Cemex (NYSE:CX) reported third-quarter financial results on Monday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
Cemex reported strong Q3 2026 results, with net sales growing 8%, EBITDA increasing by 12% and EBIT rising by 19%, driven by higher consolidated prices and improving cement volumes.
Project Cutting Edge continues to drive operational improvements, with significant asset pruning in the U.S. and Europe contributing to a record adjusted free cash flow from operations of $2.2 billion.
The company is on track with its decarbonization efforts, reducing gross CO2 emissions by 1% year-to-date and advancing toward its 2027 targets faster than expected.
Cemex plans to continue enhancing digitalization and AI in its operations to unlock additional value, aiming to sustain and improve its EBITDA margin.
The company is focused on maintaining strong cash flow and reducing costs through hedging strategies for energy expenses, with 50% of energy exposure already hedged for 2027.
Full Transcript
Piercy (Operator)
Good morning. Welcome to the Cemex third quarter 2026 conference call and webcast. My name is Piercy and I’ll be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. If at any time you require operator assistance, please press star followed by zero and we’ll be happy to assist you. And now I will turn the conference over to Lucy Rodriguez, Chief Communications Officer.
Please proceed.
Lucy Rodriguez (Chief Communications Officer)
Good morning and thank you for joining us for our third quarter 2026 conference call and webcast. We hope this call finds you well. I am joined today by Jaime Muguiro, our CEO, and by Maher Al-Haffar, our CFO. We will start our call by reviewing our third quarter results, followed by our expectations for the remainder of the year, and then we will be happy to take your questions. As a reminder, the previously announced sale of some of our operating assets in Colombia has not closed; until the transaction closes, for accounting purposes this will be treated as a partial sale of an operation, and we will continue to fully consolidate these operations in our P&L. In addition, during the quarter we completed the sale of certain ready-mix and recycled concrete assets in the Atlanta region in the U.S., with these operations deconsolidated as of September 30th.
In France, in connection with the proposed divestment of certain ready-mix and aggregate assets, we shall continue to consolidate these operations in our P&L until the transaction closes. And now I will hand the call over to Jaime.
Jaime Muguiro (Chief Executive Officer)
Thank you, Lucy, and good day to everyone. I am pleased to be here today to discuss our third quarter results. Despite a volatile macro environment marked by higher interest rates, energy costs, and reduced economic visibility, our teams have remained agile and focused on what we can control, delivering on a transformation plan while identifying further opportunities for improvement. With Project Cutting Edge as our foundation, we achieved another quarter of solid performance and sustainable progress on our strategic priorities.
What I find particularly encouraging is that our results continue to reflect the structural changes we’re making in our drive to become more efficient, profitable, and customer centric. While recovery across our markets remains uneven, we continue delivering on our objective of structurally higher earnings quality. The operational improvements under Project Cutting Edge are increasingly evident in our results, with EBITDA and EBIT once again growing faster than revenue and free cash flow from operations expanding at an even stronger pace. In fact, for the second consecutive quarter, our adjusted trailing twelve-month free cash flow from operations conversion rate reached approximately 60%. Our asset-pruning efforts under Project Cutting Edge are delivering the first tangible results, with completed and announced strategic divestitures largely focused on ready-mix assets in the U.S. and Europe in the quarter.
Furthermore, we have made good progress towards our 2027 targets set out at the Cemex Day earlier this year, with expansion in year-to-date EBITDA and EBIT margins as well as free cash flow conversion rate ahead of our 2027 targets. All of this is happening at a faster pace than we originally expected. Turning to our decarbonization pathway, we have profitably reduced our year-to-date gross CO2 emissions by 1%, supported by a lower clinker factor. Taken together, these results reinforce our confidence that the actions we’re taking today are building a stronger and more resilient Cemex, better prepared to weather this volatile macro environment. At the same time, our work is far from complete. We still have important elements of Project Cutting Edge to deliver and are continuing to identify new opportunities to improve operational performance and asset efficiency.
As we advance these efforts, we’re also preparing for the next phase of our transformation, driven by digitalization and AI, and with that let me discuss our results in more detail. Our results once again reflect the benefits of our transformation, translating into stronger profitability and cash generation. Net sales grew approximately 8%, supported by higher consolidated prices and improving cement volume trends in most markets. As Project Cutting Edge efficiencies continue to build and operational improvements gain traction, EBITDA and EBIT increased 12% and 19% respectively. This performance marks our fifth consecutive quarter of double-digit EBITDA and EBIT growth as well as margin expansion, underscoring the consistency of the progress we’re making across the business.
Mexico remained a key contributor to consolidated growth during the quarter as demand recovery continued to gain momentum, further supported by our transformation initiatives. The steps we’re taking under Project Cutting Edge are producing materially stronger cash generation year to date. Free cash flow from operations increased by more than $900 million year over year on a trailing twelve-month basis. Adjusted free cash flow from operations reached a record level of $2.2 billion, with an adjusted conversion rate of approximately 62%.
Consolidated cement volumes increased 3% year on year, supported by improving demand trends across most of our markets. In Mexico, residential demand, supported by government-sponsored social programs and continued competitor outages, drove cement growth. In the United States, cement volumes increased, driven by the acquisition of Omega and specific project works. In Europe, severe heat waves and a fragile recovery in several markets and volumes across all products.
Within South, Central America, and the Caribbean, cement volume growth was supported by demand in Colombia and Jamaica. Consolidated prices for our three core products increased by a low single-digit percentage year over year, supported by pricing actions implemented in the first half of the year. On a sequential basis, cement price performance reflected geographic and product mix effects as well as price erosion in certain markets. In the case of ready-mix, prices continued to benefit from fuel surcharges in the U.S. and Europe and strong pricing traction in Middle East and Africa.
With limited visibility on a clear resolution to the Iran war, we remain vigilant and focused on preserving margins and offsetting input cost inflation through our pricing strategy. Over time, EBITDA increased 12% year over year, reflecting the combined benefits of our transformation. Alongside higher pricing, growing cement volumes, and favorable FX movements, we estimate that Project Cutting Edge contributed approximately $60 million in incremental savings in the quarter. Pricing remained the main contributor to EBITDA growth, offsetting increased costs and expenses largely related to higher maintenance and distribution costs.
While pricing was sufficient to offset costs, for the first time in six quarters we’re seeing an increase in year-on-year total costs, reflecting a pickup in inflation on energy. Despite the significant hike in global energy prices year to date, energy costs in cement production declined 2%, well within our full-year guidance of a low single-digit increase. This is a result of our comprehensive energy strategy, protecting us in the short term from volatility on fuels and electricity.
Going forward into 2027, while we have already put in place relevant hedges, we do expect to face higher energy costs, which we aim to mitigate through our pricing strategy. Beyond these factors, EBITDA growth was also supported by our Urbanization Solutions business, where EBITDA increased 25% year over year, mainly driven by mortars in the U.S. following the acquisition of Omega. Together, these levers drove another quarter of margin expansion and further demonstrate the sustainable improvements we’re delivering across the business. I am pleased with the continued execution of our cost-savings program. This quarter we achieved $60 million in recurring savings, including $20 million originally expected in the fourth quarter and beyond.
We have now achieved 80% of our $475 million cost-savings target, with the remaining $95 million expected to primarily benefit 2027 results. Year to date, this initiative has supported a tangible improvement in our cost of sales and operating expenses as a percentage of sales, with both declining by 1.6 and 0.8 percentage points respectively. As we near completion of our cost-savings program, we will enter a new phase in our transformation focused on unlocking additional value through digitalization and AI.
We have made important advances on our asset pruning initiative. As you know, this effort is designed to enhance asset efficiency, focusing on our three key metrics: EBIT, free cash flow, and return over cost of capital. Since we launched Project Cutting Edge, we have reviewed every asset in our portfolio, identified those not meeting our return criteria, and established action plans for remediation. This process takes time, as each asset requires a detailed assessment including its cyclical performance, micro market dynamics, and vertical integration implications.
The actions coming out of this review may include performance plans, disposals, closures, or an optimization of our operating network, which also can take time. The actions taken on each asset will bring different benefits to these metrics, as some may improve free cash flow while others focus on return on capital. We estimate the potential benefit from this initiative to be between $100 and $150 million in incremental recurring free cash flow. We also have advanced faster than we anticipated, and during the quarter we made some important progress. We divested ready-mix assets in the Atlanta market with a long-term cement and admixture supply agreement. We also initiated exclusive negotiations with Vicat Group for the proposed sale of certain ready-mix and aggregates assets in southeastern France. Since launching this initiative last year, estimated cash proceeds, including both completed and announced transactions, total more than $200 million and include more than 140 facilities.
While these actions deliver immediate improvement in EBIT, free cash flow, or return on invested capital, the proceeds can also be recycled into more strategic and accretive investment opportunities in the future. All of this is further evidence that we are increasingly disciplined about where we deploy our capital, ensuring our investments generate attractive returns. As we move into 2027, our focus remains on advancing Project Cutting Edge and the variables we can control to improve earnings quality, cash generation, and shareholder returns. And with that, back to you, Lucy.
Lucy Rodriguez (Chief Communications Officer)
Thank you, Jaime. Our operations in Mexico delivered another solid quarter driven by recovering cement demand and cost efficiencies. EBITDA increased at a double-digit rate, while margin expanded by nearly 4 percentage points. Year-on-year, cement volume growth remains supported by a healthy residential sector and government-backed social programs including housing and rural roads. Competitor outages during the quarter again provided an unexpected and temporary boost to volumes.
The Social Housing program, a flagship initiative of the current administration, has been a meaningful lever of growth in our business and continues to scale. According to government figures, about 35% of the 1.8 million housing unit target has been contracted to developers who then bid out the building materials requirements. Given progress in contract awards to date, we expect government focus to shift towards accelerating construction under the signed contracts.
While ready-mix volumes continue to lag cement recovery, we are encouraged by the strength of our order book, which should support volumes in 2027. Contracted ready-mix volumes tied to infrastructure have increased materially, supported by large-scale projects such as railroads, highways, and dams. We also saw a material pickup in contracted volumes for domestic industrial projects, although it is still too early to assess whether this trend is sustainable.
Cement prices were stable sequentially after adjusting for mix effect, while ready-mix prices increased. We announced a mid-single-digit price increase in bag cement which became effective early October. We will continue to pursue pricing actions as needed to offset inflationary pressures going into 2027. While cost efficiencies and other structural initiatives under Project Cutting Edge were the primary drivers of EBITDA growth and margin expansion in the quarter, our results also benefited from more transitory factors including better-than-expected energy costs.
As we move into the fourth quarter, we anticipate some incremental headwinds primarily from higher energy and maintenance as well as increased FX volatility. Looking ahead to 2027, we expect demand to remain constructive supported by higher infrastructure execution and continued momentum in residential. At the same time, we are monitoring new capacity in central Mexico and are preparing for a scenario where our volumes could grow less than the national market.
In the US, cement and aggregate volumes increased 4% while ready-mix declined 1%. The growth in cement volumes was driven by positive dynamics across most of our markets as well as the contribution from Omega. On a sequential basis, aggregates volumes grew 9%, underscoring recovery from the adverse weather conditions in Texas during second quarter. Sequential cement prices declined 3%, reflecting price erosion in some markets as well as higher internal freight as we continue replacing imports with domestic production.
Ready-mix prices increased 1% sequentially and 3% versus fourth quarter 2025, supported by the implementation of fuel surcharges, adjusting for product mix. Aggregate prices were stable sequentially after a mid-single-digit increase in the first half of the year. EBITDA and margin in the quarter were impacted by an unplanned outage in our Brooksville plant, higher raw material cost inflation in ready-mix and cement, and lower cement prices. Demand continued to be led primarily by infrastructure. While IIJA expired at the end of September, we estimate that approximately 40% of the funds remain to be spent, supporting a healthy project pipeline into 2027 as we await the passage and approval of a new transportation bill.
In the industrial sector, demand related to the AI ecosystem, including large data centers, semiconductor facilities, and manufacturing, continues to grow, with rising investment in the power sector providing further support over the medium term. We estimate that AI-related demand represents a high single-digit percent of our ready-mix volumes year to date, more than double our full-year 2025 volumes. In this segment, residential construction remains challenged by affordability constraints and elevated housing inventories in certain regions.
We expect markets to recover at varying pace as inventory levels and affordability improve over the medium term. In aggregates, which currently represents about 40% of our US EBITDA, volumes have increased year to date but less than initially anticipated. This reflects delays in some of our new aggregate projects coming online as well as softer market demand. We now expect these investments to contribute to incremental volumes in 2027. In this environment, we continue to strengthen our operations through higher kiln efficiency, higher asset returns, and a continued focus on operational excellence.
These efforts should allow us to capture the benefits of high operating leverage once volumes recover. Going into the fourth quarter, we expect some incremental headwinds primarily due to the timing of maintenance and energy costs for 2027. With spot natural gas prices lower year over year, we expect energy headwinds to be, to a large extent, related to diesel cost. Our operations in EMEA delivered favorable results with EBITDA increasing 4%, supported by strong pricing and efficiencies from Project Cutting Edge, which offset rising energy costs across the region. Both Europe and Middle East and Africa subregions contributed EBITDA growth of mid to high single digits. In Europe, volumes were affected by persistent heat waves, project delays in infrastructure and the industrial and commercial sector, along with a fragile construction recovery.
Cement volume growth in Germany, the first in over a year, together with continued growth in Spain, partially offset softer volumes elsewhere in the region. Residential demand across much of Europe remains subdued due to elevated interest rates, while Spain remains an important exception. Despite delays, infrastructure has been more resilient, with additional medium-term support expected from EU funding in Poland and fiscal stimulus in Germany. Sequential pricing was broadly stable in Europe across our three products.
Importantly, prices are up low to mid single digits since fourth quarter 2025, reflecting successful first-half pricing increases in markets affected by the introduction of the Carbon Border Adjustment Mechanism this year. Across Europe, fuel surcharges and price increases covering the majority of our ready-mix volumes are helping mitigate higher diesel costs. We remain constructive on pricing in continental Europe supported by the Carbon Border Adjustment Mechanism and the continued phase-out of free CO2 allowances under the EU ETS.
We are awaiting the introduction of the CBAM in the UK as well in first quarter 2027. At the same time, we remain particularly vigilant on rising cost inflation and shall continue seeking to offset these pressures through our pricing strategy. On decarbonization, year to date, our European operations have reduced gross CO2 emissions by 2%, reaching 497 kg of CO2 per ton of cement equivalent, mainly driven by a lower clinker factor. In the Middle East and Africa region, double-digit cement volume growth was driven by the recovery of market share lost in Egypt in the second quarter 2026. Our operations in Israel and the UAE remain resilient amid geopolitical tensions, with ready-mix volumes increasing in both markets. In Israel, aggregate volumes were impacted in the quarter by the transition to a new quarry, which will be one of our largest in the country. Operations are currently ramping up and are expected to normalize in first quarter of 2027.
Despite a sequential decline in cement prices in Egypt, overall pricing in Middle East and Africa remains solid compared with fourth quarter 2025, with cement, ready-mix, and aggregates up 1%, 11%, and 8%, respectively. Our results in South, Central America and the Caribbean were impacted by higher cement purchases in Jamaica, reflecting annual maintenance costs and stronger-than-expected demand, along with higher energy costs in the region. While operations in Jamaica have since stabilized, we anticipate additional cement purchases in fourth quarter, which should then normalize in 2027. Cement demand in the region remained solid, supported by robust performance in Colombia and Jamaica, with the informal sector driving activity in both markets.
In Jamaica, demand also benefited from increased reconstruction activity related to last year’s Hurricane Melissa and continued investment in tourism-related projects. Looking ahead, we remain optimistic on the fundamentals of our portfolio in the region supported by resilient informal construction, and with that I will now turn the call over to Maher to review our financial developments.
Maher Al-Haffar (Chief Financial Officer)
Thank you, Lucy, and good day to everyone. Our self-help initiatives continue to deliver. This quarter EBITDA grew 12% to $990 million. Margin expanded 80 basis points, and free cash flow generation and conversion continued to accelerate. Project Cutting Edge continues to drive meaningful improvements in our cost structure, with a reduction in cost of sales and operating expenses as a percentage of sales. As Jaime pointed out, energy cost volatility has been a key theme this year. Our strategy combines fuel diversification, long-term contracts and hedging, disciplined inventory management, lower clinker factors, and higher energy efficiency. And this strategy is paying off year to date. Energy cost per ton of cement produced declined 2%. This reduction was driven by a double-digit decline in the cost of alternative fuels, more than offsetting single-digit increases in fossil fuels and electricity.
Alternative fuels now represent about 28% of our fuel mix. Our diesel hedging program, covering own and third-party freight, generated gains of $82 million year to date, offsetting higher diesel and transportation costs. We are also well protected for 2027. About 80% of our direct diesel consumption is hedged, while the hedge level is higher compared to 2026. If diesel prices remain at current levels, we expect the hedging benefit to be broadly similar to this year.
In addition, in Europe we have already contracted about 60% of our electricity needs at fixed prices, only 4% above this year’s levels. Free cash flow from operations reached $723 million in the quarter, up 34% year to date. It nearly tripled to $1.4 billion from a year ago. More than half of this increase came from EBITDA growth. The rest came from lower maintenance capex, net interest and other cash expenditures, lower working capital investment, and higher fixed asset sales, excluding severance payments and discontinued operations. Our trailing twelve-month free cash flow from operations conversion rate reached 62%, up 16 percentage points from a year ago.
Year-to-date investment in working capital was $40 million lower than last year, driven by Mexico and the US. Average working capital days stood at minus 9 compared to minus 10 last year. We remain on track to meet our working capital full-year guidance of an incremental investment between $50 to $100 million. Controlling net income rose 55% in the quarter. Year to date, it is lower reflecting last year’s one-time gain on the sale of our Dominican Republic operations. Excluding that gain, year-to-date net income would have risen 47%. Since December, we have reduced total debt plus subordinated notes by $1.7 billion and net debt plus subordinated notes by about $535 million. Net financial leverage closed the quarter at 1.8 times, a nearly half-turn decline since December and already within our midterm target.
Looking ahead, we remain focused on further strengthening our capital structure towards a solid BBB rating while continuing to grow free cash flow and conversion rate. And now back to you, Jaime.
Jaime Muguiro (Chief Executive Officer)
Thank you, Maher. I am pleased with our results this quarter. I’m encouraged by the continued benefits we’re seeing from our transformation which are particularly relevant under the current macroeconomic backdrop. Based on our year-to-date performance and expectations for the fourth quarter, I am confident in our ability to deliver on our full-year EBITDA guidance of 16% to 17% year-over-year growth. Our guidance is based on a peso FX rate of 18.25–18.50 for the fourth quarter.
Our energy strategy is paying off in 2026 and we believe we’re well positioned to address continued energy volatility in 2027. We remain committed to advancing our transformation, delivering on our cost-savings target, executing on our asset pruning effort, and strengthening free cash flow. While uncertainty is likely to remain part of the operating environment, our focus remains firmly on execution. By continuing to improve what we can control, we’re well positioned to further strengthen earnings quality, cash generation, and shareholder returns over time. And now back to you, Lucy.
Lucy Rodriguez (Chief Communications Officer)
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 reference to pricing initiatives, price increases or decreases refer to our prices for our products. And now we will be happy to take your questions. In the interest of time and to give other people an opportunity to participate, we kindly ask that you limit yourself to only one question.
If you wish to ask a question, please press Star followed by one on your touchtone telephone. If your question has already been answered or you wish to withdraw your question, press Star followed by two. Press Star one to begin. And the first question comes from Ben Theurer from Barclays. Ben,
Ben Theurer (Analyst)
Yeah, good morning and thanks for taking my question. Congrats, Jaime, Lucy, Maher. Another good quarter in here. Wanted to pick up on some of the comments you already gave, but as we look into 27, how should we think about the sustainability of the margin improvement that you’ve achieved in 26, especially as we look at less favorable FX, higher raw material costs? You talked a little bit about that. So what are the offsets from productivity, price mix, and the operating leverage as you think for the coming quarters?
Thank you.
Jaime Muguiro (Chief Executive Officer)
Good morning, Ben, thank you for your question. Biggest offsets softened demand could be on inflation. But look, the margin we’re achieving in 2026 is structural. We committed to a 21% EBITDA margin for 2020 Cemex during Cemex Day and that is the floor. And the reason for that is because we will continue transforming Cemex with the second phase of our transformation on potentially bringing incremental savings beyond the $475 million that we’ve committed to by end of 2020.
The other aspect is because we’re not done with our asset pruning efforts and those should be accretive to margins. EBITDA, EBIT, free cash flow conversion and ROIC. We’re making progress, but we’re not there yet. And finally, when we think about capital allocation, one lever is M&A and anything we do on capital allocation should be conducive of a structural, a stronger portfolio that should deliver accretive margin expansion. So the point, Ben, is that we think it is sustainable and it’s the floor and we need to go for more.
Thanks for your question, Ben.
Ben Theurer (Analyst)
Thank you.
Lucy Rodriguez (Chief Communications Officer)
And the next question comes from Alejandra Obregon from Morgan Stanley. Ali, hi, good morning.
Alejandra Obregon (Analyst)
Hi Maher, Lucy, thank you for the call and for taking my question. I guess mine is very similar to Ben’s question but this time on free cash flow, I mean there are many moving pieces and moving in the right direction. You have interest expense trending lower, capex, working capital. So my question is how much of that improvement should we think of as structural and repeatable into 2027? How much of that is seasonal or timing driven? How much is it linked to asset pruning?
If you can help us think of free cash flow generation and conversion into 2027. Thank you.
Jaime Muguiro (Chief Executive Officer)
Alejandra, good morning. Thank you for your question. Let’s think about our free cash flow conversion not just for 2027, but beyond. Everything we’re doing is structural. There are no timing-related events in our free cash flow conversion transformation and we are working on all lines. Number one, improving EBITDA margin. Which, as I just commented, we will continue pursuing that. But then we are optimizing structurally every line of free cash flow. So this year we’ve paid significant gross debt and I will pass the word to Maher in a minute to elaborate about that. So we continue to see a material reduction of interest expenses and we’re not done because when we do benchmark against the best-in-class free cash flow operators in our industry, we still have a way to go to reduce interest expenses as a percent of EBITDA and as a percent of sales.
On working capital, I think it is structural. We’re going to stay for long between -8, -9, -10 days. But we shouldn’t expect any material investments in working capital through the cycle. Also, Maher and the team will continue to do liability management opportunities. Then when it comes to total capex, including platform capex, strategic capex and intangible assets, we haven’t yet gotten where structurally we need to be. I’ve been commended to the market that we should be landing at around maximum of $1.15 billion to $1.2 billion of total capex, including the three concepts, by 2028 and beyond. And we’re making significant traction and one element is the asset pruning.
The asset pruning has not contributed much yet. We were just beginning to see traction. We are fully committed to delivering, at least incrementally, $100 million of incremental free cash flow recurrently from that effort. But that’s going to contribute from 2027 onwards. So it’s structural, it’s happening and I see no reason why we shouldn’t be achieving the best-in-class free cash flow conversion at all levels. Whether it’s free cash flow from operation, total free cash flow, it doesn’t matter.
We’re going to do better and we know who our benchmarks are and we are going to get there. So thanks for the question, Alejandra.
Alejandra Obregon (Analyst)
Thank you very much, Jaime. That was very clear.
Lucy Rodriguez (Chief Communications Officer)
Okay. And the next question comes from Carlos Peyrelongue from Bank of America. Carlos,
Carlos Peyrelongue (Analyst)
Thank you, Lucy. Congrats on the strong results. Question is related to costs for next year. Maher made some initial comments, but just wanted to get further clarity on which costs you have already hedged on the energy front and which ones you plan to negotiate in the fourth quarter. And if there’s any part that you will not hedge as you go into next year. I got the 80% on diesel, but I missed the number on gas, the percentage that you have hedged.
So any further info on cost for next year would be helpful. Thank you.
Jaime Muguiro (Chief Executive Officer)
Okay. Carlos, thank you so much for your question. Before I pass the word to Maher, we do expect, right, incremental costs next year, inflation on energy, right, potentially between mid to high single-digit inflation, right. When you think about it, we have three buckets: we have fuel, we have electricity, and we have diesel. And regarding diesel, it’s direct and indirect. So Maher will elaborate more about the hedges. But what’s important is that regarding fuels, we will continue to ramp up using alternative fuels.
We will also swing from coal to petcoke, from petcoke to coal, to natural gas by market depending on the different energy pricing dynamics in different parts of the region. For example, we’ve seen very good and competitive natural gas cost in the U.S., and we’ve been ramping up consumption of natural gas in the U.S. We do see higher alternative fuels usage in Europe after we completed two relevant capex in two of our plants, right. And we also have great capacity to increase using alternative fuels in Mexico.
And most of our fuels, particularly in Europe, are under fixed contracts. Right? Definitely to offset inflation next year. Pricing is going to be key. Maher, could you please elaborate on the hedges, please?
Maher Al-Haffar (Chief Financial Officer)
Yes, thank you, Jaime. And hi, Carlos. So from a strategy perspective, Carlos, our hedging strategy hasn’t really changed materially. You know, as you know, we roughly have energy as a percentage of COGS is around 12%. That’s roughly about a billion and a half dollars. And it’s roughly split, as Jaime said, in kind of three equal parts: cement fuels, electricity, and diesel. On the cement fuels, we are, you know, we cannot hedge pet coke and we don’t hedge coal.
Alternative fuels are either fixed cost or, you know, under contract and so that we benefit from that. Natural gas, the U.S. consumes roughly half of the natural gas that we consume in the company. And this year we’re up to around 28% of nat gas. 26, we hedged 75% of that. And into 27 we’re already close to about 75, 80% of that. So we’re hedged on that. Now if you take a look at the forward curves for coal, for Brent and for diesel, they’re all in backwardation. The diesel I covered in my remarks. Now we’ve only hedged for next year the direct diesel, and we’re close to about 75, 80% there in the position. So that’s the end. Alternative fuels have dropped during the year. Nat gas is down by 28%. You know, and the diesel, as you saw, we’re gaining close to about 80 plus million dollars. Now if we maintain, if diesel prices maintain as they are going into next year, we’re likely to have a similar benefit next year in our diesel hedge as we had this year.
So I don’t know if that covers your question.
Carlos Peyrelongue (Analyst)
Yes, thank you very much.
Lucy Rodriguez (Chief Communications Officer)
Maybe if I could just add a quick complement, Maher, I think in total about 50% of our energy exposure is hedged right now. And because we don’t get the regulated market increases until fourth quarter, that should, in the United States, that should go up materially, I believe, going forward. So just to put that percentage out there.
Maher Al-Haffar (Chief Financial Officer)
Yeah, thanks, Lucy.
Lucy Rodriguez (Chief Communications Officer)
Thank you. Thank you. Okay, the next question comes from Yassin Tuari from On Field. Yassin,
Yassin Tuari (Analyst)
Good morning and thank you very much for taking my question. I think just one question on your full-year guidance, I think it implies broadly flat EBITDA growth in the fourth quarter despite you delivering 12% growth organically in Q3. Have you seen any meaningful deterioration in activity or in margin in October across any of your region? Or if this is not the case, do you see any scope to do better than the upper range of your guidance? But you feel it’s like there is too much uncertainty regarding weather, energy or geopolitical uncertainty to upgrade this guidance at this stage.
Maher Al-Haffar (Chief Financial Officer)
Yassin, good morning. Thank you for your question. First of all, we’re going to be landing very close to our 21% EBITDA margin target that we announced for next year during Cemex Day, right? Supported by our transformation. Now, in the fourth quarter of this year, on one hand we have the normal seasonality impact, right? Normally from third quarter to fourth quarter that would be around minus 1.3 percentage points, right, because of lower volumes, the winter, the weather, so on and so forth.
But we do expect energy-related headwinds on one hand and higher maintenance cost on the other hand. Regarding maintenance, we expect higher maintenance expenses in the U.S. In the U.S., we waited until the fourth quarter to do an important outage in one of our plants where we are changing the control systems of the plant, the software that we use to run one of our plants because of obsolescence. So that’s going to have an impact on maintenance. We also have higher maintenance expenses in Mexico and SKAC. So overall the headwind for fourth quarter in maintenance is around $18 million.
We also expect higher energy costs, mainly petcoke in Mexico, electricity in Europe, a headwind of around $17 million. And then let me remind everybody that we have a tough comparison based EMEA because last year in the fourth quarter 25 we had a one positive one off of around 12 million dollar headwind. So that’s the reason why we’ve been prudent. But we’re going to be landing very close to our EBITDA margin target of next year announced in Cemex Day.
So thanks for your question. Yassin, thanks.
Lucy Rodriguez (Chief Communications Officer)
And the next question comes from Adrian Muerta from JP Morgan.
Adrian Muerta (Analyst)
Adrian, thank you, Lucy. Hi everyone. Just wanted to see if you can give us a little bit more color on prices in the U.S. for both aggregates and cement. What you saw in the third quarter, what happened with mid-year efforts to increase prices, and what have you done so far for the increases in the first half of 2017?
Jaime Muguiro (Chief Executive Officer)
Adrian, good morning. Thank you for your question. Well, first, regarding cement FOB prices that you saw declining quarter over quarter, the first thing is that one-third of that sequential price decline was due to higher internal freight cost as we continue replacing imports with domestic production. So that’s one aspect. Now, when you neutralize that effect, there are different competitive dynamics in different markets, but I would highlight that there is a difficult competitive dynamic in a few of our markets, particularly some markets in Texas and northern Florida.
And that’s what drove the FOB price decline sequentially, excluding the impact of internal freight cost, which obviously, as we replace imports, we lower our variable cost, but you see then the effect elsewhere on FOB price. Our ready-mix price is being very resilient. We saw an uptick of 1% sequentially quarter over quarter and year over year is 1% up. And this is mainly driven by fuel surcharges which are working very well offsetting diesel cost inflation. And then on aggregates we continue to do well. Point to point for quarter 25 through Q26 is up 3% and it was flat quarter on quarter adjusted by mix, right. But we didn’t see an opportunity in the market to put any price increase around September or October on aggregates.
Now, when we think about 2027 in the U.S., as all across our portfolio, as I highlighted, we do see inflation. I’m expecting mid-single digit across the board, between mid to high single digit in energy. So we’re going to target solid mid-single digit price increases across the board across all products to protect margins. That’s what we need to achieve for next year. That’s how we’re thinking. So thanks for the question, Adrian.
Lucy Rodriguez (Chief Communications Officer)
The next question comes from Jerrel Guilloti from Goldman Sachs. Jerrel.
Jerrel Guilloti (Analyst)
Hello everyone. Thank you for taking my question. So I wanted to dig deeper on your comments on U.S. residential specifically. How do you see U.S. residential demand evolving? Is stabilization the most likely near-term outcome with perhaps risks to the downside, or are you seeing signs of recovery? Would this outlook differ by geography? And what is the share of this demand that’s coming from residential?
Jaime Muguiro (Chief Executive Officer)
Thank you, Jerrel. Thank you for your question. Good morning. Regarding U.S. demand for residential, I think industry is around 30%. Regarding Cemex, I think we’re between 30% to 35% exposure. That is because we’re more exposed to the Florida market where residential weighs more on that average for the industry. What we’re doing is agile commercial strategies pivoting towards infrastructure, energy, industrial build-out projects, high-rise buildings, health care, schools, public jobs, right, so on and so forth, and of course data centers.
So we are growing our exposure for aggregates, ready-mix concrete and cement, both indirectly and directly on those segments, right. And that’s what’s driving, right, our volume growth in the U.S. Regarding 2027, I don’t expect residential to improve. Again, it’s an issue of affordability. I don’t have to explain it; you know that very well. We are not expecting as of today a collapse of the residential segment in the U.S., but it’s not going to contribute at all. But we don’t see a massive downside to it as well. And definitely single-family homes and multifamily will behave differently because there is pent-up demand, there is household formation, people need to live somewhere.
So either one or the other will hold. That’s how we see it. Now, for the midterm though, right, as soon as affordability improves, this is going to be a tailwind and that’s going to bring, right, demand growth and that’s going to bring operating leverage for our U.S. business, and I look forward to it. But we’re going to have to wait a little bit longer. So thanks, Jerrel, for your question. Thank you very much.
Lucy Rodriguez (Chief Communications Officer)
And the next question comes from Francisco Suarez from Scotiabank. Paco, are you there? Maybe what I can do is go on to the next question. We can come back to Paco if he connects. The next question comes from Gordon Lee from BTG and it’s been submitted via the webcast. The question is: as you look at your options of capital allocation tools, why have you not been more active buying back shares given the stock’s underperformance over the past few months?
Maher Al-Haffar (Chief Financial Officer)
Gordon, thank you for your question. Well, first, shareholder returns is one of our top priorities along with deleveraging and growth investments. We’ve been monitoring our stock and we are balancing using our free cash flow among the three priorities: share buybacks, deleveraging and growth investments. As markets derate, we may have accretive growth opportunities compared to share buybacks. But we’ve already done 100 million and we plan to repurchase up to the 500 million dollars in shares through 2028.
So we will continue tapping that opportunity and balancing that with deleveraging because we see opportunity to continue paying debt. It should be accretive. We want to reduce interest expenses, boost free cash flow conversion structurally, and then look for some M&A growth opportunities as well. Thanks for the question, Gordon.
Lucy Rodriguez (Chief Communications Officer)
And the next question comes from Andres Cardona from Citi. Andres,
Andres Cardona (Analyst at Citi)
Hi, good morning. Hi. Congrats on the results. Let me ask about Mexico. What are your views for housing and infrastructure for 2027? Could you please remind us what is the cement intensity of the social housing program?
Jaime Muguiro (Chief Executive Officer)
Andres, thank you very much. Good morning. We see both housing and infrastructure resilient for 2027. I think what’s been a little bit disappointing in 2026 has been infrastructure because it has moved slower than what we expected. But there is a good indicator that we’re expecting much better in 2027, and that is how we’ve been building up our ready-mix concrete backlog. As of the third quarter of this year, our ready-mix concrete backlog has increased by around almost double, by around 95% to 98%.
So we are expecting dams, highways and rail projects coming along finally in 2027. Now, housing is behaving well. All leading indicators are looking good, both the formal sector, but also the social housing program, which is gaining steam. We’ve been nicely exposed to it. We continue to win projects. They are pretty intense in concrete because of the way it was specified, using concrete cast in place for not only foundations and pillars, but also slabs and even the cladding of the building. For this reason, we’re estimating around 6 to 7 tons of cement and 30 cubic meters of ready-mix concrete per unit.
So I hope that I answered your question.
Lucy Rodriguez (Chief Communications Officer)
Okay. And I’m going to try once more. Paco Suarez from Scotiabank, are you there? Okay, I do have his question, so I’m just going to go ahead and read it. Do you see upside benefits in the form of additional savings from the $80 million you see project cutting edge impacting in 2027?
Jaime Muguiro (Chief Executive Officer)
Paco, thank you for your question. We continue with our transformation and probably we will deliver higher savings than the 475 million that we committed by end of next year. And yes, you’re right. We’re expecting incremental $80 million to finish this first part of the transformation. But the next phase is very exciting and it’s powered—if you allow me to elaborate very quickly—it’s powered by technology, including AI. We’ve chosen a few domains. Two of them are back-office domains that would dramatically benefit from the deployment of digitization, automation, integration, including augmented AI. We want to standardize more, right, automate more, and that’s going to drive efficiencies and savings. The other aspect is in the cement domain, where we see AI playing a role in supply chain, particularly in freight, and also in production and maintenance. Maintenance is midterm.
Production will come sooner. And this is about deploying AI to manufacture so that augmented AI models run our raw mills, our kilns and our cement mills and do that, adjusting faster operating parameters, delivering incremental yield and lower energy cost per ton. We’re progressing with Balcones deployment and then we will start scaling in the U.S. and then elsewhere, and that’ll be a, you know, three-year program. So also very exciting. And finally, the way we address third-party addressable spend within procurement and outside of procurement.
So far out of the $475 million, we are delivering around $80 million on recurring procurement savings. But our target is much, much higher and we see great opportunities. So bottom line is we continue with our transformation. We’re not done yet. And that should bring further efficiencies and we will focus on business excellence combined with capital allocation and shareholder returns. And that’s our transformation.
Lucy Rodriguez (Chief Communications Officer)
Thank you, Jaime. We have time for one last question and it is coming from Paul Rogers from BNP via the webcast. And the question is the following: are more platform disposals likely or will future divestments be more about asset pruning?
Jaime Muguiro (Chief Executive Officer)
Thank you, Paul. Good morning. We are going to do both. We’re not done yet with our platform disposals. As far as I remember, we announced in the past that we would bring proceeds of around 1 billion dollars. We haven’t yet completed that platform disposal program. As you know, we should be completing the divestiture of parts of our operations in Colombia. That should happen around 2Q of next year. That is progressing and, you know, as announced, that is a transaction with Holcim that will bring around $485 million.
But then we will continue divesting some energy businesses and land, and our corporate offices in Colombia, which will bring at least additional $70 million. But we’re not done. And there are a few other platform disposals that we should be completing in the next 18 months. And then we will continue with our asset pruning, particularly in some parts of the U.S. and Europe. Thanks, Paul, for the question.
OPERATOR
We appreciate you joining us today for our third quarter results. We hope that you’ll come back for our fourth quarter 2026 earnings call on February 18, 2027. If you do have any additional questions, please feel free to contact the investor relations team. Many thanks. Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect.
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