CEMEX, S.A.B. de C.V. ($CEMEXCPO)

Good morning, and welcome to the CEMEX First Quarter 2026 Conference Call and Webcast. My name is Becky, and I will be your operator today. [Operator Instructions] And now I will turn the conference over to Lucy Rodriguez, Chief Communications Officer, please proceed.

Good morning, and thank you for joining us for our first quarter 2026 Conference Call and webcast. We hope this call finds you well. I am joined today by Jaime Muguiro, our CEO; and Maher Al-Haffar, our CFO. We will start our call with some more brief comments on our current views on the immediate ramifications of the Iran War. -- and then review our first quarter results followed by our expectations and guidance for full year 2026. And then we will be happy to take your questions. . In relation to the recent portfolio rebalancing transactions that we have announced, I would like to clarify the relevant accounting treatment. With respect to the announcement of the sale of some of our operating assets in Colombia, which we expect to close by the end of the year, as a partial sale of an operation, we will continue to fully consolidate these operations in our P&L until the transaction closes. In addition, we announced the purchase of [indiscernible] on February '26 and began consolidating the business as of April 1. And now, I will hand the call over to [indiscernible]. .

Thank you, Lucy, and good day to everyone. Before turning to our quarterly results, let me share a few thoughts on the global backdrop. I last spoke to you at our Analyst Day in late February, yesterday's before the Iran war began. First and for most, our thoughts are with those affected by the war. We have colleagues, customers and partners in the region, and our priority is and will continue to be ensuring their safety and well-being. . The work adds another layer of uncertainty to an already complex global environment. Once again, it reinforces the importance of focusing on what we control and those levers are working. Over the past several quarters, our transformation has delivered a structurally stronger cost base, higher margins, and improved free cash flow generation, positioning CEMEX to navigate increased volatility well. To date, we have seen limited direct impact from the war on our business. Our operations in Israel and the UAE together represent around 4% of consolidated EBITDA. While we experienced some temporary disruptions at the outset of the war, Construction activity has largely normalized. The most relevant immediate exposure is energy, where we benefit from a comprehensive strategy that limits our risk to volatile markets. Approximately 60% of our total energy spend in 2025 has been hedged for 2026 through a combination of financial derivatives, yearly contracts, and regulated pricing frameworks. Mark will go into more detail on this. In addition, operationally, we have flexibility to adjust the fuels we use in our [indiscernible] allowing us to switch between petcock, natural gas, coal and alternative fuels were economically attractive. We also typically maintain 2 to 3 months of positive fuel inventories across our network, further limiting short-term sensitivity to market disruptions. Consequently, we believe our direct exposure to energy price volatility this year is significantly contained. We also have dusted off our Ukraine war playbook to help cushion us more medium term. We have already begun implementing fuel surcharges and are reviewing additional pricing increases for this year throughout the portfolio. The war is disrupting cement supply chains, making some import sources more expensive. We expect that over time, this will increase pressure on U.S. cement importers leading to relevant pricing opportunities in several U.S. markets. Finally, our transformation mindset has allowed us to identify additional structural savings and self-health initiatives that should provide important support in an increasingly volatile environment. While we have a currency hedge in place to protect our leverage ratio, the Mexican peso has been resilient and remains stronger than the FX assumption embedded in our 2026 EBITDA guidance. While volatility will persist with our approach to date and our strong first quarter performance, I remain confident in our ability to deliver our full year EBITDA guidance. And with that, let me turn to our results. I am very pleased with our first quarter results that continue to benefit from our transformation efforts, record quarterly EBITDA of $794 million, a 34% increase serves as a great start to achieve our full year plan. EBITDA growth was broad based, with Mexico, EMEA and South, Central America and the Caribbean all delivering solid results. EBITDA margin expanded meaningfully with a more than 300 basis point increase year-on-year. Cost of sales and operating expenses as a percentage of sales improved significantly. Importantly, a large part of this margin gain is structural and sustainable, driven by improved operating efficiency and a leaner cost base. These efforts were complemented by disciplined pricing and the benefit of operating leverage in some markets. As you know, through our regional review process, we have identified a number of facilities that did not meet our return requirements. At CEMEX Day, we highlighted both the size of this opportunity and that it would take time to realize it. Since launching this effort in 2025, while not yet material in scope we have already disposed of approximately 60 of these facilities. Free cash flow from operations grew at a multiple to EBITDA increasing by about $300 million. The trailing 12-month conversion rate reached 51% after adjusting for severance and discontinued operations. Our Mexico operations delivered a strong EBITDA growth and margin expansion with a recovery gaining traction and cement volumes posting year-over-year growth for the first time seems mid-2024. During the quarter, CEMEX was upgraded to AAA, the highest MSCI, ESG rating, placing us among the leaders in our industry. This upgrade reflects our continued progress on sustainability and our commitment to decarbonize through value-accretive levers. We continue advancing on our portfolio rebalancing during the quarter, with the announced divestment of selected assets in Colombia in a transaction expected to close by year-end. We also acquired Omega a leading stucco and mortar player in the Western U.S., which offers significant synergies to our existing business and serves as an important foundation to expand this product line throughout the U.S. These transactions, of course, adhere to our new capital allocation framework. Regarding our commitment to bolster shareholder return, we repurchased approximately $100 million in shares during the quarter. In addition, at our Annual Shareholder Meeting in March, the annual dividend was approved with an increase of almost 40%. In short, our quarterly results and activities reinforce a key point. We are delivering on the commitments of our project cutting-edge plan we introduced a year ago, centering on operational excellence and best-in-class shareholder returns and there is more still to be done. We are actively working on dimensioning the next phase of our savings program and continued reorganization. I intend to share more detail on this in our second quarter earnings call. First quarter performance reflects a structurally stronger CEMEX with a more resilient earnings profile and clear momentum heading into the rest of the year. Despite challenging weather in the U.S. and EMEA, net sales grew 3%, supported by higher consolidated prices and cement volume recovery in Mexico. But what really stands out is how effectively revenue growth translated into EBITDA, EBIT and free cash flow generation. On a like-to-like basis, EBITDA increased 23%, driven by operational efficiencies and pricing. EBIT, a key metric in our transformation expanded 40%. Our free cash flow from operations increased by nearly $300 million and was positive in a quarter that has historically generated negative free cash flow due to our working capital cycle with a significant investment in the first half of the year. Adjusting for severance payments and discontinued operations, free cash flow from operations conversion rate reached 51% on a trailing 12-month basis, reflecting a structurally stronger cash generation, up from 31% a year ago. Additional project cutting-edge savings and transformation initiatives, coupled with operating leverage as volumes in our core markets recover should increasingly translate into higher margins and a stronger cash conversion. Adjusting for the effect of the one-off gain from the sale of our operations in the Dominican Republic in 2025, first quarter net income would have almost doubled. At the consolidated level, Cement volumes reflect continued recovery in Mexico, which, along with improvement in South, Central America and the Caribbean as well as in the Middle East and Africa more than offset weather disruptions in the U.S. and Europe. U.S. volumes were impacted by adverse weather in the Mid-South and Texas. In aggregates, volumes benefited from our couch acquisition and our recently completed expansion projects, which more than offset the weather impact. In Europe, volume performance also reflected difficult winter conditions throughout the portfolio, which were further exacerbated by a prior year comparison base with very benign weather. For the full year, our consolidated volume guidance of low single-digit growth across our 3 core products remains unchanged with only a slight regional adjustments. With our focus on operational efficiency and available capacity, we remain well positioned to capitalize on the strong operating leverage in our business as volumes recover. Consolidated prices across cement, ready-mix and aggregates increased at a low to mid-single-digit rate on a sequential basis, supported by positive pricing dynamics in most of our markets. In Mexico, cement prices rose 5%, while in the U.S., aggregates prices increased mid-single digits. In Europe, mid-single-digit pricing gains were supported by the introduction of a carbon border adjustment mechanism together with tightening of free CO2 allowances under the EU ETS system. Our pricing strategy seeks to compensate for input cost inflation. With recent sudden moves in energy prices, we have moved to implement fuel surcharges in most markets as well as evaluating subsequent pricing increases to offset energy cost inflation. EBITDA in the quarter was supported by positive contributions across all levers. Importantly, nearly half of EBITDA growth came from self-help initiatives, underscoring our focus on the things we can control, particularly in a volatile environment. Pricing and [indiscernible] driven primarily by a large year-over-year as rate differential were also important factors in EBITDA. Finally, Organic growth in our core products and urbanization solutions portfolio also made an important contribution. EBITDA margin expanded by 3.3 percentage points reflecting a combination of the structurally lower costs, pricing discipline and operating leverage. A year ago, I laid out the priorities of our transformation centered on operational excellence and best-in-class shareholder returns. Since then, we have worked relentlessly to execute on our plan, focusing on operational efficiency, elimination of overhead and enhanced free cash flow generation. We have clear evidence of progress in the quarter with $60 million in incremental recurring savings under Project cutting edge as well as improved EBITDA margins across our regions. Our efforts to reduce overhead, along with our operating initiatives are paying off with important reduction in cost of goods sold and SG&A as a percentage of sales. We still have more to deliver with an additional $105 million in savings expected during the rest of this year under our announced $400 million project cutting-edge commitment. Importantly, Three quarters of the savings relate to overhead reduction decisions taken last year. As I have mentioned, there are additional transformation opportunities we are identifying and you should expect that the $400 million in project cutting-edge cost savings from 2025 to 2027 will be upsized when I addressed this in July. In March, we announced the divestment of several assets in Colombia, including cement operations and a portfolio of ready-mix concrete, aggregates, mortars and admixtures for total proceeds of approximately $485 million. We are currently in discussions to divest related nonoperational assets in the country for around $70 million. We expect these transactions to close by the end of the year, representing a combined multiple of 10x 2025 EBITDA. In line with our strategy to grow our U.S. business, we recycled a portion of the future proceeds into higher return opportunities in the U.S. At CEMEX Day, we announced the acquisition of Omega, the leading Asteco producer in the Western U.S. with the #1 brand at a post-energy multiple below 7x. The acquisition was completed on March 31. This transaction is highly accretive with significant direct synergies driven by vertical integration as stucco and mortars, use cement, sand and admitures as key raw materials. In fact, Omega cement requirements are equivalent to those of approximately 8 average-sized ready-mix plants, and it has already begun to direct their raw materials needs to CEMEX in first quarter. Direct synergies are expected to amount to close to 50% of Omega's 2025 EBITDA of roughly $23 million. Beyond direct input synergies, the acquisition also unlocks cost efficiencies across procurement and R&D as well as cross-selling opportunities through our existing customer base. With a free cash flow conversion rate of around 65%, Omega will enhance our overall cash generation and improve our earnings quality. More importantly, leveraging Omega's expertise provides us with a strong platform from which to expand our mortars and stucco business in the U.S., consistent with our focus on adjacent high-return growth opportunities. I would also like to take a moment to warmly welcome the Omega team to CEMEX. We're excited to have you join us and look forward to learning from your solid capabilities, strong culture and market leadership as we built this platform together. And with that, back to you, Lucy.

Thank you, Jaime. Mexico delivered strong results, supported by continued cement volume recovery, relevant operational efficiencies, pricing and operating leverage, reinforcing the momentum built over recent quarters. For the first time in 6 quarters, year-over-year cement volumes inflected positively as the government accelerated the rollout of their social programs. . Demand to date has largely benefited from self-construction and government-backed social programs, such as roll roads and housing supporting bag cement volumes. The social housing program targeting 1.8 million units through 2030 is also ramping up. We are currently participating in the construction of approximately 120,000 units, double the level of fourth quarter and are in negotiations for an additional 110,000 more. In infrastructure, while conditions remain relatively soft, activity on the ground is improving, and our ready-mix backlog is trending higher. We are currently participating in the construction of relevant projects, including the elevated viaduct in Tijuana and rail line projects such as Carretero era Pasi, and Salta Nueva Ligado, with additional projects expected in the near term. Going forward, we expect the main drivers of growth to come from resilient housing demand and while timing remains difficult to pinpoint infrastructure activity. Cement volume performance was also supported by a temporary market share gain as a few competitors experienced outages in the central part of the country in the quarter. EBITDA grew 47% and benefiting from a significantly stronger peso as well as important cost savings driven by our transformation, including a new organization structure. Margin expanded by nearly 5 percentage points to 36.1%, returning to levels last achieved in first quarter of [indiscernible], driven by project cutting edge. Performance also benefited from lower maintenance activity, which we expect will normalize throughout the rest of the year. On a sequential basis, cement prices increased mid-single [indiscernible]. As in our other markets, we will look to adapt our pricing strategy to offset cost inflation. Due to our large exposure to pet coke, which cannot be efficiently hedged in our fuel mix we do anticipate that Mexico will experience the largest headwind from energy inflation this year. We are moving already to increase our alternative fuel usage, which should partially offset some of the cost impact. Regarding our decarbonization efforts, we achieved a new clinker factor record in Mexico, averaging 62.9% for the quarter, underscoring our commitment to reducing CO2 emissions profit. The ongoing recovery in volumes, the structural improvements we have implemented over the last year, better infrastructure visibility and disciplined pricing should continue to support strong results in Mexico. We expect some normalization in EBITDA growth as we go through the year as the comps become more difficult, energy inflation accelerates and growth relies more on formal construction, which is more difficult to time. Our U.S. operations delivered resilient results in a challenging operating environment, supported by project cutting edge, higher cement production and continued growth in our aggregates business. Adverse weather conditions in January and February weighed on activity, particularly in Texas and the Mid-South. Despite these headwinds, ready-mix volumes grew 2%, marking the first year-over-year increase since mid-2022. Aggregate volumes increased 9%, reflecting the consolidation of couch aggregates and other investments that have recently come online. Adjusting for winter storms, we estimate that cement ready-mix and aggregate volumes would have increased by 1% and 10%, respectively, reflecting a slight improvement in underlying market demand. The contribution from higher ready-mix and aggregate volumes was offset by pricing and higher freight costs, resulting in stable EBITDA and EBITDA margins. Aggregate sequential prices rose mid-single digits as a result of our January price increase in certain sectors. In cement and ready-mix prices declined 1% sequentially reflecting continued competitive pressure following multiple years of soft industry demand. In this environment, most of the April price increases were deferred to midyear. Importantly, fuel surcharges are already in place. In the current global context marked by rising maritime freight rates, tariffs, supply chain disruptions and increasing energy and logistics costs, we expect progressively stronger pricing support as the year unfolds. Demand continues to be primarily driven by infrastructure, supported by the ongoing rollout of IIA project. is about 50% of allocated funds already spent and peak activity expected this year. Industrial and commercial projects particularly large data centers and chip manufacturing facilities continue to drive construction activity. Importantly, 40% of mega data center projects investments that exceed $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. If the current geopolitical situation, we expect recovery in the residential sector to be further delayed due to the higher rate environment and expected incremental inflationary pressures. However, pent-up demand and favorable demographic trends should be supportive over the medium term. As volumes recover, operational leverage, combined with our structurally leaner cost base, and expanding aggregates business, position the U.S. business for stronger profitability. Our operations in EMEA delivered a solid first quarter driven primarily by our new leaner cost structure and pricing with EBITDA in both Europe and the Middle East and Africa, expanding at double-digit rates. Margin improvement in the region mostly reflects recurring cost savings and higher prices with some temporary benefit from lower maintenance activity in the quarter. In Europe, demand was impacted by adverse winter weather and precipitation early in the quarter. With weather conditions largely normalizing in March, cement volumes grew 14% year-over-year while ready-mix and aggregate volumes increased at low single-digit rate. Supported by the implementation of the carbon border adjustment mechanism and the tightening of free CO2 allowances under the EU ETS system, cement prices increased 4% sequentially. First quarter price announcements covered approximately 1/3 of total European volumes. We have announced price increases in Poland, Germany and Croatia effective April. As Jaime explained, we have introduced fuel surcharges or additional price increases in several markets to offset energy inflation. Residential activity across much of Europe remains muted and higher interest rates point to a slower recovery. The notable exception is Spain, where housing activity has been supported since 2024. In contrast, infrastructure continues to be the most resilient segment across the region, particularly in Eastern Europe, and we expect it to remain a key driver of demand this year. Middle East and Africa outperformed our internal prewar expectations with EBITDA growth of 27%, driven by project cutting edge and improved pricing. Despite heightened geopolitical tensions, the impact of the Iran conflict during the quarter was limited. Average daily sales declined significantly at the outset of the war that have largely recovered as of early April. While we remain cautious on the outlook, given the war, we are pleased with the resilience of our operations in the region today. Our operations in South Central American and Caribbean delivered double-digit EBITDA growth and meaningful margin expansion, driven by improved cement volumes and the continued benefits of our transformation. Performance was also bolstered by the debottlenecking project completed last year in Jamaica, which is allowing us to fully supply the local market, domestic production. Cement demand across the region was supported by growth in the informal sector in Colombia as well as reconstruction efforts following Hurricane Melissa and tourism-related projects in Jamaica. Cement prices increased by 5% sequentially, reflecting our disciplined pricing strategy. Looking ahead, we remain optimistic on the outlook in the region supported by improving consumer confidence and continued activity in informal construction. And with that, I will now turn the call over to Maher to review our financial development.

Thank you, Lucy, and good day to everyone. Given the current environment, I would like to provide additional details on our energy strategy and our exposure to market volatility before turning to our financial highlights. As Jaime mentioned, we estimate approximately 60% of our total 2025 energy exposure of $1.65 billion has been hedged for 2026 through a combination of derivatives, annual contracts and regulated pricing frameworks for the full year. Roughly 2/3 of this amount is related to fuel and electricity in cement production and 1/3 to diesel in transportation. . Approximately 75% of our expected 2026 diesel consumption, direct and indirect through our third-party haulers is hedged. In addition, we have already started implementing fuel surcharges across our regions. In cement production, our energy exposure is evenly split between electricity and fuels. In electricity, about 70% of our needs are fixed or are in regulated markets. As you can see on this slide, our kiln fuel mix measured on a calorific value basis which is primarily sourced locally, is well diversified. We estimate that approximately 35% to 40% of our fuel use for cement production is hedged via contract for 2026. The 2 to 3 months of inventories provide some protection for pet coke while our natural gas exposure is primarily in the U.S., where we have seen far less price volatility. Importantly, we also have flexibility to adjust our kiln fuel mix in our operations, switching among the various alternatives based on relative economics. Where possible, we are working to switch to alternative fuels that are generally cheaper and carry little correlation to fossil fuel prices. Together, these levers provide a meaningful buffer in the short term during periods of high volatility. To date, we have seen little impact from energy inflation with energy cost per ton of cement in the quarter, stable, with declines in fuel costs offset by higher electricity costs. While our energy strategy provides meaningful protection in the short term, we expect to face inflationary pressures in energy later in the year. As such, we are downgrading our full year guidance and now expect energy cost per ton of cement produced to rise mid- to high single-digit rate, up from our prior mid-single-digit guidance. Moving to our financial highlights. Our self-help measures are delivering exceptional results, driving record quarterly EBITDA, the highest first quarter EBITDA margin in 5 years and significant improvements in free cash flow from operations. Free cash flow from operations increased by nearly $300 million, reaching $29 million in a quarter, that has historically generated negative free cash flow due to significant working capital investment. This growth is explained by exceptional EBITDA growth along with important reductions in CapEx, working capital, interest and other cash expenditures. The working capital investment during the quarter, $31 million lower than prior year, is expected to largely reverse throughout the rest of the year. Working capital days for the quarter stood at negative 11 days, 2 additional days versus first quarter of 2025. Excluding severance payments and discontinued operations, our free cash flow from operations conversion rate for the trailing 12 months reached 51% and compared to 46% for the full year 2025. Project cutting edge is delivering tangible results in our cost structure. As Jaime mentioned, Cost of goods sold and operating expenses as a percentage of sales are down 175 basis points and 148 basis points year-over-year, respectively. The decline in net income is explained by the gain on the sale of our Dominican Republic operations during the first quarter of 2025. As we work to transform our liability profile through proactive liability management, and reduce the overall debt burden, we repaid a $400 million euro-denominated bond and a MXN 6 billion loan during the quarter. We funded these payments with the issuance of MXN 5.5 billion or approximately $300 million in a 5-year Certificado Sporsatiles and cash on hand. To drive the interest rate savings, we swapped the newly issued Sutvicaros Porcatiles into euros, locking in rates inside our Europe curve. As a result of these transactions, our total debt plus subordinated notes decreased by around $540 million sequentially. Net debt plus subordinated notes, however, increased by $590 million over the same period, primarily due to cash uses related to the Omega acquisition, growth CapEx, share buybacks, dividends and other items. As we generate additional free cash flow in the coming quarters, we expect to end the year with a lower level of net debt plus subordinated notes relative to 2025. Our net financial leverage, including $2 billion of subordinated perpetual notes stood at 2.3x, unchanged sequentially. With improved free cash flow generation and higher EBITDA, we remain confident in our ability to continue deleveraging toward our target range of 1.5 to 2x. We aim to further improve our risk profile with a solid BBB rating, bolster our growth potential and maximize value creation for our shareholders. In fact, yesterday, Fitch Ratings reaffirmed our BBB- global rating and raised the outlook to positive from stable. Additionally, they upgraded our long-term national scale ratings from AA+ to AAA, the highest credit quality on the Mexican national scale. This should further strengthen our credit profile and reinforce external confidence in our long-term financial strategy. Consistent with our commitment to strengthening our shareholder return platform, a nearly 40% dividend increase was approved by shareholders at our recent shareholder meeting. This will raise the annual dividend to $180 million from $130 million approved last year. Complementing our cash dividend, we also executed $100 million of share buybacks during the quarter. As we discussed in our fourth quarter results, our intent is to buy back up to $500 million in shares over the next 3 years. You should expect gradual improvement in shareholder return as free cash flow continues to grow in subsequent years. And now back to you, Jaime.

Thank you, Maher. I am proud of the results and achievements my team delivered this quarter, incremental evidence of the power of our transformation efforts. I recognize that there is still important work ahead as we continue executing on our plan. We remain constructive on the demand environment across most of our markets this year with continued recovery expected, particularly in Mexico, where we are modestly adjusting our volume guidance upward. Our focus remains on capturing the announced savings under project cutting edge, identifying and securing new recurring savings and moving quickly to reflect the new energy headwinds in our pricing strategy for the rest of the year. We will also continue to advance on our portfolio alignment plan coming out of our business performance reviews designed to improve the quality of our earnings and free cash flow generation. Let me reiterate what I said at the beginning of this call. While volatility will persist with our self-help measures delivering as intended, on our strong first quarter performance, I remain confident in our ability to deliver our full year EBITDA guidance. 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 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. . Now we will be happy to take your questions.

[Operator Instructions] And the first question comes from Alejandra Obregon from Morgan Stanley.

Mine is regarding pricing and how to think about it for the remainder of the year, more in particular on the surcharges that you mentioned where have -- when and where have they been implemented today and whether there are differences across the regions and products in these dynamics? And to what extent is this dynamic already embedded in your guidance?

Alejandra, thanks for your question. I separate pricing from surcharges, particularly fuel surcharges. Regarding fuel surcharges, we have had them for years in the U.S. in our contracts to give you more detail.

Right? In ready-mix, those fields or charges cover around 90% of our dispatches is around 85% of our deliveries. And in the case of cement, it's around 80% of our deliveries. And it's a mechanism that offsets volatility in diesel. And we saw that working very well when the Ukraine will began back in '22, '23 when we faced inflation in that line. . Also, we do have fuel surcharges in Europe. There, our strategy is twofold. There are markets where we see more resilient and stickiness in fuel surcharges -- that will be the case in the U.K. and Germany, where we are introducing them. But in other markets where we see strong pricing characteristics, we're going to go ahead with incremental pricing, beyond what we were planning for because of expected inflation. Those are the case of Spain, Croatia, Czech Republic and Poland, for example. Regarding the U.S., we are expecting to see material inflation in shipping. And therefore, we expect import cost -- import parity cost to increase. That should build some momentum for better pricing environment going forward. In the rest of the portfolio, we are ready to react to inflation in Mexico from [indiscernible] with future price increases, if needed to offset input cost inflation and the same applies to most of our markets in [indiscernible]. So I hope that I answered the question on [indiscernible].

The next question comes from Jorel [indiscernible] from Goldman Sachs.

So really quickly from my end, I just wanted to understand the relative bullishness on your U.S. volume guidance. I mean, it remains unchanged, even though there's ongoing softness on residential. So I just wanted to understand if the thought here is that whatever you're expecting from, say, infrastructure or private investments is enough to outweigh the impact of South in residential -- that's my question.

Thanks, [indiscernible], for your question. Well, first of all, as we highlighted earlier, adjusted by the weather impact, mainly in Texas and the Mid-South our pro forma weather volumes would have been cement plus 1%, ready-mix around plus 5% in aggregates plus 10%. So there was some momentum out there that was affected by the weather. Going forward, we are paying special attention to markets we're highly vertically integrated with very strong resilient upstream margins in cement and aggregates. And in those micro markets, we are gaining more work, particularly in infrastructure and in the industrial sector, things such as some data centers and cheap manufacturing facilities. And that's the reason why we kept our guidance and change despite the softness in residential and the weather impact in the first quarter. So I hope that I answered your question, Gerald. So it's mainly driven by expected incremental work that we are gaining in the segments that are performing back.

And the next question comes from Francisco Suarez from Scotiabank.

The question that I have relates to because you have a generally benign outlook on pricing trends in the United States, but you have some exposure to imports. So the question relates with to what extent and if you can give a little bit of color on what the differences might be that we should be aware of on import parity prices between the Mid-Atlantic, the Southeast and perhaps the west -- of the next states that would be very helpful. And congrats again for the great delivery that you have guys done so far.

No, thanks for your question. I'll extend your recognition to the team who is doing a good job executing what we said we would. Regarding your specific question about import party, what we've seen is that Halloween. Regarding FOB export pricing, we haven't seen yet any sequential increase from February to March. I expect that to happen later in the year as exporters face inflation on energy, and they're going to fill it. If you think about what happened back in '22, '23, that's exactly what happened. It took a bit of time, but we saw FOB prices increasing. What has changed though sequentially from February to March was freight rates, so maritime rates, and they have increased substantially. So in the case of the West California, our number is that freight went up by around 37% per ton. In the case of the East Coast, an example, Florida by 31%. And in the case of Texas, the Gulf, that's around 26%. So when you think about CIF and all combined you're talking about spot import prices going up between 10% to 12% sequentially. So as important right, contract volume on the basis of new shipping rates, and they're going to feel the impact. that's how things are evolving so far.

Thank the next question comes from Carlos Parang from Bank of America.

My question is related to free cash flow and capital allocation. So free cash flow conversion is increasing materially as a result of CEMEX's efforts to reduce costs and also growth CapEx. Can the company accelerate M&A this year versus last year considering this? And do you have enough prospects that you're looking at in order to be able to increase your M&A deployment of capital?

Thanks, Carlos, for your question. We continue to strengthen the pipeline of M&A targets, mainly in the U.S. We are proactively engaging with a larger number of potential targets. But we're going to be very patient because we want to be very disciplined, right, and only pursue where we can create value. There is nothing imminent right now on the table, but plenty of conversations. In addition to that, Carlos, when we look at our opportunities to allocate capital, we still see accretive to shareholders uses of capital when we think about debt to reduce interest expenses and boost free cash flow and we are also committed to a progressive improvement on the shareholders' returns, right, dividends on share buybacks. And as you know, the shareholders approved the $500 million share buyback program. So we have accretive options to allocate capital to shareholders beyond M&A. Let's be patient. And when the right time comes, we will be executing those. Thanks for the question, Carlos.

And the next question comes from Adrian Huerta from JPMorgan.

Certainly [indiscernible] results, first of all, my question has to do with the guidance. I mean, I understand that 1Q is a seasonally small quarter, but I want to understand how you -- what was the process you're thinking of the rational and keeping guidance unchanged. I mean the bit was quite strong this quarter. The outlook is improving. I understand the pressure on energy cost, but the improvement in margin was huge. So what was the thinking and the rationale to keep the guidance unchanged? .

Adrian, thanks for the question. The main reason is the lack of visibility on where the war is heading. And with that situation and the volatility, we're facing, I thought that it was better to wait at least until July call once we see 2Q. And I also wanted to understand better the level of incremental structural recurring savings that we will be committing to as we have begun executing those additional levers. With those -- with more visibility on the war and where inflation is heading and how our pricing and fuel surcharges are sticking and then the incremental savings, I -- we will be in a better position to think about changes to guidance. That's the main reason why we believe that today, the best is to be consciously optimistic but still conservative. .

The next question comes from Anne Milne from Bank of America via the webcast.

Congratulations on the Fitch positive outlook upgrade. -- when do you believe is the timing around the possible upgrade to BBB, Maher, I think this is yours.

Thanks a lot, [indiscernible]. Yes, and thank you, Anne, for the question. One thing that I would like to highlight is that if you take a look at our net financial leverage, we're expecting it to converge fairly rapidly throughout the year, given our expectations for full year performance towards the Fitch level that they defined in their release yesterday, which is 1.5x, maybe a little bit higher than that. So that puts -- and that is the kind of BBB level that they expect. In the case of S&P, we are already within their BBB leverage ratio. And for S&P, the real metric for that is what they call free cash flow from operations as a percentage of debt. And I'm not going to give you the definition of that. You could look it up from S&P website. But again, based on our expectations and the guidance that we're giving, their metric to go into BBB is more than 30%. We feel reasonably confident that we should be well inside -- well above, let's say, that metric by the end of this year. So bottom line, based on the performance and the deleveraging that we are delivering and the heightened quality of earnings that we're delivering through free cash flow conversion, we think that both rating agencies are going to be giving a very hard look to a potential upgrade sometime in the first half of '27. Of course, we'd be super happy if that happens sooner, but I would say that from my perspective, I'm looking for a first half potential rating action from the rating agencies. I hope that answers the question.

The next question comes from Ben Theurer from Barclays.

Congrats on those very strong results [indiscernible]. Quick question on the performance in Mexico, in particular. So maybe help us understand a little bit better that 470 basis points margin expansion. How much of that was really driven onetime things like maintenance related, et cetera? And how much of that would you describe as being a recurring margin improvement.

Ben. Thanks for the question. Well, the first thing to understand where the expansion happened, a lot has to do with the transformation where Pemex Mexico is contributing quite materially together with EMEA in the quarter. And therefore, we saw margin expansion contributions from viable costs around 160 basis points. Freight was very material, around 1 percentage points. SG&A and corporate expenses as well, followed by a bit from volumes, but more so from prices, around 2 percentage points. So with that in mind, yes, there were a few positive one-offs that wouldn't be recurrent, we think. So the first one is, as I highlighted, before the temporary market share gain of around -- that's -- we calculated around 2% of volumes. So if we grew 6%, maybe 4% is -- what will be there going forward. The other 2 percentage points would be a one-off. Also it's correct that we had some maintenance timing which will increase going forward. The other aspect then is the product mix in cement. This quarter, we had a strong back mix, 60%-40%, 60 bags, 40% in bulk. And as we expect to see infrastructure ramp up we should see a different product mix. So in addition to that, also the pickup, we are expecting a rising [indiscernible] price for the rest of the year. And all of this combined suggest that you should expect a lower margin. Having said that, the margin will be solid because of the transformation. That will [indiscernible]. And I cannot provide you more specifics on that for obvious reasons. But that's the way I'd like to answer your question.

The next question comes via the webcast from Paul Roger from BNP Paribas.

How ambitious is your plan for U.S. aggregates what makes CEMEX the partner of choice for targets? And how big could this product line ultimately become in a group context?

Paul, thanks for the question. In 2025, our aggregates business accounted for 40% of CEMEX USA EBITDA. In the first quarter, aggregates contributed 45%. So aggregate was accounted -- accountable for 45% of CEMEX U.S. EBITDA. It would be great to see U.S. aggregates accounting for around 60% of our EBITDA in the U.S. . Now regarding your second part of the question, right, whether CEMEX is a partner of choice for targets. That remains to be seen, but -- please note that as a large ready mixer, we buy a lot of aggregates from long-term partners with whom we have strong relationships. That's a nice start. The other thing is that, unlike in the past, we are very flexible and open-minded on different ways to partner with potential [indiscernible]. [indiscernible] was an example, right? So we see very favorably enter in with a minority position, right, and growing that up to our controlling interest in years to come while partnering with family-owned operators who are great operators to continue running their businesses or longer. So maybe that flexibility could help us be seen as the partner of choice for the right targets. So that's what we're working on, and we're excited. And again, expanding our pipeline of potential targets, and we continue working on that. We're going to be patient. And the other aspect is our new investment projects, right? So we are taking advantage of Immocli, in Florida, [indiscernible] also in Florida, our exports from Canada to mention a few, and there are more investments underway right now from our growth CapEx pipeline. So that should continue contributing to enlarging the U.S. aggregates business in the U.S. Thanks for your question.

The next question comes from Yassine Touahri from Enfield. .

So my question would be around your free cash flow conversion. Would you consider moving your definition of free cash flow conversion closer to peers, including strategic CapEx, intangible investment, pension contribution, securitization, coupon and suburban nodes and other financial fees? Because I think that on that basis, your 2026 guidance seems to imply your free cash flow conversion of around 20%, 25%, which is improving a lot, but it's still like less than half of the level of your best-in-class peers -- so I think what I'm trying to understand is that whether you can get closer to that best in-place level over 50% as soon of 2027. For example, could the total CapEx come down from EUR 1.4 billion in 2026 to 1.1 billion as soon as next year?

Yassine, thank you very much for your question. The first thing I want to tell you is that I see no reason why we wouldn't be as good as performers as our peers on your definition of free cash flow. We just need to continue doing our homeworks and we are fully committed to delivering on that. What's different is that, yes, do expect already for 2027, a material reduction in strategic OpEx, intangibles. In addition to that, I have assigned an ExCo member becoming responsible and owner of every of the lines of free cash flow that you mentioned. And today, we are developing road maps to materially optimize every line. Therefore, do expect that we will make significant surges in 2027 and even more in 2028. Also, please note that we have begun executing our efforts to improve earnings quality by deconsolidating operations that do not meet our free cash flow targets, among other KPIs. As I mentioned earlier, we let go -- as a matter of example on our progress, right, 60 ready-mix concrete facility that is in our portfolio. That's just an example, but we are accelerating our -- the transformation of our portfolio. And as we let go many many of these operations that did not generate free cash flow, you're going to see a higher free cash flow conversion and a higher earnings quality in terms of free cash flow to sales. Regarding your question whether we're going to move to that other definition, the answer is yes, we will at the right time and we're working on it, and we'll let you know when we would -- when we would be introducing that definition. Whether we do that in short, midterm, what matters is that we're going to be improving free cash flow under all definitions.

The next question comes from Andres Cardona from Citi.

[indiscernible] congratulations on the solid results. My question is regarding Mexico in the context of presentation housing initiative and the newly announced highway infrastructure plant. To what extent could these programs drive demand growth in 2026, [indiscernible], you already mentioned that we're negotiating some 10,000 more housing. But if you could help us to understand when the infrastructure plan would already incremental demand. And if I may, a very quick 1 regarding Colombia. Is there any reason why you decided to do like a partial divestiture of the assets there are the remaining assets considered core. Thank you.

Andreas, thanks for the question. Let me start with the second question first. is that in Colombia, in the right time to divest what's within the scope of the announced transaction was this year. The rest of the portfolio in Colombia need to increase activity as the demand improves in those micro markets where we have the rest of our portfolio, particularly as we commissioned Maceo cement plant up north of the country. And that's the reason why we decided to carve out the current perimeter under that transaction. The team will be post transaction, we'll be focused on maximizing free cash flow and EBITDA from the remaining assets, and it remains to be seen our next move regarding the rest of our business in Colombia. Regarding your first question, yes, what we see is this -- in our current guidance for volumes for Mexico for 2026, we've already included the -- our expectations on infrastructure, which includes trains and highways, right, on social housing. I think that the contribution from the recently announced plan from government would be more materially felt in 2027 because -- it will take time, right, to break ground. And we also need to understand the fiscal conditions right of public accounts in light of what's happening on potential inflationary effects to budget. So I say that I don't expect much for '26 on the newly announced infrastructure plan beyond what was in the budget but that's already embedded in our guidance. But I do think that being everything equal and if things don't worsen for the fiscal accounts, we might see momentum in 2027, particularly on infrastructure. And it is too early to provide our views on 2027 cement volumes for CEMEX Mexico. So Andreas, thank you for your question.

We have time for 1 last question, and it is coming from Gordon Lee from BTG Pactual. Gordon?

Congratulations on a very good quarter. This is a bit of a -- more of a just a clerical question for Maher. But Mark, I noticed that you sort of formally changed the way that you present the leverage ratio and the in the release and now you include the totality of the subordinated debt. So one, I just wanted to see whether there was any particular rationale for that. And two, just to confirm that when you refer to the 1.5x long-term leverage target, that's the measurement that you're using for that?

Yes. Thanks, Gordon, for leaving the clerical questions for me, but it's good to hear from you. Just kidding. The rationale is very simple, okay? I mean when we issued these perps, we were a BB-. And we have been -- as you have seen, we have been working very aggressively to reduce gross debt, including the subordinated notes very rigorously over the last few years. And the -- now we're in a different position. The other thing is, as a consequence of the rating action that happened last year by S&P, the [indiscernible] subordinated note already started receiving full debt treatment from their side. And based on yesterday's Fitch rating, that also happened on the side of Fitch. So now we're really left with essentially one of the notes, the 7.2% that has 50% equity treatment. From our perspective, we feel from an investor perspective, we believe it's a much more conservative and cautious leverage ratio to use the net financial leverage, including subordinated notes to the extent that we have them. We are looking at deleveraging, including the levels that are included through the subordinated notes. So the answer is yes. When we talk about 1.5x, we're talking about net financial leverage, including potential subordinated notes that are on the balance sheet. And that's the way in the future way that the rating agencies will look at it. We think it's -- and it's going to push the company -- it's going to push us in our capital allocation decisions, also to make sure that we're taking all of the elements of potential liability on the balance sheet. I hope that answers the question.

Thanks, Gordon. We appreciate you joining us today for our first quarter results. We hope you will join us again for our second quarter 2026 earnings call on July 23. If you do have any additional questions, please feel free to reach out to the Investor Relations team. Many thanks. .

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.