Executive Summary / Key Takeaways

• CEMEX is undergoing a profound strategic transformation, led by new CEO Jaime Muguiro, focusing on achieving best-in-class operational excellence and delivering industry-leading shareholder returns.
• The expanded "Project Cutting Edge" cost-savings program is a cornerstone, projected to yield $200 million in EBITDA savings for 2025 and an annualized run rate of $400 million by 2027, significantly enhancing profitability and free cash flow.
• CEMEX is strategically rebalancing its portfolio towards developed markets, particularly the U.S., Europe, and Mexico, and shifting capital allocation from large strategic CapEx to accretive small-to-mid-sized M&A in high-growth segments like U.S. aggregates and urbanization solutions.
• As a leader in decarbonization, CEMEX's Vertua low-carbon products have surpassed 2025 adoption targets, and substantial investments in carbon capture technology position the company for long-term sustainability and a distinct competitive advantage.
• Despite short-term macroeconomic volatility and regional headwinds, CEMEX maintains a flat consolidated EBITDA guidance for 2025 with potential upside, underpinned by robust self-help measures, improving free cash flow generation, and a clear commitment to achieving a 1.5x net debt leverage target within 12 to 24 months.

A Global Builder's Strategic Evolution

CEMEX, S.A.B. de C.V. ($CXMSF), founded in 1906, stands as a global powerhouse in the building materials industry, producing, marketing, and distributing a comprehensive suite of products including cement, ready-mix concrete, aggregates, and innovative urbanization solutions worldwide. The company's strategic journey has been marked by a continuous adaptation to market dynamics and a proactive pursuit of sustainable growth. This includes a significant rebalancing of its portfolio, with approximately 90% of its EBITDA now generated from the more stable and attractive markets of the U.S., Europe, and Mexico.

The global construction industry is currently shaped by several powerful trends, including massive infrastructure investments, a growing focus on decarbonization, and increasing urbanization. CEMEX's overarching strategy, particularly under the leadership of new CEO Jaime Muguiro, is to capitalize on these trends by driving best-in-class operational excellence and delivering superior shareholder returns. This strategic pivot, initiated in 2019 with a new growth strategy and further solidified by the "Future in Action" decarbonization program in 2020, underscores a commitment to profitable and sustainable expansion.

A Foundation of Innovation: CEMEX's Technological Edge

Central to CEMEX's competitive strategy is its commitment to technological differentiation and innovation, particularly in sustainable building materials and decarbonization. The company's core differentiated technology is embodied in its Vertua low-carbon product family. Vertua products, which include cement and ready-mix concrete, are designed to significantly reduce CO2 emissions compared to traditional offerings.

The tangible benefits of Vertua are quantifiable and impactful. By 2024, over 63% of CEMEX's cement volumes and 55% of its ready-mix volumes incorporated Vertua attributes, impressively surpassing the company's 2025 adoption target. On average, the Vertua cement and ready-mix sold today achieve a substantial 45% to 49% reduction in CO2 emissions compared to conventional products. This not only addresses growing customer demand for sustainable solutions but also positions CEMEX as an environmental leader in the industry.

Beyond product innovation, CEMEX is actively investing in groundbreaking R&D for new decarbonization technologies, notably carbon capture. A prime example is the CEMEX-led consortium's carbon capture project at its Rüdersdorf cement plant in Germany. This ambitious project, which recently secured €157 million in EU innovation funding, aims to capture 1.3 million metric tons of CO2 per year, with the stated goal of transforming Rüdersdorf into CEMEX's first net-zero CO2 plant. Similarly, the Knoxville cement plant in the U.S. was awarded funding from the U.S. Department of Energy to develop a pioneering carbon capture removal and conversion test center.

For investors, these technological advancements represent a significant competitive moat. CEMEX's leadership in decarbonization not only enhances its brand reputation but also provides a strategic advantage in markets increasingly influenced by environmental regulations. The implementation of the Carbon Border Adjustment Mechanism (CBAM) and the gradual phaseout of free EU ETS allowances in Europe, for instance, are expected to support cement prices from 2026 onwards. CEMEX's significant CO2 credit surpluses, in contrast to many industry players, could translate into a cost advantage against imports from less decarbonized regions, potentially leading to improved pricing power and margins. This technological roadmap is foundational to CEMEX's long-term growth strategy and its ability to deliver superior financial performance in an evolving industry.

Strategic Rebalancing and Operational Excellence

CEMEX's strategic transformation extends to a disciplined rebalancing of its global portfolio and a relentless pursuit of operational excellence. The company executed $2.2 billion in divestitures, including operations in the Dominican Republic, Guatemala, the Philippines, and a minority stake in Neoris. These sales have strategically concentrated CEMEX's operations, with approximately 90% of its EBITDA now originating from the U.S., Europe, and Mexico. This shift aims to focus resources on markets with more consistent and attractive growth potential.

A cornerstone of this transformation is "Project Cutting Edge," an expanded cost-savings program. Initially conceived to address challenging market environments, it has become a foundational element for lasting change. Project Cutting Edge is now expected to deliver $200 million in EBITDA savings for 2025, an increase from the initial $150 million target, and is projected to reach an annualized run rate of $400 million by 2027. These savings are largely driven by corporate headcount reductions, which are expected to contribute approximately $200 million on an annualized basis. The program also targets supply chain optimization, logistics, procurement, and a review of the operational footprint to ensure every asset delivers sufficient return on capital.

The organizational structure is being streamlined to foster agility and empower regional teams, promoting an ownership mindset with increased accountability and collaboration. In the U.S., operations were recently restructured from a regional model to one organized by product line (cement, ready-mix, aggregates). This change is designed to expedite best practice sharing, drive margin improvements across business lines, and free up leadership to focus on growth opportunities, particularly in accretive small-to-mid-sized M&A.

CEMEX is also making a strategic shift in its capital allocation. While 2025 is expected to be a peak year for strategic CapEx spending at $600 million, the company intends to materially reduce this in future years. The focus will transition towards prioritizing small-to-mid-sized M&A transactions in the U.S., aiming for immediate positive impact on earnings. These acquisitions are subject to stringent criteria, including an NPV above zero, free cash flow per share accretion in year one, ROIC above WACC plus 100 basis points, and synergies of around 3% of sales to reduce multiples to high single digits. This disciplined approach, coupled with a commitment to preserving its investment-grade credit rating, underscores CEMEX's dedication to maximizing shareholder returns.

Competitive Arena: Strengths, Weaknesses, and Strategic Positioning

CEMEX operates within a highly competitive global building materials market, facing established players such as LafargeHolcim (HOLN), HeidelbergCement (HEI), CRH plc (CRH), and Vulcan Materials (VMC). While CEMEX holds a competitive position, it is actively addressing areas where it may trail some rivals in operational efficiency and innovation speed. Its strengths lie in its extensive global network, strong brand presence, particularly in emerging markets, and an integrated supply chain for construction solutions. These attributes enhance customer loyalty, provide revenue stability through diversified markets, and can offer pricing power against competitors like CRH, which often relies on an acquisition-driven expansion. CEMEX's retail-focused distribution, with approximately 2,000 retail stores, also offers a unique value proposition in local markets, potentially fostering greater customer proximity.

However, CEMEX faces vulnerabilities, including exposure to commodity price fluctuations and regional regulatory risks that can impact its supply chain dependencies and operational costs. This contrasts with competitors like LafargeHolcim, which often demonstrate stronger operational execution and more consistent cash flow generation due to their integrated supply chains and larger scale. Similarly, HeidelbergCement's emphasis on technological integration might lead to more efficient production processes in shared European markets.

CEMEX's strategic response to this competitive landscape is multi-faceted. The company is leveraging its global network and brand, while simultaneously focusing on internal operational excellence through Project Cutting Edge to enhance efficiency and reduce costs. Its leadership in decarbonization, particularly with Vertua products and carbon capture investments, provides a distinct competitive differentiator against rivals. The anticipated implementation of CBAM in Europe, for instance, is expected to give CEMEX a cost advantage over imports from less carbon-efficient countries, directly impacting its pricing strategy and market share. Furthermore, the strategic shift towards accretive small-to-mid-sized M&A in the U.S., especially in the aggregates sector, aims to strengthen its position in a market where players like Vulcan Materials have a dominant presence. CEMEX's ability to flex Mexican imports and increase domestic production in the U.S. also provides a competitive advantage in a potential tariff scenario, allowing it to navigate market disruptions more effectively than some peers.

Financial Performance and Liquidity: A Path to Deleveraging and Returns

CEMEX's recent financial performance reflects its strategic transformation and disciplined approach. In the second quarter of 2025, consolidated EBITDA outperformed internal expectations, with the EMEA region delivering impressive results driven by volume recovery and operating leverage, marking its fourth consecutive quarter of earnings recovery. Consolidated EBITDA margin remained resilient, even with volume decline, showing stable to improved performance in three of CEMEX's regions. Net income in Q2 2025 increased by 38% due to strong FX rates and lower interest expense, contributing to a record net income of $1.05 billion for the first six months of 2025, primarily driven by the sale of operations in the Dominican Republic and favorable FX effects.

Free cash flow from operations for Q2 2025 was slightly over $200 million. Adjusting for severance payments related to Project Cutting Edge and discontinued operations, free cash flow in the quarter actually increased by 3% year-over-year despite EBITDA performance. The company expects free cash flow generation to improve in the second half of 2025, driven by higher profitability and the typical seasonal reversal of working capital investment. CEMEX aims to achieve best-in-class free cash flow conversion rates by 2027, aligning management compensation with metrics like EBIT ROIC above WACC and free cash flow conversion.

On the liquidity front, CEMEX has made significant strides in strengthening its capital structure. The company replaced its 9.125% $1 billion subordinated perpetual notes with new 7.2% $1 billion subordinated perpetual notes, issued at a tighter spread, which enhances free cash flow by reducing the coupon. Net interest paid, including coupons on subordinated perpetual notes, is expected to decline by $125 million in 2025. The leverage ratio stood at 2.05x in June 2025, a quarter turn higher than December 2024, but is expected to decrease in the second half of 2025 as EBITDA improves and free cash flow generation increases. CEMEX remains committed to achieving a net debt leverage target of 1.5x within the next 12 to 24 months, primarily through EBITDA growth and debt reduction. The company also plans to progressively grow its shareholder return program, including progressive dividends and opportunistic share buybacks, with a program for up to $500 million already approved by shareholders.

Outlook and Guidance: Building for the Future

CEMEX's outlook for the remainder of 2025 and beyond reflects a blend of cautious optimism and strategic execution. The company expects consolidated EBITDA to be flat versus 2024, with potential upside contingent on macroeconomic conditions. This guidance incorporates the anticipated $200 million in EBITDA savings from Project Cutting Edge for 2025. Furthermore, if FX rates remain stable at June 2025 levels, CEMEX anticipates a tailwind of approximately $60 million in consolidated EBITDA during the second half of 2025 compared to the prior year.

In Mexico, volumes are expected to improve in the second half of 2025, driven by the new government's acceleration of infrastructure and social housing plans. A small sequential volume improvement of around 2% is projected from the first half to the second half of 2025. The Northeast region continues to outperform, supported by industrial projects and state-driven infrastructure. A high single-digit price increase for cement was announced effective July, with expectations to achieve $8 to $10 per ton, further improving sequential cement prices.

The U.S. market is expected to see demand driven by infrastructure projects under the IIJA, with close to 50% of funds already spent and peak spending anticipated in 2026. The industrial and commercial sector, fueled by data centers, chip manufacturing, and projects in Cape Canaveral, is gaining momentum. While residential activity faces short-term pressure, strong potential is seen over the medium term. U.S. cement volumes are projected for a 1% increase in the second half of 2025, though this remains weather-dependent. Aggregates prices in the U.S. increased by 5% in the first half of 2025 compared to Q4 2024.

The EMEA region is poised for continued strong performance, with positive trends in infrastructure and further residential recovery. Significant potential for free cash flow and EBITDA growth is identified in Israel due to robust fundamentals and pent-up demand. Europe is expected to see volume increases in markets like Spain and Germany, supported by fiscal policy changes and infrastructure investments. The Carbon Border Adjustment Mechanism (CBAM) and the gradual phaseout of free EU ETS allowances are anticipated to support cement prices in 2026 and beyond, leveraging CEMEX Europe's record low CO2 emissions. CEMEX's pricing strategy across all markets remains focused on at least offsetting input cost inflation.

Risks and Challenges

Despite a compelling strategic narrative, CEMEX faces several pertinent risks and challenges. Macroeconomic volatility and a lack of visibility in key markets, particularly Mexico, pose a significant concern. The first half of 2025 has been challenging due to difficult prior-year comparisons, FX levels, and the typical seasonality of a new administration in Mexico. Weather-related disruptions, including high precipitation and the ongoing hurricane season in the U.S. and Mexico, can impact volumes and operational efficiency.

Foreign exchange volatility, especially concerning the Mexican peso, remains a relevant headwind, although CEMEX's ongoing hedging strategy aims to mitigate its impact on operating cash flow and the leverage ratio. The competitive landscape, particularly in the U.S. aggregates space, is tough, with many companies interested in acquisitions. However, CEMEX's disciplined M&A framework and established relationships with family-owned aggregates players provide a potential advantage. Potential U.S. cement import tariffs also present a risk, though CEMEX has demonstrated preparedness to implement surcharges, leverage its Mexican network, and increase domestic production to offset such impacts. Finally, unusual movements in the trading volumes of CEMEX's CPO security on the Mexican Stock Exchange in September 2025, while the company was unaware of the causes and confirmed no insider transactions, highlight broader market sensitivities.

Conclusion

CEMEX is in the midst of a profound strategic transformation, moving beyond deleveraging to establish a foundation for sustainable growth and enhanced shareholder returns. Under new leadership, the company's relentless focus on operational excellence through initiatives like Project Cutting Edge is driving significant cost savings and improving free cash flow generation. Its pioneering efforts in decarbonization, exemplified by the Vertua product line and substantial investments in carbon capture technology, not only address critical environmental challenges but also forge a powerful competitive advantage in an increasingly sustainability-conscious industry.

The strategic rebalancing of its portfolio towards high-growth developed markets, coupled with a disciplined capital allocation strategy favoring accretive M&A, positions CEMEX to capitalize on robust infrastructure spending and industrial development. While macroeconomic volatility and regional headwinds present short-term challenges, CEMEX's proactive management of costs, pricing power, and a strengthened balance sheet underscore its resilience. For discerning investors, CEMEX represents a compelling opportunity to invest in a revitalized industry leader that is strategically aligned with future construction trends, technologically differentiated, and committed to delivering long-term value.