Good morning and welcome to GCC's First Quarter 2025 Earning Results Conference Call. Before we begin, I would like to remind you that this call is being recorded and that all participants will be in a listen-only mode. Please also note a slide presentation accompanies today's webcast. The link is available on the company's IR site 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 and Planning Officer. The earnings release detailing this quarter's results was released yesterday after market close, and it is available on GCC's IR website. This conference call is also being broadcast live within the investor section at gcc.com. Both the webcast replay of the call and transcript will be available on the same site approximately one 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 this forward-looking statement. 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. Good morning, everyone. We enter 2025 with cautious optimism, and this quarter unfolded largely as anticipated. Three main factors challenge the comparison to our record first quarter in 2024, weather, tariffs, and the exchange rate. This year presented atypical winter conditions with more normalized shipping volumes, this year compounded by uncertainty around global trade and tariff discussions, as well as a 20% depreciation of the Mexican peso. Against this backdrop, both sales and EBITDA decline year- over- year. Importantly, the first quarter represents the smallest contribution to our full-year results, and our strategic fundamentals remain intact, with encouraging backlog visibility in the U.S., particularly in infrastructure and energy, the largest sectors we serve. At GCC, we continue to rely on our financial strength, operational flexibility, and experienced teams to navigate these cycles, faced with discipline and focus.
These capabilities are essential as we adapt to an evolving market environment. While broader visibility remains somewhat limited due to the ongoing inflationary pressures, interest and rate uncertainty, and global trade dynamics, the strength of our strategy, built on our people, planet, and profit pillars, continues to support long-term value creation and resiliency. In this dynamic environment, our teams continue to demonstrate remarkable adaptability, focus, and a strong commitment to execution. Their ability to respond to challenges, remain and maintain safe and stable operations, and support our customers without disruption reflects the strength of the culture and clarity of our priorities. A key part of our people pillar is our commitment to continuous development. Training remains fundamental at GCC, an essential investment in our people and future.
Through the GCC S.A.B. technique, our training institute, we are witnessing increased enthusiasm and proactive engagement from our employees, who are actively identifying and participating in specific training to support their roles. Having covered foundational topics across cement plants, we are now delivering tailored programs to meet more specific plant needs. In the first quarter, we provided more than 4,200 hours of training to employees through 21 different programs, enhancing technical skills and reinforcing safer operations. In parallel, we continue advancing our safety strategy, especially our SIF process, to reduce and eliminate exposure to severe injuries and fatalities. We held round tables at all cement plants and many ready-mix operations, facilitating open dialogue with frontline employees. The feedback was very constructive, with valuable insights and suggestions from the teams on how to strengthen implementation on field verification of critical controls to keep them always safe.
Our collaborators' input is invaluable as we continue deploying our serious injury and fatality prevention process. These efforts are driving greater ownership and consistency across our operations, achieving a 31% reduction in recordable and lost-time incidents and a 25% reduction in lost workdays compared to the same period last year. Turning to our planet pillar, as we navigate current market conditions, we remain firmly committed to our sustainability roadmap and long-term environmental goals. In the first quarter, our Pueblo Plant once again was recognized by EPA for outstanding energy efficiency, receiving ENERGY STAR Certification for another consecutive year. Additionally, we earned an A- rating from the Carbon Disclosure Project for our 2024 climate change disclosure, our highest rating to date, and improved our water security rating to a B-. These accomplishments reflect the progress we're making in reducing our environmental footprint while improving transparency.
We also increased production of blended cements at our Tijeras and Rapid City plants. As a result, blended cements represented 71.4% of total cement sales during the quarter, an increase of 1.7 percentage points year- over- year. This shift contributed to a 1% reduction in the scope one CO2 emissions compared to the first quarter of 2024. In line with this strategy, we are conducting a study to convert Kiln 2 at our Chihuahua Plant to utilize calcined clays in cement production. Industrial testing and technical analysis are currently underway. Once completed, we will assess the equipment modifications and investments required to determine the next steps. This initiative will allow us to continue operating Kiln 2, which is currently used for oil well cement production, once the new line at the Odessa Plant becomes fully operational and no longer requires Kiln 2 support.
It also enhances our goal of expanding our portfolio of low-carbon cement products. As a follow-up to our carbon capture initiative we announced last quarter, we are currently completing the front-end loading phase II of the FEL studies for the pilot cryogenic carbon capture system at our Odessa cement plant. This phase includes a thorough assessment of both capital and operating costs. Once completed, we will evaluate the project's financial viability and determine the appropriate next steps, with a decision expected this year. This approach reflects our commitment to advancing innovative low-carbon solutions while maintaining a rigorous capital allocation framework. Finally, moving to our profit pillar and market updates. In the U.S., weather significantly impacted operations through mid-March. The polar vortex brought record-breaking cold, snow, and blizzards, particularly in our Northern and Rocky Mountain operations.
In New Mexico, we experienced sustained low temperatures and heavy snowfall, while Texas had some periods of unusually cold and windy weather. This contrasted with Q1 2024, when mild winter weather allowed for an early and strong start to the year. In addition, we had an unplanned outage in one of the finish mills at our Odessa cement plant that temporarily impacted our production volumes. Anticipating a longer repair time, we proactively communicated with our customers to ensure they could secure alternative supplies and avoid disruptions. Thanks to the quick response of our team, repairs were completed within two weeks. While we did lose some volume during the outage, our priorities remained clear: protecting customer relationships and maintaining their trust. Today, the plant is running well, and customers have returned to their normal purchasing levels. With the weather-related and outage interruptions now behind us, underlying demand remains encouraging.
March volumes hit an all-time record. Customers continue to report healthy project backlogs, and they anticipate 2025 demand will remain consistent with last year, supporting our current outlook. We are seeing good momentum in project execution. Work on the SunZia Transmission Project continues strong. We started phase II of the I-10 Project in El Paso, completed one wind farm, and started another in Texas, and we are set to begin four new wind projects in Q2 across Colorado and the Dakotas. In infrastructure, we're seeing strong bidding activity across our market, and this month we began work on the I-25 Highway Project in Denver. With less than two years remaining in the five-year Infrastructure Investments and Jobs Act, only about 1/3 of the total DOT funding has been allocated.
The states where we participate are estimated to receive around 20% of the highways' program funding, providing a solid pipeline for the years ahead. Turning to Mexico, the first quarter was challenging, though not unexpected. We don't foresee a recovery in growth this year, but also we don't expect Q1 pressure to persist. Weather disruptions were more severe than usual, with Ciudad Juarez recording 33 days and Chihuahua 19 days of disruption, primarily due to sustained high wind. These conditions created quality and safety challenges that temporarily slowed construction projects. Volumes were further affected by the ongoing pause in the industrial segment, especially at the border. Developers remain cautious in light of the macro trade and tariff policy uncertainty, and excess industrial buildings supplied from accelerated construction in the previous years is still being absorbed.
In addition, we no longer have the contribution of our two largest mining clients, whose operations closed in the second half of last year due to the depletion of their mineral reserves. Despite these headwinds, the residential segment continued to outperform, with strong double-digit growth year- over- year. This helps to balance overall segment performance and confirms the diversity of our customer base. Our Mexican plants continue to enjoy a low cost for natural gas and power, which, combined with the depreciation of the peso, maintain a very competitive position to keep exporting into the U.S. From a capital allocation standpoint, our Odessa cement plant expansion remains on track and within budget. We recently took advantage of favorable financing conditions for equipment purchases, totaling $135 million, secured through two bank loan agreements with maturities of five and 10 years, further extending and strengthening our debt profile.
Additionally, we are fully integrating the aggregate businesses acquired in Texas last year and have further expanded through the acquisition of property with limestone reserves to develop greenfield operations in Abilene, Texas. Abilene has been chosen as one of the key locations for the Stargate Project, with a major artificial intelligence infrastructure initiative and several new AI data centers, positioning GCC well to serve this expanding market consistent with our aggregate growth strategy in adjacent markets to our network. With that, let me turn the call over to Maik for his financial review.
Thank you, Enrique, and good morning to everyone. Starting with consolidated sales, we saw a decline of 9.6% compared to Q1 of last year, partly due to the foreign exchange impact. Excluding the depreciation of the Mexican peso, consolidated sales decreased 3.8%, reflecting market conditions, including weather and macroeconomic headwinds.
In the U.S., revenue decreased 3.3%, driven by challenging weather conditions, as this year's polar vortex had a more pronounced effect than typical. Additionally, volumes were affected by the temporary finish mill outage at our Odessa Plant. As a result, cement volumes decreased 4.3% year- over- year, while concrete volumes increased by 4.7%, supported by renewable energy projects. Pricing dynamics have remained stable, with cement and concrete prices rising 3% and 12.1% year- over- year, respectively. Turning to Mexico, revenue decreased 20.7%, mainly due to the depreciation of the Mexican peso. If we exclude this effect, sales declined 4.8%. Cement volumes declined 12.4%, and concrete volumes were down 12.7%, reflecting cautious market activity and reduced contributions from our mining operations. Cement and concrete pricing increased 5.2% and 2.9%, respectively.
From a cost perspective, our cost of sales represented 69.1% of revenues, up 2.3 percentage points compared to last year, mainly due to unfavorable operating leverage due to lower sales volumes. Our disciplined approach to expense management continued to deliver results. SG&A expenses were 11.4% of revenues, representing a 40 basis points decrease year- over- year. As a result, EBITDA was $73.6 million for the quarter, with a margin of 29.8%. Net financial income totaled $7.5 million, reflecting our effective cash management strategies, offset by a lower average cash balance during the quarter. Consolidated net income was $40.6 million, translating to earnings per share of $0.12. Free cash flow totaled $13 million, decreasing mainly due to lower EBITDA generation and interest income, as well as higher cash taxes and maintenance capex.
Regarding capital allocation, we remained focused on strategic investments, with $68 million allocated during the quarter, primarily towards the Odessa Plant expansion. Our balance sheet remained strong, ending the quarter with cash and equivalents totaling $873 million and a net debt-to-EBITDA ratio of - 0.56x . In closing, our disciplined financial management positions us well to effectively navigate short-term challenges while capturing strategic opportunities to create sustained value. With that, I will hand the call back to Enrique for his closing remarks.
Thank you, Maik. Despite current market uncertainties, we remain confident in our strategic direction, supported by the resiliency and speed to adapt of our teams. While I mentioned at the beginning that we were and remain cautiously optimistic, we're always prepared for unexpected economic and market shifts.
With that in mind, we will double down on our cost and expenses reduction plans to ensure we continue delivering solid results, even under adverse conditions. We have successfully navigated multiple market cycles in the past, and this is yet another opportunity to demonstrate our strengths. Backed by our robust balance sheet, disciplined operational approach, and strong customer relationships, we're well prepared to navigate current conditions and emerge even stronger. With that, this concludes our prepared remarks, and I will turn the call over to your questions. Operator, please begin with the first one.
Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we pull for questions. Our first question is from Alejandra Obregón with Morgan Stanley. Please proceed.
Hi, good morning, GCC team. Thank you for taking my question. I was wondering if you could talk a little bit about cash costs both in the U.S. and Mexico. I guess I'll split my question into two parts. The first one is on Mexico.
I mean, as you sort of break down your cash cost structure in Mexico, maintenance, transportation, energy during the quarter, I was just wondering if there's any unique consideration specific to the quarter in terms of your cash costs, any material change in trends, and perhaps whether the headwinds are related to other things than that is not perhaps lower dilution of fixed costs because of the volume headwinds. That's the first part. The second part is in the U.S. I was wondering if there's any sort of change or material change in your energy matrix for the quarter, any sort of perhaps benefit? This is in connection with your coal sales to third parties dropping materially in the quarter. Just wondering if there's anything here that you benefited from in the Durango facility. Thank you. Those are my questions.
Good morning. Thank you for the call, this is Enrique. I'll give you some color on what we see, and then we'll allow Maik to probably get more specific if needed. Basically, we don't see any different conditions in our cost structure, both in Mexico and the U.S. Definitely, leverage is a big point of why we're seeing, I mean, a cost increase. But the cost structure remains very solid. I will say that in terms of energy, even though gas prices have had an increase, a slight increase in some of our purchases this quarter, it has remained at very competitive prices, and we expect that to continue throughout the year, according to the futures that we see for the Waha Basin that is where we purchase all of our gas.
Our cost matrix remains the same, and we do not see any different things or issues for the remaining part of the year. Actually, we will continue seeing it as an advantage, I mean, for our performance this year. Maik, I do not know if you have any other specifics that you want to comment.
Yeah, good morning, Alejandra. Again, on the energy front, we are really executing our flexible fuel strategy. For example, in the U.S., natural gas prices remain to be very competitive, and we have taken advantage of that. We have executed on some hedges for our Odessa Plant, as we have traditionally done. We are now over 50% hedged for the Odessa Plant with favorable conditions compared to last year. Similar for our Trident Plant, we are more proactively looking at that. I think those are benefits that we are going to see throughout the year from a fuel perspective.
For Mexico, very similar. We, again, still take advantage of the very competitive natural gas prices, in addition to executing on our alternative fuel strategy, specifically for the Samalayuca Plant, which is the plant we enhanced during the expansion almost two years ago now to more flexibility of alternative fuel. All of that is intact. We should see kind of the benefits throughout the rest of the year. I think those are the main kind of drivers that you're going to see on the cost side.
Thank you. That was very clear.
Our next question is from Marcelo Furlan with Itaú. Please proceed.
Hi, everyone. Thanks for taking my question. I'm happy to hear. The first is related to U.S. demand going forward.
If you guys could explore a little bit further regarding what are the demand expectations ahead going through this U.S.-China trade war and potential impacts to the construction segment in the U.S. If you guys could give your views regarding cement demand on that situation for the next quarters, and also taking under consideration the infrastructure bill, IR Act, and so on. My second question is related to cement prices in the U.S. as well. You guys posted really good ready-mix prices in this quarter, and prices were resilient for the cement division in the U.S. What are your expectations for prices going forward in this division? These were my two questions. Thank you.
Hi, Marcelo. Good morning, this is Enrique. As I mentioned in my remarks, we see a good, I mean, pipeline of projects and volume for the remaining of the year, especially in the U.S. As I said, we are still within our guidelines in terms of volumes. I mean, it's too early to say if anything related to the tariff is going to, I mean, change or significantly change what we expect as of today, which is basically constant volumes, very similar, I mean, to last year.
In terms of prices, I mean, I'm very, I mean, encouraged by our price increase that took very well, I mean, during this April. Everything is going well, as always, and as normal, small, I mean, hotspots here and there, but nothing major, nothing that tells us that the industry is not consistently, I mean, trying to recover cost inflation to these prices in April. Everything is going as expected.
Great. Thank you.
As a reminder, this is star one on your telephone keypad if you would like to ask a question. Our next question is from Ethan Cunningham with On Field Investment Research. Please proceed.
Hi, good morning, and thanks for taking my question. One of your questions has just been answered. I want to ask one of the questions that I already have regarding the volumes in the U.S. and Mexico. Just some color, please. Is it fair to assume that volumes will get worse compared to Q1, given the uncertainty on tariffs? Or do you think that we could see better trends going forward into Q2 compared to Q1 of this year?
Hi, this is Enrique. I'm sorry, you were breaking up a little bit, and we couldn't get your question here in the conference room. Can you repeat the question, please?
Yeah, sure. I'm calling from London. That might be why it's breaking up. It's regarding volumes in the U.S. and Mexico. Is it fair to assume that volumes will get worse in Q2 compared to Q1 given the uncertainty on the tariffs? Or do you think that we'll see better trends in Q2 compared to Q1?
Thank you, Ethan. If I heard you correctly, I mean, we're talking about trends here on the first quarter compared to last year. I think the trends are, I mean, very consistent, again, with what we expected. We're not seeing really a change in trend, actually. I mean, March shipments were a lot stronger, as I mentioned, a record high for March. April going very well, as expected. No, we don't see any shift in trends at the moment.
What I tried to explain is where, I mean, one-time and variances related to basically weather, and again, one issue that we had, a mechanical issue that we had in one mill in our Odessa Plant. Aside from that, we're seeing, I mean, normal shipping patterns and expect, I mean, again, the year to perform well, very consistent with last year.
Okay. That's extremely clear. Thank you very much.
Thank you, Ethan.
Our next question is from Eriko Ross with Brown Advisory. Please proceed.
Hi, there. Thank you very much for taking the question. I guess this is a little bit of a follow-up on some of the previous questions with respect to the outlook for volumes.
I guess my question is specifically around oil well cement demand, given where oil prices have obviously gone, and again, the pressure that you're likely to see around the uncertainty with respect to tariffs. My second question relates to the debt number that you reported as of the end of Q1. Obviously, you've got $100 million of additional debt. I'm just wondering specifically if you've drawn on the RCF in Q1 and whether that will be repaid with the bank lines that you secured post the end of the quarter. Just trying to understand how to think about your debt figure and how that will trend going forward. Thank you.
Hi, Eriko. This is Enrique. I want to take your first question on cement volumes, especially related to energy. Maik will address your question on the additional debt.
So far, we're confident, I mean, the Permian Basin will continue, I mean, to work, I mean, as expected with oil prices around the 60s, low 60s. We know that the Permian Basin is very competitive, probably the most competitive basin in the U.S. As long as we, I mean, continue with oil prices around those levels, we're confident the demand will stay strong, I mean, for our shipments of oil well cement in the U.S. So far, we have not had any negative comments from our customers, although some of them say, I mean, there's obviously a little bit of wait and see what the policies, I mean, will then result in, I mean, for their investments in further exploration and drilling, I mean, over next year.
All right. That's helpful. Thank you.
Very good. Eriko, good morning. This is Maik. Regarding the additional financing, here we took advantage of some good conditions related to the equipment for the Odessa expansion. Very competitive market conditions we got there. Importantly, part of that debt is over a 10-year period, so it gives us some additional flexibility. The other part is over five years. Those were the main drivers to kind of take advantage of that and to further kind of strengthen the flexibility and the balance sheet that we have as we're still continuing to look for M&A opportunities and additional growth, both on cement and aggregate. Those were the main drivers why we did that.
Okay. The $100 million of additional debt that we see at the end of Q1, will that go up by a further $135 million? Or are you refinancing?
No. No. The $100 million that was recorded in Q1, there's an additional $35 million that, depending on the delivery schedule of the equipment, that will record. There's a little bit of timing, again, based on the equipment in order to take advantage of those financing conditions. The only additional debt to come is $35 million.
Understood. If I may, just one final question. I think in 2024, if memory serves me correctly, it was approximately 10% or 11% or so of Mexican volumes that you were exporting, presumably to the U.S. Given where we are with tariffs, are we expecting that essentially to go to zero and be redirected towards the Mexican market and then still have Mexican volumes flat?
No, Eriko. This is Enrique again. No, we so far do not expect any negative effect from tariffs on Mexican cement coming into the U.S. We are planning to continue exporting as usual, mostly from our Samalayuca Plant and some oil well cements from our Chihuahua Plant with no interruptions. We are good to go.
Presumably passing on higher prices then to customers?
No. No. We followed, I mean, our policies about pricing are, I mean, the same irrespective of where the cement is being sourced in our case.
All right. Okay.
Thank you. Our next question is from Daniel Rojas with Bank of America. Please proceed.
Good morning. Thank you for taking my call. My first question is regarding blended cement, given some idea of where you are moving in this direction in the U.S. But could you give us more color on how you are seeing this in terms of cash cost and your ability to extract more profitability from every ton of cement that you sell?
I know it's hard, but just to give us an idea of how these impacts profitability would be of help. My second question is regarding carbon search. It looks like you're moving along with this project, but there are a lot of moving pieces, especially how much in terms of tax credits you're going to be able to extract, which is on CO2, the upfront cost. Any idea of the economics that you can share with us would also be very helpful. Thank you.
Good morning, Daniel. This is Maik. Let me take the question on cash cost, and then Enrique will take your second part there. As we already remarked, the first quarter was more driven by the leverage of a little bit lower production and the lower sales. That should all normalize as we're now going into kind of the main shipping season.
As already commented, we see some good shipments, good demand. On the cost front, again, we're very positive that the key drivers on cost, we have them under control, mainly through the fuels, energy, raw materials. Big picture, you should see a normalization of the cash cost as we're working through the year and no specific events or items that we at the moment foresee changing that outlook.
On your second question, Daniel, this is Enrique. As I mentioned in the remarks also, we continue firmly with our roadmap in terms of sustainability.
Even though there are, I mean, uncertainties about what's going to happen in the U.S., especially with subsidies like the 45Q, I mean, tax credits and grants from the DOE, etc., I mean, we continue working in our pilot project, I mean, specifically under the FEL study at this moment to evaluate if there is, I mean, a future for this technology and if it's financially viable or not. We don't know much yet about what's going to happen with these subsidies. This is obviously going to play in the financial analysis and see if, I mean, the lack of those potentially tax credits will make this project viable or not. We are evaluating that as we speak, and we'll continue and we'll have a decision during this year.
Okay. Thank you. That's very nice.
Ladies and gentlemen, thank you. This will conclude our question and answer session. I'll turn the floor back over to Ms. Ogushi for closing remarks.
Thank you again for your time and continued interest in GCC. We look forward to speaking with you again soon.
Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.