Loma Negra Compañía Industrial Argentina Sociedad Anónima (LOMA) Q3 FY2025 Earnings Call Transcript & Summary

Good morning, and welcome to the Loma Negra Third Quarter 2025 Conference Call and Webcast. [Operator Instructions] Also, Mr. Sergio Faifman will be responding in Spanish immediately following an English translation. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Mr. Diego Jalon, Head of IR. Please, Diego, go ahead.

Thank you. Good morning, and welcome to Loma Negra's earnings conference call. By now, everyone should have access to our earnings press release and the presentation for today's call, both of which were distributed yesterday after market close. Joining me on the call this morning will be Sergio Faifman, our CEO and Vice President of the Board of Directors; and our CFO, Marcos Gradin. Both of them will be available for the Q&A session. Before we proceed, I would like to make the following safe harbor statements. Today's call will contain forward-looking statements, and I refer you to the forward-looking statements section of our earnings release and recent filings with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances. This conference call will also include discussion on non-GAAP financial measures. The full reconciliation of the corresponding financial measures is included in the earnings press release. Now I would like to turn the call over to Sergio.

Hello, everyone, and thank you for joining us this morning. I would like to start my presentation by discussing the highlights of the quarter. Then Marcos will tell you our market view and financial result. Following that, I will share some final remarks before opening the call to your questions. Starting to Slide 2. During the third quarter, industry activity lost momentum as the broader economy is slower. The electoral process and uncertainty around the sustainability of the economic framework, combined with higher interest rate in pesos, ended up negatively affecting shipping level for both the industry and for Loma, which declined 5% year-over-year. [ Putting that aside ], volume recorded in September and October provide encouraging signs as we look ahead. In terms of results in this more challenging context, our consolidated adjusted EBITDA margin contracted to 20.8% in the quarter. However, [indiscernible] almost doubled versus the previous quarter despite the higher cost pressure that typically [ occurs ] in third quarter. Please bear in mind that energy costs are seasonally affected by the winter period. Adjusted EBITDA touching $36 million, reflecting a 23.7% reduction when measured in pesos. On the balance sheet side, net debt declined by $9 million quarter-over-quarter to $206 million. In addition, following the Class 5 bond issuance, we simultaneously improved our maturity profile and our leverage metric remained at comfortable level for the company. I will now hand over the call to Marcos Gradin, who will review our market review and financial results. Please, Marcos, go ahead.

Thank you, Sergio. Good morning, everyone. Please turn to Slide 4. After a solid first half of the year, forecast for the third quarter now point to a weaker performance of the Argentine economy, and full year growth expectations were revised down to around 3.9%. This dynamic is fully reflected in construction and the cement industry. The recovery trend began to lose some steam mainly due to uncertainty around the election process and questions about the sustainability of the economic program. After 2 quarters of growth, cement dispatches were around 1% in the quarter, largely explained by a soft July. And although September volumes were the highest in 22 months, they weren't enough to offset the quarterly decline. Bagged cement remained the most impact format as it's more tied to retail and residential demand. On the other hand, bulk dispatches continued to perform well, in line with what we saw in the second quarter and reached 44% of total industry dispatches. Looking at the most recent data, October's volumes show renewed strength with a 7.4% year-over-year increase and year-to-date volumes are also up 7.4%. Now with the election behind us, we expect uncertainty to start easing. The outcome of the election could be seen as a validation of the government's policy direction, which may help unlock investment projects that have been waiting for a more stable framework. So overall, we remain optimistic that this renewed confidence will gradually put the industry recovery back on track. Turning to Slide 5 for a review of our top line performance by segment. Second quarter top line declined by 12.1%, primarily due to weaker performance in the Cement segment, followed by softer results across the remaining segments. Revenue in the cement, masonry cement and lime segment declined 13.2% year-over-year, driven by a 5.4% contraction in volumes and softer pricing year-over-year. As we mentioned this quarter, we saw a halt in the recovery trend that has started in the first half. Bulk cement dispatches continued to be the dispatch mode, showing the best dynamics, supported by industrial and commercial projects and by larger housing developments. In addition, provincial level public works began to gain momentum, adding volume to the dispatch mode. Bagged cement remained more pressured as weaker overall consumption continues to impact retail and residential demand. When comparing Loma's performance with the industry, our bulk dispatches grew below the industry this quarter. It is also important to note that our segment includes masonry cement and lime, which behave more similarly to bulk cement, while industry statistics disclosed volumes exclusively for gray cement. In the same sense, top line was also affected by softer pricing conditions versus third Q 2024, although cement prices in pesos delivered a positive quarter-over-quarter performance when adjusted by inflation. Concrete revenues remained broadly flat versus third quarter '24 as a 37.8% increase in volumes offset softer pricing dynamics in a highly competitive environment. Volume growth was supported by private developments, mainly in logistic infrastructure and residential construction, and also benefit from higher activity in public infrastructure projects across the metropolitan Buenos Aires area and in the province of Santa Fe. Similarly, the Aggregate segment also remained flat, posting a slight 0.8% revenue decline. Sales volumes rose 26.3%, driven by higher activity in road construction and railroad projects, partially offsetting the impact of softer pricing. Pricing was also affected by the sales mix as road construction projects primarily require fine aggregates, which carry a lower unit price and reduce the overall average. Railroad revenues declined 14.9% in the quarter. A 3.9% decrease in transported volumes only partially mitigate the effect of weaker pricing. In addition, the ongoing disruption of the railroad line in Bahia Blanca continues to affect longer-haul traffic, mainly grains, gypsum and frac sand, reducing ton kilometers transported, and consequently, revenue generation. Moving on to Slide 7. Consolidated gross profit declined 32.5%, while gross margin contracted by 524 basis points year-over-year, reaching 17.3%. In the Cement segment, cost of sales decreased 8.7% year-over-year with a 3.5% reduction in unit cost despite the seasonal impact of higher winter energy costs and higher depreciation associated with the completion of the 25 Kilos project. Effective cost management helped offset the weaker pricing environment. Lower maintenance costs and improved thermal energy inputs prices also supported the quarterly cost structure. Continuing the trend from previous quarter, thermal energy contracts signed last year, which included year-over-year tariff reduction together with short-term agreements linked to oil production at tariffs below $1 per billion BTU, helped contain variable cost. On the electrical energy side, lower consumption helped offset higher electricity tariffs as the company continued to face the impact of increased transmission and distribution costs. The contraction in cement was accompanied by decline across the remaining business segment. Finally, SG&A expenses decreased 11.7%, mainly due to lower freight and sales tax expenses resulting from reduced sales volumes as well as a lower impact from salaries and professional consulting fees. As a percentage of sales, SG&A stood at 9.1%, remaining flat year-over-year. Please turn to Slide 8. Consolidated adjusted EBITDA for the quarter stood at $36 million, while in pesos it reached ARS 43 billion, reflecting a 23.7% year-over-year decline. This decrease was primarily driven by lower EBITDA generation in the Cement segment, followed by weaker results in the Concrete and Railroad segment. In line with this performance, the consolidated EBITDA margin contracted to 20.8%, representing a 315 basis point decline year-over-year, while remaining broadly in line quarter-over-quarter despite the typical cost pressure of the third quarter. In the Cement segment, the adjusted EBITDA margin contraction was more moderate, reaching 24.2%, down 129 basis points year-over-year, mainly due to a softer pricing environment, which, despite showing an improved sequential trend, still lags on a year-over-year basis. Cost on a per ton basis, excluding depreciation, declined 6.5%, supported by lower thermal energy prices and maintenance costs, which partially offset the weaker top line. The Concrete segment saw its adjusted EBITDA margin decline by 1,093 basis points, reaching minus 6.8% versus 4.2% in the first quarter of 2024 as cost controls and higher volumes were not sufficient to offset softer pricing dynamics in a highly competitive environment. In the Aggregates segment, the adjusted EBITDA margin improved by 36 basis points to minus 16.7% compared to minus 17% in the same quarter of last year. Although volumes continued to improve during the quarter, the persistent market challenges and an unfavorable product mix continued to weigh on the segment's profitability. Regarding the Railroad segment, the adjusted EBITDA margin contracted to 920 basis points to 3.4% in third quarter '25 from 12.6% a year ago. Transported volumes improved slightly, mainly driven by higher shipments of granitic aggregates. However, the ongoing disruption of the railway line in Bahia Blanca continued to affect longer-haul traffic, primarily grains, gypsum and frac sand, reducing ton kilometers transported, and consequently, revenue generation. These impacts were partially offset by cost reductions. Moving to the bottom line on Slide 10. Net loss attributable to the owner of the company totaled ARS 8.5 billion for the quarter compared to a net gain of ARS 27.9 billion in the third quarter of last year. This decline was primarily driven by a lower financial result, reflecting a more moderate inflationary effect and a higher impact from FX exposure, combined with weaker operational performance. However, the decrease was partially offset by lower income tax expenses. On the financial front, the main driver of the year-over-year variation was a reduced gain from the net monetary position as inflationary effect of monetary liability was significantly lower than in the same period last year. In addition, the exchange rate difference had a higher impact due to the devaluation of the peso during the period. As a result, the company reported a net financial loss of ARS 28.7 billion for the quarter compared to a gain of ARS 16.6 billion for the same period of 2024. Additionally, net financial expenses increased 7.5%, reaching ARS 17 billion, primarily due to higher interest rates in pesos during the quarter. Moving on to the balance sheet. As you can see on Slide 11, we ended the quarter with a net debt of ARS 281 billion and a net debt-to-EBITDA ratio of 1.49x, up from 0.89x at the end of 2024, while still maintaining a comfortable leverage profile. Cash flow generation from operational activities totaled ARS 32 billion compared to ARS 84 billion in third quarter '24. This mainly reflected higher working capital requirements and a lower operational result. On the working capital side, the economic uncertainty during the quarter and the higher interest rate environment increased working capital needs. This was coupled with higher income tax payments since the company did not make advance payment during 2024. On the other hand, inventories decreased during the quarter due to seasonality as clinker production is minimized during the winter months, while inventory consumption increases. Regarding investing activities, the company allocated ARS 62 billion in the quarter, primarily due to the short-term allocation of the process from the Class 5 bond issuance. On the other hand, CapEx decreased by ARS 14.6 billion following the completion of the 25-Kilogram Bagging project. During the quarter, the company generated ARS 74 billion from financial activities, mainly from the bond issued in July. The Class 5 corporate bond amounted to $113 million with a 2-year tenor and an 8% interest rate. The new bond was partially subscribed through exchanges with holders of Class 2 and Class 3 bonds. Proceeds will be primarily used to repay the remaining balance of the Class 2 bonds maturing in December. In U.S. dollar terms, net debt stood at $206 million with a duration close to 1 year. At the end of the quarter, dollar-denominated debt represents 81% of total debt, while the remaining is in pesos. Now for our final remarks, I will hand the call back to Sergio. Thank you.

Thank you, Marcos. Now to finalize the presentation, I please ask you to turn to Slide 13. During the third quarter, the volume recovery trend lost momentum amid uncertainty linked to the electoral process. The recovery experienced a temporary slowdown, but we believe the underlying growth drivers remain intact. Looking forward, the recent electoral outcome and the ratification of the government economic plan could provide the stability needed to unlock investment projects that have been on hold. And then though many of the economic and political changes remain in place, the election result proved fairly new optimists, which we expect to see reflecting in higher activity levels. I also like to highlight that during the quarter, we begin dispatching the new 25-kilogram bags. After hard work and meaningful investment effort, the new bag format hit the market successfully and was very well received by both our customer and final customer. I would like to congratulate everyone involved in the project. As we approach the end of a very challenging transition year, we remain optimistic about the outlook for more profits in Argentina, and Loma continues to focus on optimizing performance and being ready to support the country's development when conditions normalize. This is the end of our prepared remarks. We are now ready to take questions. Operator, please open the call for questions.

[Operator Instructions] The first question comes from Marcelo Furlan with Itau BBA.

My question is related to pricing going forward. So we saw in the third Q actually prices declined by almost $10 per ton when you look into dollars specifically, and you guys mentioned that it was partly explained by the macro environment and due to uncertainties related to a change in momentum so on and so forth, but also due to competition. So I'd like to understand that moving forward, how are you guys seeing the pricing approach for the company? How could you see the evolution for prices in dollar terms moving forward? And my second question, just a follow-up regarding capital allocation. So you guys mentioned the –- to healthy financial structure and so on and so forth. So I'd like to understand how does the management see the opportunity or the likelihood of a dividend distribution for this year or maybe for '26?

[Interpreted] Regarding prices, the dynamic is similar to the one that we spoke about last quarter. As we talked about during the second Q, we spoke about adjusting prices above inflation this second half of the year. This quarter, we had a correction in the FX that obviously impacted the price in dollar terms. But we expect to see the same tendency going forward, increase in prices above inflation. And with a more stable scenario on the FX, probably we will recover prices in better terms. And regarding dividends, given the situation -- the macro situation in Argentina with the hike in the interest rates and the political uncertainty, we didn't advance in paying dividends so far and we are not expecting to do so in the remaining of the year. And with this new macro scenario and from what we expect going forward, we will reassume the thinking about paying dividends next year.

The next question is from Andres Cardona with Citigroup.

I would like to ask about early color for volumes for the 4Q. We saw a nice print for October. I would like to understand what drives that better-than-expected performance and if you see those dynamics still in place for November, December?

[Interpreted] The volumes for October that were recently published showed a recovery in the market. Our vision is that there were 2 main drivers there. One was that before the elections, many people hold on investing in infrastructure, and also with the adjustment in the FX with a lower cost in dollar terms, some other projects are gaining pace. And seeing the volumes of October and November so far, we are optimistic looking ahead. If we continue this scenario of low rates and stable FX and a more stable macro, that should give more dynamic to investment projects and increase the level of activity. And as is public in recent news, there are some -- also some public works going on that are going to add more volume and increase the level of activity as well.

This concludes our question-and-answer session. I would like to turn the conference back over to Diego Jalon for closing remarks.

Thank you very much, everyone, for joining us this morning. It's always a pleasure. And we are here if you have any other concerns or questions regarding the queue. And we will see you again for the -- in the upcoming quarter. Thank you very much.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.