GCC, S.A.B. de C.V. (GCC) Earnings Call Transcript & Summary

Good morning, and welcome to GCC's Second Quarter 2026 Earnings Results Conference Call. Before we begin, I would like to remind you that this call is being recorded -- please also note that a slide presentation accompanies today's webcast. The link is available on the company's IR website at gcc.com. I would now like to turn the call over to Sahory Ogushi, Head of Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining. With me today are Enrique Escalante, our Chief Executive Officer; and Maik Strecker, Chief Financial Officer. The earnings release detailing this quarter's results was released yesterday after market closed and is available on GCC's IR website. This conference call is also being broadcast live within the Investors section at gcc.com. Both the webcast replay of the call and transcript will be available on the same site approximately 1 hour after the end of today's call. Before we begin, I would like to remind you that our remarks today will include forward-looking statements. Actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause these results to differ materially are set forth in yesterday's press release and in our quarterly report filed with the Mexican Stock Exchange. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. With that, let me now turn the call over to Enrique.

Thank you, Sahory, and good morning, everyone. The second quarter built on the progress we saw earlier in the year. We delivered strong top and bottom line growth, driven by higher cement and concrete volumes in the United States and by continued improvement in Mexico. The quarter also showed how the business responds as activity shifts across segments and geographies. We repositioned volumes towards the strongest areas of demand while continuing to serve customers reliably. That ability depends on the capabilities and experience of our team, which brings me to our people strategy. Starting up the kiln at Odessa was the clearest example this quarter of what our teams can deliver. Commissioning a project of this scale requires deep technical preparation and close coordination across plants. The training and cross plan work have enabled the team to reach this milestone successfully. Building those capabilities is a continuous effort. Year-to-date, we have delivered more than 8,400 hours of training across the network, focused on the technical skills that support safe and consistent operations. In parallel, we advanced the GCC program through which former employees return to work alongside current teams and transfer decades of operational knowledge, deepening expertise across the company and preserving institutional knowledge as we grow. Under our strategy, we continue to prioritize initiatives that improve both environmental performance and operating economics. During the first half, blended cement accounted for 79% of total production, while natural gas and alternative fuels continue to gain share in our energy mix. Our flexible fuel strategy gives our plants the ability to shift between fuels as relative economics change. During the quarter, this helped keep fuel costs within our expectations despite market volatility. We also continued investing in natural gas pipeline infrastructure, broadening across to lower-cost fuel, strengthening supply reliability and improving our long-term cost position. Together, these initiatives demonstrate how sustainability and economics can advance in the same direction at GCC. Turning now to our growth strategy. In the United States, the trends we discussed earlier in the year continued into the second quarter with strong volume growth across both cement and concrete. Cement volumes increased 10.8%, supported by broad project activity and by the contribution from our terminals in Texas and Arizona, which were not present in the prior year period. Concrete volumes increased nearly 29%, reflecting the performance of our existing operations and the contribution from the ready-mix business acquired in the first quarter. Excluding those acquired operations, concrete volumes still grew 15% during the quarter. More broadly, customers continue to report healthy backlogs across the U.S. end market, supporting our outlook for the remainder of the construction season. Against that backdrop, let me review the main demand drivers, starting with infrastructure. Infrastructure remains one of the main sources of demand. We are actively participating in bidding work across our footprint and in interstate highway projects in Texas, sustaining solid demand for both cement and concrete. Looking beyond the current construction season, the policy environment also remains constructive. Discussions around the next U.S. surface transportation authorization continue to emphasize core transportation priorities, including roads and bridges. Compared with the broader scope of the Infrastructure Investment and Jobs Act, this direction is more closely aligned with the type of projects that drive cement consumption. Several states in our footprint have historically favored concrete paving, and this creates a positive setup for GCC. In addition, the bill includes proposed reforms to simplify and accelerate the permitting process for infrastructure projects. Based on normal program timing, we would expect any related volume benefit to begin emerging around mid-2027. Renewable energy also remains an important contributor. We completed a wind farm project during the quarter and expect to begin three additional projects in Texas and North Dakota in the third quarter, which should continue supporting activity across the network. Data center-related activity is also becoming more tangible. Projects that have been on hold during permitting are moving again, and we are actively supplying work while bidding additional opportunities. A good example is the Meta data center in El Paso, which Meta now describes as an investment of more than $10 billion. Projects of this scale can generate significant demand for concrete and cement throughout their construction cycle. In parallel, we are involved in power generation work linked to data center development, broadening the opportunity set across our footprint. In oil and gas, activity improved in mid-May and June. Customers' confidence improved as oil prices moved into more constructive range and oil well cement became an additional source of support for our U.S. volumes. At current levels, we are able to sell everything we can produce in oil well cement. The timing of the Odessa ramp-up is well aligned with this shift and shipments from the new line will expand our ability to serve this segment. This is a constructive development, and we are positioned to participate as the activity continues to develop. Residential activity continues to be constrained by persistently high mortgage rates. With affordability still under pressure, we do not expect to see a meaningful change in this segment during the remainder of 2026. From a commercial standpoint, U.S. pricing remained challenging. Average cement prices were down in the quarter and year-to-date, reflecting the product and geographic mix we have discussed since the beginning of the year. The competitive environment has also broadened as imported cement begins reaching inland markets that historically have been less exposed. However, our geographic position away from the coastal areas continues to give us a structural advantage relative to markets with heavier import penetration. We are engaging through industry channels to support fair and rational market conditions, and we remain disciplined in our commercial approach, prioritizing service, reliability and long-term customer relationships. Overall, the U.S. quarter reflects strong volume performance across several end markets, healthy customer backlogs and a supportive setup for the third quarter construction season. Turning to Mexico. The second quarter provided further evidence of recovery. Cement volumes grew 6.2%, led by self-construction, residential demand and infrastructure activity. Concrete volumes were essentially flat with a slight decline reflecting the completion of certain residential and industrial projects that have supported the prior year comparison. Housing remains a constructive part of the market. Private activity stayed healthy, while the federal housing initiative continued to move to its planning phase. Over time, the program has the potential to materially expand housing activity in the state, including the possibility of doubling the number of homes built annually. and we are positioning the network to support that growth. Infrastructure also continues to provide important momentum. We are participating in the highest level of activity we have seen in the last decade and additional projects are expected to materialize through the second half of the year. In the Industrial segment, activity remained cautious and broadly consistent with 2025 as customers continue to take a measured approach to investment decisions. Although confidence has not yet returned meaningfully, our long-term view of the region remains intact. GCT has operated successfully through multiple cycles of trade and policy uncertainty, and we are prepared to respond as conditions improve. From a pricing standpoint, Mexico remained broadly stable. Cement and concrete prices were essentially flat, reflecting a higher share of infrastructure work in the mix, some timing effect in price implementation. The underlying pricing environment remains sound. Overall, the quarter provides tangible evidence of Mexico's recovery with housing and infrastructure supporting a constructive setup for the second half of the year. Turning now to capital allocation. In the second quarter also advanced investments in our network. Odessa remained the most important operational milestone of the year. We successfully started up the new kiln in June, moving the production line into ramp-up. The final scope of the project is also stronger than originally announced. During construction, we obtained an expansion of the plant's permitted capacity and secured a kiln with 17% higher capacity. The project will add 1.1 million metric tons of incremental capacity, bringing total plant capacity to 1.6 million metric tons. Total investment is now expected to $700 million, equivalent to $636 per metric ton of incremental capacity and approximately $50 million below the original budget. This result reflects continued work throughout the project to improve engineering, procurement and project execution, allowing us to increase capacity while lowering total requirements of capital to $700 million. Our focus now is on stabilizing equipment and production, integrating the new capacity into the network in a controlled manner. In parallel, we're advancing the approval process with State Department of Transportation for our cement mill design. Based on current progress, we expect to begin shipping cement from the new production line slowly and consistently in the latter part of the third quarter. Building the network around Odessa is the natural next step, and the second quarter brought clear progress on that front. We completed a new cement terminal in Abilene, Texas, extending our logistics reach across West Texas. The terminal complements the aggregates platform we began scaling more deliberately with the acquisitions announced in early 2025 and improves our position in a market becoming increasingly relevant for data center development and the infrastructure that supports it. The second quarter also marked another step in building our aggregates platform. Following the expansion of our position in El Paso region in the first quarter, we added aggregates and concrete operations in Amarillo and the Midland Odessa region. These transactions broaden our presence in attractive markets, deepen our aggregates position and help maximize the value of the Odessa expansion. Year-to-date, we have invested approximately $91 million in acquisitions, adding approximately $11 million in EBITDA contribution. Including the transactions completed since 2024, our cumulative investment in this segment totals approximately $225 million, representing about $25 million of additional EBITDA. Together, these acquisitions build a scale in aggregates and reinforce our ability to serve customers across this market with construction material solutions. In summary, the quarter advanced each of the priorities we set at the start of the year, stronger market activity, the controlled ramp-up of Odessa and expansion of our aggregates platform in the region. We remain focused on our customer service, stabilizing the new line and building the network for future growth. With that, let me turn the call over to Maik for a review of our financial results.

Thank you, Enrique, and good morning to everyone. Starting with consolidated performance. Second quarter sales totaled $418.4 million, an increase of 15% compared with the same period last year. Growth reflected higher volumes and stronger concrete pricing in both countries and the appreciation of the Mexican peso against the U.S. dollar. In the United States, revenues increased 14.1%. Cement volumes increased 10.8%, while concrete volumes were up 28.7%, reflecting the performance of our ready-mix operations and the contribution from the acquired business in El Paso, Texas. Concrete pricing increased 5.7%, while cement pricing declined 3.2%, consistent with the product project and geographic mix dynamics discussed earlier. Overall, the quarter reflects strong activity, the contribution from our new terminals and continued execution across multiple end-use segments. In Mexico, revenues increased 17.7%, supported by volume growth in cement and higher pricing in concrete. Results reflect the improving activity across the self-construction, housing and infrastructure segment that Enrique described. From a cost perspective, cost of sales as a percentage of sales increased by 50 basis points, reflecting higher production costs, the inclusion of the operations acquired in the first quarter and higher transfer freight. The freight increase reflects additional cement shipments from our plants in both the United States and Mexico to support demand in the Odessa market during the ramp-up as well as shipments serving our newer terminals. These logistics costs support uninterrupted customer service during the ramp-up phase of the Odessa project. We expect this effect to ease as Odessa production stabilizes and distribution flows are optimized. SG&A expenses increased to $34.5 million driven primarily by the appreciation of the Mexican peso and by expenses related to the acquired operations as well as the annual salary adjustments across the business. As a result, EBITDA for the quarter totaled $132.9 million, an increase of 12.3% compared to the prior year period with an EBITDA margin of 31.8%. As anticipated, margins reflect the temporary logistics and mix effects discussed earlier. We expect these effects to ease as the Odessa ramp up and the network moves towards a more efficient operating configuration. Free cash flow for the quarter totaled $56.9 million, a 17% increase. Higher EBITDA generation, lower cash taxes and lower working capital requirements drove the improvement. In terms of capital allocation, capital expenditures totaled $34.5 million during the quarter related mainly to the Odessa expansion. We also returned $43.1 million to shareholders through dividends and share buybacks. We ended the quarter with cash and equivalents of $812.5 million and a net debt to EBITDA of negative 0.37x. This balance sheet position preserves our ability to fund growth investments while maintaining flexibility. In summary, the financial results show that volume growth and the acquired businesses are expanding the earnings base, while the temporary cost of the Odessa ramp-up remains contained within our original plans. With that, I will turn the call back to Enrique.

Thank you, Maik. Before we open the call to questions, let me update how we are thinking about the balance of the year. First half performance provides greater visibility into how 2026 is developing, and the picture has strengthened since January. As a result, we are updating selected elements of our full year outlook as follows. In Mexico, first half cement volumes came in ahead of our initial plan, and we are now expecting full year volumes to grow at a mid-single-digit rate, up from the low single-digit increase we guided to in January. In the United States, including the newly acquired operations, we now expect full year concrete volumes to increase at a low single-digit rate for the full year, a meaningful improvement from the high single-digit decline we had originally planned for. In U.S. cement, pricing continues to reflect the mix dynamics we have discussed throughout the year, alongside a broader competitive environment across parts of our footprint. For the full year, we now expect U.S. cement pricing to decrease low single digits. Every other assumption we shared in January across both countries remains in place. While several of these elements have improved, we are maintaining our full year EBITDA guidance of mid-single-digit growth as the transitional costs associated with the Odessa ramp-up will be more concentrated in the third quarter. Our priorities for the second half are clear: ramp up Odessa and begin customer shipments, maintain service through the network transition and integrate the acquisitions completed during the first half. The setup of the following years continues to build, and we remain confident in the strategy and direction of the business. With that, we will open the call for questions. Operator, please proceed.

[Operator Instructions] The first question is from Alejandra Obregon from Morgan Stanley Investment Management.

This is -- congratulations on the Odessa milestone. And actually, my question is on the volumes in the U.S. and your guidance there. I was hoping to better understand how much of your expected volume growth in the U.S. is attributable to volumes from Odessa? And how -- and where do you expect that to land in terms of utilization by year-end? So if you can also elaborate on how construction cement volumes are performing across the rest of your footprint and whether Odessa today is replacing some of those volumes?

We don't necessarily disclose exactly, I mean, what -- how much of the shipments are going to be coming from each plant, but we've been saying that this is an optimization effort. And so we're shifting the network and broadly speaking, bringing cement from Samalayuca back to the plant and starting up the kiln as we said. We have also discussed that we're going to do a slow and consistent ramp-up of the plant throughout the third quarter and fourth quarter. We don't expect to be in full utilization of the plant on an annualized basis until next year 2027.

And I would probably add, again, in the context of Odessa, as we've seen some positive momentum on the oil segment. Again, the start-up of Odessa comes at the right moment, so we can take advantage of that. So that's another positive for Odessa specifically. And then you asked about the kind of the construction cement. Here again, we announced we have a small terminal now in Abilene that connects well with the aggregates platform that we have. We didn't have that in previous years. And here, that part is very much driven by data centers and all the infrastructure around it. So it comes at a good time to support the Odessa ramp-up. So we're actually very positive what we're seeing in that West Texas market at this moment in time.

Excellent. And if I may follow up, just to better understand, is your guidance changing your expectations for oil well cement or not yet?

Not yet, not yet. That's why we left the cement guidance pretty much the same. And again, we had a slower start, so we compensate a little bit as we're working through the year, but no change on the guidance there.

The next question is from Adrian Huerta from JPMorgan.

My question has to do with the -- your aggregates strategy. Good acquisitions in Texas. What else can we expect over the next 12, 18 months in -- which other markets would you like to have operations? And if you can also elaborate a bit on the ready-mix one as well. You added some new operations. And is this a plan also to continue growing the ready-mix footprint?

Yes, on aggregates, I mean, first, Adrian, yes, we definitely plan to continue consistently making acquisitions in aggregates. We're still pretty much, I mean, focused on what we said before. to do it in our region, trying to connect with the network as much as we can. So in concrete, we're going to continue looking for opportunities in Texas, New Mexico, Colorado, and that's what we are most inclined of, but we are not limited to those markets only. And we are also thinking that as we continue, we're going to probably try to increase the size of acquisitions that we've been making in the aggregate side. So that's a consistent strategy, and we said we'll start working and then we job and then we run. So that's the direction we're following. In ready-mix, yes, we have said in the past that we will invest in ready-mix only if it's an integrated play, either with the aggregates or with our cement plant. But we're definitely open to continue growing in ready-mix and we have been doing it so far under that -- under those considerations.

The next question is from Pablo Ricalde from BofA .