahia Blanca continues to affect volumes, particularly in longer haul traffic such as grain, gypsum and frac sand.

Speaker 3

Moving on to the bottom line on slide 10. Net profit attributable to owners of the company totaled MXN0.4 billion for the quarter compared to a net gain of MXN41 billion in the second quarter twenty twenty four. This decline was primarily driven by a decline in the financial results, combined with weaker operational performance. On the financial front, the main driver of the year over year operation was a reduced gain from the net monetary position as the inflationary effect of monetary liabilities moderated significantly compared to the same period of last year. In addition, exchange rate difference had a higher impact due to the valuation that followed the easing of capital controls.

Speaker 3

As a result, the company reported a net financial loss of 16,700,000.0 for the quarter compared to a gain of ARS 33,500,000,000.0 in the same period of 2024. Additionally, net financial expenses declined by 50%, reaching ARS 9,800,000,000.0, primarily due to lower interest rates. Moving on to the balance sheet. As you can see on Slide 11, we ended the quarter with net debt of $256,000,000,000 and a net debt to EBITDA ratio of 1.34 times, up from 0.89x at the end of the quarter, as the first half of the year is typically more capital intensive. Cash flow used in operation activities totaled ARS22.3 billion compared to the ARS 22,300,000,000.0 generated in 2024.

Speaker 3

This performance was primarily driven by a lower operational result and higher income tax paid. The income tax paid during the quarter stood at 45,500,000,000.0 pesos and mainly correspond to the amount determined for the fiscal year 2024. Since the company reported a negative result in 2023, No advance payments were made for 2024 until the final tax was assessed and became due in May 2025. Additionally, the company has already started making advance payment for fiscal year 02/2025. This effect was partially offset by lower working capital needs in other areas.

Speaker 3

With the beginning of the winter season, we began to minimize clinker production and increase the use of inventories. Additionally, we invested ARS 18,000,000,000 in capital expenditure this quarter, primarily allocated to the 25 kilogram bagging project. During the company, the company generated ARS 45,600,000,000.0 from financial activities, mainly from new borrowing, net of loan repayments and interest payments. In U. S.

Speaker 3

Dollar terms, net debt stood at $215,000,000 with valuation of less than one year. By the end of the quarter, dollar denominated debt represented 71% of our total debt, with the remainder in pesos. After the close of the quarter, the company successfully issued its Class V corporate bond for $114,000,000 with a two year tenure and an interest rate of 8%. The new bond was partially subscribed through exchanges with holder of class two and class three bonds. Proceeds will be primarily used to repay the remaining balance of the class two bond maturity in December, as well as other short term debt.

Speaker 3

With this issuance, the company extended the average duration of its debt and continues to maintain a well balanced maturity profile. Now for our final remarks, I will handle the call back to Sergio. Thank you.

Speaker 2

Thank you, Marcos. Now to finalize the presentation, I please ask you to turn to Slide 13. The recovery trend observed in the first quarter has continued, and through we are still in the early phase of the process and market condition remain challenging. The 5.8% GDP expansion in the first quarter is a very positive signal for what lies ahead, buses and dyed on the evolution of cement dispatch during the first half of the year, we are seeing our expansion of achieve double digit growth in 2025. While demand remain in early stage of recovery, the industry is well positioned for the future expansion.

Speaker 2

In this context, we continue to precise operational efficiency and remain full focus on delivering solid results. Despite the ongoing challenging, I want to highlight Loma a strong commitment to innovation and the continued development of our industry as well as the healthy and safety of everyone involved in contraction activity. A clear example of this is a transition to 25 kilo cement bags, a project that requires significant efforts and investment and one we are proved to have successfully implement. While the current environment remain demanding, we are encouraged by road ahead and remain confident in Loma's ability to ride. This is end of our prepared remarks.

Speaker 2

We are now ready to take questions. Operator, please open the call for questions.

Operator

Thank you. We will now conduct a question and answer session. We also would like to ask that you please limit yourself 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.

Operator

Sergio Faifman will be responding in Spanish immediately following an English translation. Please hold momentarily while we assemble our roster. And the first question will come from Mario Simplicio with Morgan Stanley. Please go ahead.

Speaker 4

Had the timing of the prices increase or like maybe they were closer to the end of the quarter? Or are you guys seeing more structural trends that could make pricing more challenging in the near term? And second, if possible, could you please also share how are these competitive and pricing trends behaving heading to third quarter and the second half of the year? Thank you.

Operator

Hello, Mr. Diego Jalon, your line may be muted.

Speaker 5

Hi, Mario. Thank you for your question. Regarding pricing, it has more to be with the competitive environment of the last five months. Logically, once the SEPOR, the restrictions on tax and contracts were lifted, that had an impact on the effects. And so was this last month with the hike on the effects as well.

Speaker 5

I also say that in the last two months, the competitive environment is better than in the previous months. We are foreseeing to end the year with an increase in pricing above inflation. And so on, a recovery in pricing on the remaining of the year. Regarding the competitive environment, it's stable. We have not seen major valuations for the months to come.

Speaker 4

That's clear. Thank you.

Speaker 5

You're welcome.

Operator

And our next question will come from Sofia Bata with Latin Securities. Please go ahead.

Speaker 6

Hi. Thank you for taking my question. Regarding the sector, what is your outlook for the construction in the second half of the year and which are the potential drivers?

Speaker 5

Hi, Stia. Thank you for your question. The contraction that we have in this past few months is similar to the one that we have previously. We are seeing a slow recovery, but a recovery in this last couple of months. And regarding drivers looking forward, there are many of those that should be that should have a positive impact.

Speaker 5

Nonetheless, obviously, those drivers in order to have a significant impact on dispatches is going to take some time. We keep our forecast for the year, but considering that we should have a gradual moderate growth for the remainder of the year. In the last couple of months, we are starting also to see some increase in the level of activity of public works in the provinces of Buenos Aires and Santa And we do believe that this activity in public works should have a positive dynamic in the coming months. And also there are projects leading to private investments and infrastructure that should start in the remaining of the year.

Speaker 6

Thank you.

Speaker 5

Our

Operator

next question will come from Marcelo Furlan with Baetel. Please go ahead.

Speaker 7

Hi, everyone. Good morning. Thanks for taking the question. The first one is just a follow-up regarding volumes. You guys mentioned that you still expect volumes to increase by double niched in 2025.

Speaker 7

So I'd just like to give more color on that if you guys are expecting more close to low double digit or could expect mid teens of Summit-1s growth for the year. And my second question is related to the cost efficiencies that you guys expect to post ahead. So I just would like to understand what is the company perspective in terms of cost efficiencies for second half of this year? And also what could we expect in terms of margins? And if I may, just one more final question here is regarding dividends.

Speaker 7

I just would like to understand what is the management's view regarding position of dividends for this year? So these are my points. Thank you.

Speaker 5

Sorry, Marcelo, the audio is very bad. I don't know if you're if you can repeat the question. I don't know if you if the first one was regarding volumes.

Speaker 7

Sure. Can you hear me better now?

Speaker 5

Yes, that's better.

Speaker 7

Okay. So my question for volumes is if you're guys expecting volumes more close to low double digit increase for this year? Or could you expect volumes maybe increased by mid teens for 2025? So this is my first question. My second is related to margins.

Speaker 7

What we would expect for margins in the 2025? And finally, if I may, final question is regarding dividends. I'd like to understand the company's view for dividends this year. Thank you.

Speaker 5

As I mentioned before, regarding our expectations for the year, we are keeping this double digit forecast for the year. Specifically, for the performance of July, which was below the year on year comparison. We have to remember that July was one of the peaks of the year, so that there a was very challenging base of comparison. With the volumes for the second half of last year, we are not seeing that situation to happen again. Regarding margins and along as what I mentioned about pricing, we are expecting a recovery in the coming months.

Speaker 5

Probably in next quarter, even though we're going to have some impact of cost of winter, we're expecting some recovery. And then continuing this tendency of recovery for the fourth quarter. The last question was about dividends? Yes. We are still analyzing every alternative on the financial front for our shareholders, analyzing the structure of capital of the company.

Speaker 5

But we don't have any provision for paying dividends so far this year.

Speaker 7

Okay. Thank you so much guys.

Speaker 5

You're welcome.

Operator

Our next question will come from Andreas Serrionna with Citigroup. Please go ahead.

Speaker 8

Hi, good morning. I was wondering if part of the pressure on margin may have come from the readjustment in energy prices.

Speaker 5

Hi, Andreas. Sorry, you are asking for energy prices? We are not having the best answer.

Speaker 8

Yes. Sorry. No, I'm asking if the pressure on margins may be partially explained by the increase in electricity prices that we have seen in the year to date, or it's just a matter of the pricing strategy.

Speaker 5

Yes, as I mentioned before, in this past few months, we have a competitive dynamic, which was more challenging. And if we see what happened in the last two months and our forecast for the remainder of the year, we have a more positive expectation. And when you see our the numbers that we published that are adjusted for inflation, you also have to compare them given the increases on pricing in the first semester of last year, if you adjust those numbers by inflation, those numbers are not very accurate. Clearly, in the upcoming months, there is going to be a recovery in terms of pricing. That when you see the comparison against adjusted by inflation figures, sometimes the comparisons, it's difficult to assess.

Speaker 5

But we are expecting that in a reasonable time, we expect to see again the figures of pricing in U. S. Dollar terms and cost and the margins that we previously saw.

Operator

Our next question will come from Daniel Rojas with Bank of America. Please go ahead.

Speaker 9

Good morning. Can you hear me?

Speaker 5

Yes, Daniel, we can hear you.

Speaker 9

So I wanted to go back to the pricing question. I'm sorry for maybe it's the third time you've answered this, but I just wanted to get it very, very clearly. So as the industry moves from this high inflation environment and then the competitive environment you discussed becomes more challenging, I just wanted to get a better sense of your commercial strategy. I'm guessing that you previously you had to increase prices at a very high pace to keep up with inflation. And now maybe that changes and structurally the whole industry has to rethink their approach to pricing increments.

Speaker 9

And maybe that explains the pricing situation. Or is it more of a competitive dynamic where the competition is not increasing prices and you have you're not able to increase as much? I just wanted to drill down on those dynamics so we can get a better sense of how in the second half you're going to be able to catch up? Thank you and sorry for asking this so much.

Speaker 5

Daniel, thank you for the question. I'll say that there is that this is a combination of these two situations. On one hand, the sudden decrease on inflation, it changes the strategy in pricing, not only by the amount of this increases on prices that you can have, but also in the timing of And also, at the same time, once these adjustments are more spaced out, the competition might not take this price adjustments with the same timing as before. And those little difference can impact the competitive environment.

Speaker 5

In a scenario of high inflation, this dynamic was very fast. And these valuations didn't impact that much in our clients or clients of our competitors. And in this first month of this transition from a high inflation scenario to a low inflation scenario, this new dynamics affected a little bit our the competitive environment. Once the scenario is more stable, that's what we comment before of this last two months of having a different dynamic, and we expect that to continue in the coming months. And that's what we are expecting for the remainder of the year.

Speaker 9

Thank you. Thank you for the additional color. And if I may have a follow-up. The President announced a privatization program for 10,000 kilometers of roads and other initiatives to try to push for an increment in public works in Argentina. I know it's early and there are few details, but I just wanted to get a better sense of how the public work program is recovering.

Speaker 9

And you mentioned a couple of regions in the country that are seeing better prospects and more activity. What's your outlook for the second half and the outlook for these programs the President is announcing? Thank you.

Speaker 5

But we believe there is a lot of potential in terms of public infrastructure. We have no doubts that this will come. As we do understand that given that these projects need a framework to make the private sector access these projects, this might require some time. We think that probably the impact of this in the second semester is not going to be very high, but we do believe it is a very interesting driver for next year and so on.

Speaker 9

Thank you. This is very clear.

Operator

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

Speaker 5

Thank you once again for joining us today. We sincerely appreciate your continued interest and support. And as always, we look forward to reconnecting with you on our next call. In the meantime, please don't hesitate to reach out with any questions that you may have. Take care and have a great day.

Operator

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

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