Executive Summary / Key Takeaways

• CEMEX is undergoing a profound strategic transformation, focusing on operational excellence, disciplined capital allocation, and a rebalanced portfolio concentrated in developed markets to drive sustainable, profitable growth.
• The company delivered strong Q2 2025 results, with consolidated EBITDA outperforming expectations and net income increasing by 38%. Project Cutting Edge, a key cost-saving initiative, has seen its 2025 EBITDA savings target raised to $200 million, with a projected run rate of $400 million by 2027.
• A strategic shift towards small to midsized M&A in the U.S., alongside a commitment to deleveraging and a progressive shareholder return program, underpins a more balanced capital allocation approach.
• CEMEX is a leader in decarbonization, leveraging its Vertua lower-carbon products (achieving 45-49% CO2 reduction) and investing in ambitious carbon capture projects like Rüdersdorf, positioning it for future regulatory advantages and market differentiation.
• Despite macroeconomic uncertainties and FX headwinds, the outlook for the second half of 2025 and beyond is positive, driven by robust infrastructure spending, nearshoring trends, and a recovering residential sector in key markets.

A Foundation for Future Growth: CEMEX's Strategic Transformation

CEMEX, S.A.B. de C.V. (NYSE:CX), a global building materials powerhouse founded in 1906, is actively redefining its future. The company's core business spans cement, ready-mix concrete, aggregates, and innovative Urbanization Solutions, serving diverse construction needs worldwide. A significant strategic rebalancing has seen approximately 90% of its EBITDA now generated in the U.S., Europe, and Mexico, positioning CEMEX to capitalize on robust global infrastructure demands, the growing nearshoring trend, and the burgeoning need for sustainable construction materials.

The company's journey has been marked by continuous transformation. In 2017, CEMEX initiated a dynamic FX hedging strategy to mitigate currency volatility, a crucial step in stabilizing its financial foundation. A pivotal moment arrived in 2024 with the achievement of an investment-grade rating and the announcement of a progressive dividend program, signaling a return to financial health. This financial strengthening was further supported by $2.2 billion in asset divestitures, strategically streamlining its operations and focusing on core, higher-growth markets.

The construction materials industry is currently shaped by several powerful trends. Billions of dollars in fiscal stimulus in the U.S. and Europe are driving infrastructure and climate action projects. The nearshoring phenomenon is reshaping global supply chains, particularly benefiting Mexico through increased industrial and commercial construction. Furthermore, the rapid expansion of AI and data centers is creating significant demand for construction materials, especially in the U.S., where CEMEX is actively engaged in projects in Arizona and Cape Canaveral.

CEMEX operates in a highly competitive global arena, facing industry giants such as LafargeHolcim (HCMLY), HeidelbergCement (HDELY), CRH plc (CRH), Vulcan Materials (VMC), and Martin Marietta Materials (MLM). While competitors like LafargeHolcim and HeidelbergCement boast strong integrated supply chains and technological investments, CEMEX differentiates itself through its extensive global retail network, which enhances customer access and loyalty. CEMEX's diversified portfolio, including its specialized Urbanization Solutions, provides a more integrated service offering compared to some rivals, potentially giving it an edge in comprehensive project delivery. The company acknowledges that competition for aggregates M&A in the U.S. will be tough, though its existing network of relationships with family-owned aggregates players offers a potential advantage.

Technological Differentiators and Innovation

CEMEX stands out through its commitment to profitable decarbonization, a critical differentiator in an increasingly environmentally conscious industry. The company's Vertua product family, introduced in 2018, is a core technological advantage. Vertua cement and ready-mix products achieve a significant 45% to 49% reduction of CO2 compared to traditional products. This technology has seen rapid adoption, surpassing its 2025 target, with over 63% of cement volumes and 55% of ready-mix volumes having Vertua attributes by 2024. This not only addresses environmental concerns but also enhances CEMEX's market positioning as a leader in sustainable building materials, potentially commanding higher value in green construction projects.

Beyond existing products, CEMEX is heavily invested in cutting-edge research and development for future decarbonization. A CEMEX-led consortium secured €157 million in EU innovation funding for a carbon capture project at its Rüdersdorf cement plant in Germany. This ambitious project aims to capture 1.3 million metric tons of CO2 per year, transforming Rüdersdorf into CEMEX's first Net Zero CO2 plant. Additionally, its Knoxville cement plant in the U.S. received funding from the Department of Energy for a pioneering carbon capture, removal, and conversion test center. These initiatives underscore CEMEX's long-term technological roadmap, aiming to drive decarbonization beyond 2030 and secure a competitive moat through advanced, low-carbon production methods. For investors, these technological advancements not only align with global sustainability goals but also position CEMEX for future regulatory advantages, potential carbon credit surpluses, and a stronger competitive position against rivals who may face higher carbon costs.

Operational Excellence and Financial Resilience

CEMEX's recent financial performance reflects its strategic focus on operational excellence and cost management. In the second quarter of 2025, consolidated EBITDA "once again outperformed internal expectations". Net income for the quarter surged by 38%, driven by strong FX rates and reduced interest expense. For the first half of 2025, the company reported a record net income of $1.05 billion, primarily due to the sale of its Dominican Republic operations and favorable FX effects.

The company's EBITDA margin has demonstrated resilience, remaining "relatively stable" in Q2 2025, slightly above the historical 10-year second-quarter average, despite volume declines. This was supported by higher prices and lower energy and freight costs. Energy costs, on a per ton of cement basis, declined by 15% in the first half of 2025, a testament to improved clinker factor and thermal efficiency.

Project Cutting Edge, a foundational element of CEMEX's transformation, is delivering significant cost savings. Initially targeting $150 million in EBITDA savings for 2025, this target was increased to $200 million in Q2 2025, with a projected run rate of $400 million by 2027. These savings include approximately $200 million from corporate headcount reductions on an annualized basis, with $85 million expected in 2025 and $111 million-$115 million in 2026. These efforts are directly enhancing profitability and free cash flow generation.

Segment Performance Highlights

• Mexico: Q2 2025 saw resilient pricing despite softer volumes, with cement, ready-mix, and aggregates prices up 5%, 6%, and 8% respectively since the start of the year. EBITDA margin remained roughly flat year-over-year, benefiting from higher prices, favorable energy, and Project Cutting Edge efforts.
• U.S.: EBITDA declined mid-single digits in Q2 2025 due to lower volumes from high precipitation and residential weakness. However, the EBITDA margin remained "relatively stable, just shy of last year's record high," supported by higher prices and operational efficiency gains, including increased domestic production replacing imports. The aggregates business is a significant contributor, accounting for 36% of U.S. EBITDA with margins exceeding 30%.
• EMEA: This region delivered "impressive results," achieving its highest first-half EBITDA in recent history with a solid margin expansion of almost 3 percentage points in Q2 2025. Europe showed its fourth consecutive quarter of cement volume growth, while the Middle East and Africa demonstrated robust double-digit volume growth. CEMEX Europe also achieved a new record low of 418 kilograms of CO2 per ton of cement equivalent, surpassing its consolidated 2030 target.
• SCAC: Cement volumes increased by 1% in Q2 2025 (adjusted for business days), with stable sequential prices after a mid-single-digit increase in Q1. A debottlenecking project in Jamaica was completed, enhancing capacity and reducing reliance on lower-margin imports.
• Urbanization Solutions: This portfolio continues to be a growth engine. The circularity business, with margins over 20%, is one of the fastest-growing verticals, boasting a 27% CAGR over the last two years. In Q1 2025, it posted 5% EBITDA growth on flat sales, driven by repurposing industrial byproducts.

Capital Allocation and Deleveraging

CEMEX has implemented a new, balanced capital allocation model. It will prioritize small to midsized M&A in the U.S. for "immediate positive impact on earnings". Strategic CapEx is expected to normalize, with a focus on projects delivering returns above shareholder thresholds. The company aims for free cash flow per share to be accretive in year one for acquisitions, with ROIC above WACC plus 100 basis points. Net interest paid is projected to decline by $125 million in 2025. The leverage ratio stood at 2.05x in June 2025 and is expected to decrease in H2 2025 with improved EBITDA and free cash flow. The company targets a leverage ratio of 1.5x within the next 12-24 months, with EBITDA growth and free cash flow conversion as key drivers. This focus on deleveraging is critical, as CEMEX's interest expense as a percentage of EBITDA is currently "more than double our global peers".

Outlook and Strategic Imperatives

CEMEX maintains its guidance for consolidated EBITDA to be flat versus 2024, with "potential upside, subject to evolution of microeconomic conditions in our key markets". This outlook is strongly supported by the expected $200 million in EBITDA savings from Project Cutting Edge in 2025. Furthermore, if FX rates remain stable at June 2025 levels, a tailwind of approximately $60 million in consolidated EBITDA is anticipated for the second half of 2025 compared to the second half of 2024.

Regional Outlook

• Mexico: Volumes are expected to improve in H2 2025, driven by the new government accelerating infrastructure and social housing plans, with some projects breaking ground in the latter half of the year. A July 2025 price increase of around $15 per ton for cement is expected to yield $8 to $10 per ton, improving sequential pricing.
• U.S.: Demand in 2025 is projected to be driven by infrastructure, with IIJA transportation projects continuing to roll out and peak spending expected in 2026. The industrial and commercial sector, particularly data centers and chip manufacturing, is gaining momentum. While residential activity remains soft, strong potential is seen over the medium term as mortgage rates improve.
• EMEA: The region is poised for continued strong performance, with significant potential for free cash flow and EBITDA growth in Israel due to solid fundamentals. Europe is expected to see volume increases in Spain and Germany, supported by fiscal policy changes and infrastructure investments. The Carbon Border Adjustment Mechanism (CBAM) and the phaseout of free EU ETS allowances are anticipated to support cement prices in 2026 and beyond, providing a cost advantage to CEMEX given its decarbonization leadership.

Long-Term Targets and Shareholder Returns

CEMEX expects an incremental $300 million of EBITDA from its strategic CapEx pipeline between now and 2029-2030. The company aims to achieve a free cash flow conversion rate from operations similar to industry leaders like Holcim and Heidelberg by 2027, driven by operational excellence and portfolio rebalancing. CEMEX is committed to progressively growing its shareholder return program, with plans to increase dividends and consider opportunistic share buybacks as early as 2026. This commitment is directly linked to boosted profitability and free cash flow generation.

Risks and the Path Ahead

Despite a clear strategic roadmap, CEMEX acknowledges significant risks. The "volatility and lack of visibility in our main markets" remains a key concern. Macroeconomic uncertainties, particularly in Mexico with the peso remaining a relevant headwind, can impact reported results. The company's ongoing Mexican peso hedging strategy, covering operating cash flow for up to two years, helps mitigate this volatility.

Weather-related disruptions, as seen in Q2 2025 with record precipitation in Mexico and high levels in the U.S., continue to pose a risk to volumes and operational efficiency. The U.S. is also entering hurricane season, which historically has impacted results. Competitive pressures, especially in the U.S. aggregates market, are acknowledged, with many players interested in acquiring assets. However, CEMEX's disciplined capital allocation framework ensures that only acquisitions meeting strict return metrics will be pursued. Potential U.S. tariffs on cement imports present a risk, but CEMEX is prepared to implement surcharges and leverage its Mexican network and increased domestic production to mitigate impact.

The company's valuation has been a point of disappointment for management, attributing it to expectations in Mexico and U.S. election uncertainties. However, CEMEX believes this is a "short-lived event or dynamic" and that continued delivery on its strategic initiatives will lead to a re-rating.

Conclusion

CEMEX is in the midst of a profound strategic transformation, moving beyond deleveraging to focus on operational excellence, profitable growth, and enhanced shareholder returns. The company's commitment to decarbonization, exemplified by its Vertua products and ambitious carbon capture projects, provides a significant technological moat and aligns with future industry demands. While macroeconomic uncertainties and regional challenges persist, CEMEX's disciplined capital allocation, aggressive cost-saving initiatives through Project Cutting Edge, and strategic rebalancing towards developed markets are poised to drive sustainable value.

The outlook for the second half of 2025 and beyond is underpinned by robust infrastructure spending, nearshoring trends, and a recovering residential sector in key markets, complemented by CEMEX's competitive positioning and technological leadership. Investors should closely monitor the execution of Project Cutting Edge, the progress of its growth investments, and the realization of its free cash flow conversion targets, as these will be critical indicators of CEMEX's ability to achieve its vision of industry-leading performance and shareholder value creation.