Prepared remarks
Good morning. Welcome to the CEMEX Second Quarter 2026 Conference Call and Webcast. My name is Jenny, and I'll be your operator for today. And now I will turn the call over to Lucy Rodriguez, Chief Communications Officer.
Good morning, and thank you for joining us for our second quarter 2026 conference call and webcast. We hope this call finds you well. I'm joined today by Jaime Dominguez, our CEO; and by Maher Al-Haffar, our CFO. We will start our call by reviewing our second quarter results, followed by our expectations for the full year and updated guidance. And then we will be happy to take your questions. As a reminder, we expect to close the announced sale of some of our operating assets in Colombia by the end of the year. Until such time, for accounting purposes, the transaction will be treated as a partial sale and operation, and we will continue to fully consolidate these operations in our P&L. In addition, following our acquisition of Omega earlier in the year, we began consolidating the business as of April 1. And now I will hand the call over to Jaime.
Thank you, Lucy, and good day to everyone. I am pleased to be here today to present strong second quarter results, reflecting significant progress in our ongoing transformation as well as organic growth in most markets. What stands out most is the clear evidence of that progress in our results, with meaningful gains against our new KPIs and at a pace that is running ahead of our own expectations. I would like to recognize my colleagues who have embraced this transformation and remain open to the profound cultural change it requires. Our transformation is well underway and is already delivering on our goal of a structurally higher earnings quality as reflected in margins and free cash flow. We still have much work to do and continue to uncover new opportunities under Project Cutting Edge, which I will elaborate on shortly. Consolidated EBITDA in the quarter exceeded $1 billion and included a favorable one-off settlement of an outstanding claim in Europe of $42 million. As our efficiencies compound, the benefits become increasingly evident across the P&L and cash flow, pointing to a significant improvement in our earnings quality. Adjusting for the one-off, sales grew 11%, while EBITDA expanded 19%, almost twice as fast, and EBIT, a key metric of our transformation, grew 29%, almost three times the pace of sales growth. Again, adjusting for the one-off, consolidated EBITDA margin expanded 1.4 percentage points to 21.4%, while EBIT margin rose almost 2 percentage points. Free cash flow is also benefiting from this higher-quality earnings stream. Our free cash flow from operations reached a second quarter record of $651 million, up more than $400 million year-on-year after adjusting for severance and discontinued operations. This lifted our trailing 12-month free cash flow from operations conversion rate to 60% on an adjusted basis. Turning to our decarbonization pathway, we continue to advance profitably reducing gross CO2 emissions by 1% year-to-date, supported by a lower clinker factor. And with that, let me discuss our results in more detail. EBITDA grew 18% on a like-for-like basis, driven by Project Cutting Edge efficiencies during the quarter of $60 million and organic growth in most regions. Performance was broad-based with three of our four regions contributing double-digit EBITDA and EBIT growth and boosting margin expansion in excess of 2 and 3 percentage points, respectively. For the second quarter in a row, Mexico led regional results with continued volume recovery, efficiency gains and an easy prior year comparison. In the U.S., disruptions in our operations related to bad weather in Texas, together with rising materials and freight costs, weighed on EBITDA and margin in the quarter. In EMEA, despite softer demand in Europe, the region continued to benefit from pricing and Project Cutting Edge savings. South, Central America and the Caribbean rounded out the picture with significant margin expansion related to cost efficiencies. As a result of Project Cutting Edge, free cash flow from operations tripled year-over-year, lifting our trailing 12-month conversion rate to 60% on an adjusted basis. At the consolidated level, volumes were broadly stable with performance in Mexico largely offsetting lower volumes in EMEA. In Mexico, the recovery continued to build, posting the second consecutive quarter of year-over-year cement volume growth. In the U.S., despite unseasonable weather in some key markets that brought operational disruptions, volumes remain resilient across all products. In Europe, country volume performance was mixed, calling into question the recovery we were expecting in certain markets. Volumes were further impacted by the severe heat wave through much of Europe, which resulted in restrictions on work at construction sites in many markets. Within South, Central America and the Caribbean, both Colombia and Jamaica saw higher cement volumes, which offset performance in other markets. Building on the low- to mid-single-digit sequential price increases secured in the first quarter, consolidated prices for our three core products advanced an additional 1% in the second quarter. In both EMEA and Mexico, year-to-date pricing gains continue to offset increasing inflationary costs, and in the case of Europe, rising carbon costs for the industry. In the U.S., our cement prices rose sequentially, led by increases in the mid-South, while ready-mix prices climbed 2%, reflecting fuel surcharges. With limited visibility of a clear end to the Iran war, we remain vigilant in closely monitoring and offsetting over time any persistent input cost inflation through our pricing strategy. For the second consecutive quarter, EBITDA growth was supported by positive contributions across all levers. Incremental savings under Project Cutting Edge accounted for approximately half of our like-for-like EBITDA growth. These self-help measures, factors that are under our control, are serving as an important cushion against macroeconomic volatility and delayed cyclical recovery in several of our markets. Pricing was another important contributor while organic growth in our core products as well as our urbanization solutions portfolio also supported EBITDA. Finally, we continue to benefit from a more favorable FX environment which resulted in a $50 million tailwind in the quarter. Prior year comparables will become more challenging as we move into the second half. EBITDA margin expanded by 2.1 percentage points, reflecting structural efficiencies, pricing discipline and benefit from operating leverage as volumes recover in Mexico. I am pleased with the progress we have achieved on our $400 million cost savings program with 80% of the initial target already achieved. In the first half, cost savings under the program have supported a 1.6 percentage point improvement in our consolidated operating expenses as a percentage of sales with all regions contributing. Cost of sales as a percentage of sales also declined approximately 1.4 percentage points. Following up on the commitment I made in our last earnings call, we are confident today in raising our overall savings target under Project Cutting Edge from $400 million to $475 million. We expect most of the new savings to be realized in 2027. In terms of composition, a small portion relates to further overhead optimization while the majority comes from procurement as we fundamentally transform how we approach third-party spend across our business, subject to potential slippage resulting from possible cost headwinds from the Iran war that may impact some previously identified savings. I strongly believe that we will continue to find new savings initiatives going forward. It has been one year since I laid out our transformation plan, and I would like to give you an update on where we stand. Project Cutting Edge is a multiyear transformation effort designed to reduce overhead, achieve operational excellence, improve earnings quality and enhance asset efficiency in line with best-in-class performance in our industry. In the first year, we moved quickly to eliminate overhead and improve operational efficiency through our cost savings program. These efforts helped jump start our results where we laid the groundwork for more time-consuming transformation initiatives. We also introduced a new capital allocation framework designed to keep shareholders at the center of our decision-making while revamping our growth strategy. As we move into 2027, other initiatives under Project Cutting Edge should support progress towards our transformation goals. Our asset pruning exercise designed to improve the quality of our earnings should begin to pay off in material ways. Additionally, some of our recent bolt-on acquisitions should also support this goal. In the quarter, we continue to move forward on our asset pruning exercise by disposing of an additional 12 facilities. Efforts to reduce certain elements of our free cash flow spend should also take hold as we move to lower growth CapEx and intangible investments while aligning our maintenance spending to best-in-class performance. We estimate a potential opportunity space of $300 million in free cash flow. We also are actively pursuing additional savings afforded by the introduction of AI into our operations, and we believe these efforts will be an important lever for growth in 2028 and beyond. We see particular benefits in planned maintenance, energy efficiency and the way we work. Our Balcones plant in Texas has been the pilot for the use of AI in our operations and we're making important advances. Our success there will then be scaled globally. Since we launched Project Cutting Edge last year, I have been impressed by the engagement and creativity our teams continue to demonstrate in identifying new opportunities to improve efficiency and performance. And with that, back to you, Lucy.
Thank you, Jaime. Mexico continued to build on recent momentum, delivering solid results on the back of cost efficiencies, improving demand, operating leverage and the pricing strategy designed to offset cost inflation. For a second consecutive quarter, cement volumes posted year-over-year growth. Self-construction and government-backed social programs such as rural roads and housing continued to underpin bag cement demand with bulk cement volumes largely driven by residential. During the quarter, our cement volumes continued to benefit temporarily from competitor outages in the central part of the country. This situation is expected to normalize in the second half. Prices on a sequential basis increased by low single digits for our three core products, reflecting our strategy to recover input cost inflation. Over the past year, our team in Mexico has worked relentlessly to identify efficiencies and rethink our business to achieve best-in-class operations. They have consolidated our operations and overhead while implementing important changes in logistics, freight and energy strategy. These structural improvements are a large contributor to the EBITDA growth and margin expansion we are experiencing. Our results also benefited from more transitory factors, including lower-than-expected energy costs and an FX tailwind during the quarter. The social housing program continues to scale and is a meaningful lever of growth in our business. With a target of 1.8 million units through 2030, our participation keeps expanding. To date, we have been awarded approximately 135,000 units, up 12% from the prior quarter, and we are in active negotiations for an additional 145,000 units. Infrastructure is becoming an encouraging part of the story for 2027. We have seen a significant increase in contracted volumes in our ready-mix order book tied to large-scale projects such as railroads, highways and dams. But project execution has been slowed today. We are already participating in some of these projects, such as Prasa El Nuveo in Nepal, the elevated viaduct in Tijuana and the Saltillo Nueva Nonato railroad. Given their scale and complexity, however, they will take time to translate into meaningful demand and we therefore expect infrastructure to become a more relevant driver next year. With regard to our decarbonization efforts, we achieved another clinker factor record in Mexico of 62.6% in the quarter, underscoring our ongoing commitment to profitably reduce CO2 emissions. As we move into the second half of the year, we do expect some normalization in growth rates. Prior year comparisons become more demanding, temporary market share gains due to competitor outages will reverse and growth relies increasingly on formal construction which is inherently more difficult to time. In our U.S. operations, demand remained resilient despite unusually wet conditions in Texas and parts of the Mid-South. Adjusting for weather-related disruption, we estimate that cement and ready-mix volumes would have both grown 1%, while aggregates would have expanded 7%. Cement volumes were supported by the integration of our new mortars business, Omega, for two months in the quarter. Cement prices improved 1% sequentially, reflecting successful price increases across micro markets and geographic mix. In ready-mix, prices increased 2%, reflecting effective implementation of fuel surcharges. In aggregate, adjusted for mix, prices have increased at a mid-single-digit rate compared to year-end 2025. Disruptions in our operations related to bad weather in Texas, together with rising materials and freight costs, weighed on EBITDA and margin in the quarter. Demand continues to be led mainly by infrastructure, supported by the ongoing rollout of IIJA projects with about 50% of allocated funds already spent. Activity levels remain healthy, and we continue to see a solid pipeline of infrastructure opportunities across our footprint. We are encouraged by the proposed Build America 250 Act, which contemplates funding levels for streets and highways slightly up compared with the current program, while increasing investment in cement-intensive areas such as bridges more significantly. We expect IIJA funds as well as rising state highway funding in our key states to continue to support demand in the foreseeable future, as we await passage and implementation of a new transportation bill. Industrial demand, particularly not related to large data centers, semiconductor chip facilities and manufacturing, continues to grow. We estimate that about 35% of mega data center projects, which are investments exceeding $500 million currently planned or under construction, are located within our footprint. Rising investment in the power sector to meet growing AI electricity needs should also support demand. Residential construction remains challenged by affordability constraints and elevated housing inventories in certain markets. However, pent-up demand, a chronic housing deficit and favorable demographic trends should be supportive of residential recovery over the medium term. Against this backdrop, we remain focused on the factors we can control: operational excellence, higher kiln productivity and asset efficiency, positioning the business to benefit from operating leverage when volume recovery accelerates. Our operations in EMEA delivered positive results, driven by cost efficiencies and pricing. As Jaime mentioned, we had a positive one-off in the quarter of $42 million related to the favorable resolution of an outstanding commercial claim in Europe. Adjusting for the one-off benefit, EMEA EBITDA expanded 9% with margins flat year-over-year as lower volumes weighed on results. In Europe, country volume performance reflected meaningful divergence with recent headwinds, project delays and slower demand recovery impacting construction activity across several markets. Continued growth in cement volumes in Spain and the Czech Republic partially offset softer performance in other countries. Residential activity across much of Europe remains tepid, with higher interest rates still pointing to a more gradual recovery. Spain continues to be the notable exception where housing remains a source of strength. Infrastructure has been resilient, albeit with delays in some markets, but the medium-term potential is clear, with Poland expected to benefit from EU funds and Germany from its infrastructure stimulus. Turning to prices, while sequential variation across our three core products shows a muted performance, this is largely explained by a geographic mix as most of our markets saw stable to higher prices. On a cumulative basis, compared to fourth quarter 2025, net and ready-mix prices are up 3% and aggregate prices are up 7%. The implementation of fuel surcharges or price increases on the majority of our ready-mix volumes in Europe is further helping to offset energy cost inflation. We remain optimistic on pricing in Continental Europe. The introduction of the carbon border adjustment mechanism together with the gradual reduction of free CO2 allowances under the EU ETS has been and should continue to be supportive of higher prices going forward. We believe the recently announced proposed modifications to the EU ETS continue to provide a favorable framework for our decarbonization pathway in Europe. The Middle East and Africa region continued delivering strong results with EBITDA growing 34% and driven by Project Cutting Edge and improved pricing. Encouragingly, our operations in Israel and the UAE remain resilient amid regional tension, with ready-mix and aggregate volumes up 14% and 5%, respectively. In Egypt, while cement volumes were pressured in the quarter, we are beginning to see signs of stabilization and remain optimistic on market dynamics into the second half of the year. In South, Central America and the Caribbean, we posted another strong quarter with EBITDA growing double digits, driven largely by disciplined cost management. These efforts translated into a robust margin expansion of more than four percentage points. The region was led by the informal sector with Jamaica also benefiting from a pickup in reconstruction efforts related to last year's Hurricane Melissa as well as from tourism-related projects. Higher cement volumes in Colombia and Jamaica are offsetting softer performance in other markets. Looking ahead, we remain optimistic on the fundamentals of the region supported by resilient informal construction. And with that, I will now turn the call over to Maher to review our financials.
Thank you, Lucy, and good day to everyone. As Jaime noted, our self-help measures continue to deliver record results with quarterly EBITDA exceeding $1 billion, EBITDA margin improving by 2.1 percentage points to its highest level since 2008, and free cash flow generation accelerating at a significant pace. Free cash flow from operations for the first half increased by more than $730 million to $666 million as we continue to make our operations and administrative functions more efficient. Excluding severance payments and discontinued operations, our free cash flow from operations conversion rate for the trailing 12 months reached 60% compared to 33% for the same period a year ago. This growth is explained by exceptional EBITDA growth along with important reductions in working capital, CapEx, net interest expense paid and other cash expenditures. Year-to-date, investment in working capital was $175 million lower than last year, driven by improvements in Mexico and the U.S. Working capital days for the first half stood at negative nine days, one additional day versus the first half of 2025. Project Cutting Edge continued delivering tangible results in our cost structure. Cost of sales and operating expenses as a percentage of sales during the quarter were down 106 basis points and 167 basis points year-over-year, respectively. Energy cost per ton of cement produced declined 6% in the quarter compared to last year, driven by a double-digit reduction in fuel losses, partially offset by slightly higher electricity costs. Our diesel hedging program helped offset $32 million of diesel costs year-to-date, underscoring the value of our risk management strategy in a volatile market environment. As of today, about 80% of our 2027 diesel consumption is hedged. Taking into account the more favorable energy cost trend year-to-date and expectations for the second half, we are improving our full year outlook and now expect energy costs in cement to increase by only a low single-digit percentage versus last year. Controlling net income for the quarter was 9% higher. The year-to-date decline in net income is due to the gain on the sale of our Dominican Republic operations during the first quarter of 2025. Excluding this effect last year, first half net income would have been more than 40% higher year-over-year. During the quarter, we executed several transactions aimed at reducing our interest expense and lengthening our average life of debt. We repaid approximately $1.5 billion of bank term loans denominated in dollars and euros, and we redeemed our $1 billion 5.125% subordinated notes. We funded these repayments with cash on hand and a $1.5 billion 10-year senior note carrying a 5.75% coupon, our first SEC-registered notes offering priced at the tightest spread to U.S. Treasuries in our history. $500 million of these new notes were swapped to euros to better align our debt currency mix with our cash generation profile. In addition, to improve our liquidity, we replaced two revolving credit facilities denominated in dollars and euros totaling $2.3 billion with a new $3 billion revolving credit facility with a five-year bullet maturity, featuring pricing linked to our credit rating and tied to CO2 reduction targets. Despite strong free cash flow generation in the first half of the year, net debt plus subordinated notes increased approximately $270 million since December due to the Omega acquisition, share buybacks and dividends. Importantly, these capital allocation decisions reflect our commitment to disciplined and progressive shareholder returns and value-creating acquisitions, underscoring our confidence in the sustainability of our improved cash generation. As we generate incremental free cash flow in the second half of the year, benefiting from the expected reversal of most of our year-to-date working capital investments and other factors, we expect to end the year with a lower level of net debt plus subordinated notes than at year-end 2025. Our net financial leverage, including the subordinated perpetual notes, stood at 2.08x, a decrease of 0.22x relative to the first quarter. Our goal is to further improve our capital structure to reach a solid BBB rating, continue improving our free cash flow and free cash flow conversion and maximize value for our shareholders. Due to stronger free cash flow generation and our continued liability management, we now expect to pay lower interest this year than we had guided before. We expect interest paid plus coupons on our subordinated notes to decline by about $40 million versus last year for a total of about $455 million this year. We are a structurally stronger and more cash-generative CEMEX, and we are confident there is more to come. And now back to you, Jaime.
I am proud of the results and achievements in the quarter, incremental evidence of the power of our transformation efforts. Based on first half performance, our expectations for the remainder of the year and the continued contribution from Project Cutting Edge, I am confident in raising our full year EBITDA guidance to a range up 16% to 17% year-over-year growth. Importantly, our guidance is based on a peso FX rate of MXN 18.25 to MXN 18.50 for the second half of the year. Our updated EBITDA guidance together with the expectation for lower interest expense should support higher free cash flow generation for the year. Looking ahead, we remain committed to advancing our transformation, capturing the recently announced savings under Project Cutting Edge and identifying new opportunities. We will also continue to execute on the action plans arising from our asset reviews and free cash flow initiatives with a focus on improving earnings quality, asset efficiency and cash generation. While macroeconomic volatility is likely to persist, the progress we've made to date, coupled with the critical role self-help measures play in our strategic plan, reinforces my confidence in our strategy and our ability to reach our transformation KPIs. Our transformation is still ongoing, and I remain excited about the opportunities ahead. And now back to you, Lucy.
Before we go into our Q&A session, I would like to remind you that any forward-looking statements we will make today are based on our current knowledge of the markets in which we operate and could change in the future due to a variety of factors. In addition, unless the context indicates otherwise, all references to pricing initiatives, price increases or decreases refer to our prices for our products. And now we will be happy to take your questions. The first question comes from Adrian Huerta from JPMorgan.
Questions and answers
My question has to do with the Project Cutting Edge program, where you announced this additional $75 million in savings, which is a positive surprise. And in addition to that, you also announced an opportunity for additional savings at the free cash flow level of $300 million plus other initiatives such as AI benefits, et cetera. And you mentioned a couple of things on this, but can you elaborate a bit further on these efforts and what is next on Project Cutting Edge?
Thank you for your question. Project Cutting Edge is a holistic full transformation that is driven by three pillars: operational excellence, changing culture and an endless focus on the levers that we can control, empowerment, accountability and relentless pursuit of improvement on earnings quality expressed in terms of free cash flow conversion and free cash flow margin to sales. Regarding the savings side of our transformation, I was pleased to see that our innovation and our relentless focus on operational excellence is driving incremental savings. The $475 million by 2027 are split into two significant chapters. Number one is overhead reduction, including corporate and regional overheads. That will be around $230 million by the end of the program. The rest is $245 million, which is operating efficiencies. For 2026, the total number is $185 million. Allow me to remind you that last year, we captured $200 million. And then for the full year '27, we're expecting around $90 million. Where the incremental savings are coming from is our transformation and how we address third-party addressable spend. That is procurement-led but also outside procurement. We're upskilling and strengthening the team, using more AI technology and so on. So that's an exciting aspect of it. The other aspect is operational excellence in areas such as energy management, logistics supply chain and cement operations efficiencies in the U.S. The other relevant aspect of our transformation is our asset pruning. This means not only pruning but also managing assets. We're looking at all lines of the business, not just EBITDA but also EBIT, ROIC and free cash flow. Our teams are accountable for their asset base and properly incentivized through compensation incentives to get rid of idle assets. In addition, we are doing pruning which will contribute from 2027, but most contributions will happen in 2028 and beyond because it takes time. We will do a few moves this year but we need to be patient. This means we are deconsolidating by disposing of unprofitable and underperforming businesses, particularly a few ready-mix operations in the U.S., a few quarries and the bulk is in Europe in ready-mix, and we're doing it without putting at risk our vertical integration strategy. As we do asset pruning, we will have a lower asset base of businesses that were consuming CapEx and burning cash. That will lead to optimization of CapEx and an increase in free cash flow conversion. Regarding free cash flow, we are appointing a leader at the ExCo level reporting to me, accountable for every line of free cash flow. Eventually, we will move to a new free cash flow metric of total free cash flow; I just need to decide with the team when to do that. We aim to get to the benchmarks of best-in-class peers in our industry on total free cash flow conversion and total free cash flow margin to sales. Elements of this are optimization of platform CapEx and significantly less strategic CapEx as we pivot our growth strategy to bolt-on M&A. On AI, we are just beginning to tap that opportunity. All of our overhead savings are unrelated to AI, but we do see opportunities for further transformation with AI. It takes time because we need to focus on whole domains, but we already know where we're going to start. AI in cement operations is starting in the U.S. because we have a significant upside to continue improving operational efficiencies in that business that can contribute materially to future incremental EBITDA starting in 2028 and beyond. It's a comprehensive plan, a full transformation that encompasses cultural transformation, candid discussions, relentless focus on operational excellence, automated operating metrics, business performance reviews and accountability. I hope that answers your question.
I was glad to see margins potentially for this year reaching above 20%. And hopefully, with additional initiatives by 2028, we can be talking about mid-20s. Thank you, Jaime.
That's the goal.
And the next question comes from Gordon Lee from BTG Pactual.
A quick question on Mexico, Jaime. The performance has been impressive year-to-date and I think particularly because it's been bucking overall macro weakness. So I was wondering if you could give us a sense looking at your backlog how confident you are that both the volume trend and the expansion in margins in Mexico are sustainable as we go into the second half and into 2027?
Thank you, Gordon. Our expectation is that our operations in Mexico in the second half of the year will not operate at that margin level. We see a small drop; however, it will continue to be very solid. The reason for that is because we did benefit from a temporary market share gain due to operating disruptions by a few competitors. I don't expect to keep that for the second semester or for next year. The other thing is that we had a very favorable bag-to-bulk mix in the first semester, and as the formal sector in infrastructure begins to pick up, which is the segment that has been disappointing because of delays in breaking ground on infrastructure jobs, we shall see an increase in bulk volume. Therefore, the mix will be less favorable. We also have to complete a few more annual maintenance outages in the second semester, so those things will soften margins a bit. Finally, we are going to have a less strong energy tailwind on fuel cost, which in the first half was very impressive. So I hope that answers your question.
Thanks, Gordon. The next question comes from Ben Theurer from Barclays.
Just a quick one on EMEA and in particular Europe here. Clearly, you had that one-time benefit on margins of roughly $42 million. Adjusting for that, margins would actually have been a little bit softer, somewhat flattish. Maybe help us understand and explain a little bit more the drivers of that and how much of some headwinds were more of a short-term nature, thinking of energy, the heat wave you've mentioned, versus what were on the other side the benefits from Project Cutting Edge that are supposed to start to come in more meaningfully, particularly in Europe in 2026.
In the first semester, we were unable to fully realize the benefit from operating reach because in the first quarter we had a very difficult winter and then in the second quarter we saw some markets softening and a dramatic heat wave that restricted hours on job sites and affected volume. I think that could be a temporary short-term impact provided that we have a normal weather pattern in the third and fourth quarter. There is a little bit of lack of visibility on where demand is heading due to geopolitical developments. I'm not concerned about our Project Cutting Edge savings in EMEA. They are happening and they are occurring materially. I also must share that in the second quarter we did have a negative one-off of $6 million of a write-off of engineering projects and Opex investments that we decided to cancel because they do not meet our new financial thresholds. That is a temporary effect on profitability. Overall, if weather normalizes, we should see a bit more operating leverage. Project Cutting Edge will deliver in the region and we shouldn't have incremental write-offs that surprise us in the margin. I hope that answers your question, Ben.
The next question comes from Alejandra Obregon from Morgan Stanley.
It actually relates to the key upside and downside risks to your outlook, especially in Europe and Mexico. And more specifically in Europe, I was hoping you could share your latest thoughts on the ETS review proposal announced last week. And in Mexico, can you talk a little bit about the current competitive dynamics and your outlook for new capacity coming back online there?
Alejandra, thank you. On the potential new capacity in Mexico, we're closely monitoring the potential increase. This is a plant that was shut down years ago and there is static information that it might come back in the last quarter of this year. We expect volumes to continue growing as infrastructure gains traction in Mexico while the informal and formal sector stays resilient, and that should help absorb partially that new capacity. When that plant was shut down a few years ago we didn't see significant changes in market shares because the owner reshuffled operations to continue supplying the market. I do expect some responsible recommissioning of that capacity going forward. On the EU ETS review, I'm pleased with the European Commission's proposal. There are a few things that could be improved; we will engage in advocacy. Overall, it is supportive of value creation in Europe, particularly for leaders who have done the work and continue to profitably decarbonize, and we are one of them. As of last year, we have one of the lowest CO2 kilos per tonne of cement in Europe. The new system widens the gap in the CO2 cost curve between leaders and laggards, including local producers and importers. The new system incentivizes leaders to decarbonize at higher speed with more financing and support, and that should continue to widen differences in CO2 cost curves which means we will have a lower CO2 cost relative to competitors. I also think the system is supportive of mid-single-digit compound price increases to sustain margins. Although there could be a one-year delay due to a small reduction percentage on free allowances for '28 and '29, by 2029 or at the latest 2030 there will be no reason to keep some capacity running to get free allowances because the fixed cost will not justify that strategy as in the past. Overall, the proposal gives more time for hard-to-abate industries to decarbonize, and I was positively surprised by the reform. I hope that answers your question, Alejandra.
The next question comes from Paul Roger from BNP Paribas, and this is via the webcast so I will read it. What underpins confidence that energy costs will now only be up low single digits in 2026, despite geopolitical uncertainties and rising oil prices?
Paul, thank you for your question. This guidance is really based on very good performance on fuel costs in the first semester of the year and particularly in the second quarter. Fuels in the second quarter were down 12%. For the first half of the year, fuel is down on a cost-per-ton basis by 10%. So we have a strong carry forward that led us to update the guidance. We're not excluding a less favorable fuel cost in the second semester, but overall, when you do the math, we feel comfortable with our guidance. There is also the ability to ramp up alternative fuels as a hedge to increases in primary fuels, particularly in Mexico. The low single-digit increase guidance implies about a 4% growth in fuel cost in the second semester with a negative impact of around $20 million. But the math supports the guidance and we're comfortable with what we delivered in the first semester.
The next question comes from Daniel Rojas from Bank of America.
I have a bit of a follow-up on Gordon's question on Mexico. Looking at the second half of the year, I was curious what to expect on the industrial and commercial side and formal residential. This is especially in a context where we've seen Mexican corporates report a picture of weak consumer growth. I'm interested to see what the outlook is for the second half.
Daniel, thanks for the question. When you think about Mexico and what happened last year, our industry and heavy building materials suffered materially. While the rest of the economy could be struggling, construction is recovering from a very low base. The government is using construction as a lever to drive growth, including energy, infrastructure and social housing. Social housing is strong and our backlog around social housing is improving. Infrastructure deployment, particularly rail projects, has been slower than expected, which has delayed larger ready-mix demand. We have a leading indicator in our concrete backlog that is improving. For the time being, I'm positive about the informal sector. Wages are increasing, and remittances continue to be at good levels. The Mexican economy continues to export materially to the U.S., so there is momentum in construction. We expect a better outlook in the second semester and more resilience next year as some of those infrastructure projects start breaking ground.
The next question comes from Francisco Suarez from Scotiabank.
Congrats on the results and the call. Thinking ahead on this remarkable transformation at CEMEX, how should investors read your free cash flow conversion ratio achieved at 60% excluding severance payments? In other words, can savings earmarked under your program and higher prices, including surcharges, make this metric sustainable? Can you elaborate a little bit more on what to expect?
Francisco, thanks. We are pursuing operational excellence by looking at best-in-class operators. The transformation aims at improved earnings quality by measuring less cyclicality of our portfolio and achieving much stronger free cash flow conversion. We introduced two key metrics: total free cash flow, which is free cash flow before we pay debt, return cash to shareholders or do M&A, and free cash flow to sales. When I look at the best-in-class peers in our industry, they deliver consistently around 36% to 40% total free cash flow conversion and around an 8% free cash flow margin to sales on average. I don't think we should do any worse than that. That's the goal of the transformation. It will take time, but we're making progress not only on free cash flow conversion to operations as reported now, but also on total free cash flow and free cash flow margin. A key aspect will be margin expansion at the EBITDA level as we do our asset pruning and use bolt-on M&A to reshape our portfolio, doing bolt-ons only when they improve earnings quality. We previously had too many underperforming businesses using CapEx and burning cash; that's not happening anymore, but it takes time. Combined, these efforts should move us toward best-in-class metrics, but be patient as it will take some time.
The next question comes from Arnaud Pinatel from On Field, and I'm going to read it from the webcast. Outlook in H2 for the U.S.? Do you see an improvement versus H1? Have your price increases announced in July been executing with success? Do you have any news on tariffs or potential new tariffs on imports from Vietnam or Turkey following the 301 investigation?
Arnaud, thank you. On the 301 investigation, I don't have any news at the moment. We continue to engage through the American Concrete Association and other industry bodies on antidumping processes. Regarding prices, we did increase prices in the mid-South in the second quarter, which will have some carry forward benefits, and we announced a mid-single-digit price increase in Southern California and Arizona effective in July. It remains to be seen how much traction we get there. The most important part for the outlook in H2 in the U.S. is cost. In Q2, volumes were resilient despite weather and prices improved sequentially, driven by fuel surcharges in cement, ready-mix and aggregates. The issue was variable costs due to a few items: in Arizona, to support a significant semiconductor project, we temporarily purchased aggregates to build inventory to supply larger ready-mix volumes, which affected margins. There was also timing of cement import consumption that increased in Q2 by 7% and I don't expect that to continue at that pace for the rest of the year. Weather disruptions, including in Texas at our Balcones quarry, disrupted aggregates operations and volumes. Had that not happened, our aggregate volumes would have grown about 7% and that would have made a big difference. We did move rock to yards to be ready to supply as weather improved, which impacted freight but we expect to recover that. I expect better margin performance in the second half, provided there are no dramatic impacts from the hurricane season.
The next question comes from Jorel Guilloty from Goldman Sachs.
I wanted to ask about the AI infrastructure opportunity. You highlighted data centers, chip plants and rising power sector investments and noted that 35% of planned mega projects sit in your footprint. What I wanted to understand is how you actually stand to benefit here. Are there any rough thumbs for how much cement or aggregate these projects consume? Practically speaking, when do you expect them to start moving the needle for you? And where are these projects mostly landing?
We have internal estimates that U.S. data centers could lead to an increase of around 2% of annual national cement consumption between 2026 and 2030 if the projects continue. These projects began in Virginia and are extending to other states. We see an annualized construction spend if it continues of around $50 billion, with significant projects in Texas, California and Arizona, and also in Washington, Georgia, Ohio and other states. How we benefit is through ready-mix concrete value propositions. We began supplying very little in 2024. In 2025, that volume grew by 185% though it's still not material. So far this year we've doubled the volume and the trend looks positive. So far, the team is achieving a 60% project win rate on every bid. We win ready-mix volume and gain upstream throughput of cement, aggregates and admixtures. So that is how we stand to benefit and when it could move the needle, it will be gradual but material over the medium term.
We have time for one last question, and it is coming from Anne Milne from Bank of America.
Thanks very much for the call and for the great results. It was very impressive. I checked my old models and I hadn't seen an LTM EBITDA number like you reported this quarter except before the global financial crisis. My question is probably for Maher. I'm looking at your debt profile which continues to evolve. I see that now most of your outstanding debt is leases and fixed income, which I assume is the bond market. It looks like only 10% of your total is now with bank agreements. Is this a strategy going forward? Does it depend on cost? Were your banks upset because you didn't have as much outstanding with them? Is it a smaller facility now? Also, you mentioned the facility pricing is linked to sustainability targets. Could you provide any indication on what that pricing linkage looks like?
Thank you, Anne. Yes, we have a strategy targeting increasing our average life of debt from close to six years to as long as we can take it. In the near term, next 12 to 24 months, we should expand that by a year or two, targeting around an eight-year average. We are conscious of pricing, but improving tenure and pushing out maturities is a clear goal, and you should expect more bond market participation. We have potential liability management coming up next year with our 5.45% notes callable at par next year and another note coming due the following year. We're also looking at reducing interest expense as a percentage of EBITDA. Today we are roughly 85% fixed and 15% floating, so as the cycle evolves there may be opportunities to rebalance. You should expect us to continue to push maturities out and rely more on the capital markets. The banks were somewhat disappointed that we've reduced exposure to them, but we replaced two facilities with a $3 billion revolving credit facility that has grid pricing and a sustainability linkage of plus 5 basis points or minus 5 basis points depending on targets tied to CO2 emissions. It's not very aggressive but we look forward to meeting those targets. Under that facility, any drawdowns can become a five-year bullet at the pricing of the facility, currently SOFR plus a spread that could improve if our rating reaches BBB. I hope that answers your question, Anne.
Thank you for joining us today for our second quarter results. We hope that you will come back for the third quarter 2026 earnings call that's scheduled for October 26. If you have any additional questions, please feel free to reach out to the Investor Relations team. Many thanks. Bye-bye.
Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.