Loma Negra Compañía Industrial Argentina Sociedad Anónima (LOMA) Earnings Call Transcript

Good day, and welcome to the Loma Negra Third Quarter 2026 Conference Call. Also, Mr. Sergio Faifman will be responding in Spanish, followed by an English translation. [Operator Instructions] Please note that this event is being recorded. I would like now to turn the conference over to Mr. Diego Jalón, Head of IR. Please, Diego, go ahead.

Thank you. Good day, 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 today are Sergio Faifman, our CEO and Vice Chairman of the Board of Directors; and Marcos Gradin, our CFO. Sergio and Marcos 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 to the corresponding financial measures is included in the earnings press release. Now I would like to turn the call over to Sergio.

Thank you, Diego. Hello, everyone, and thank you for joining us today. I would like to start my presentation by discussing the highlights of the quarter. Then Marcos will take you through our market review and financial results. Following that, I will share some final remarks before opening the call to your questions. Starting with Slide 2. Industry volume remained subdued during the third quarter as July and August were affected by still soft activity levels and heavy winter rainfall. September, however, showed a significant improvement on the back of more favorable weather, which we view as an encouraging sign for the months ahead. In this context, our cement volume decreased 6.3% year-over-year, while consolidated revenue declined 3.2% to ARS 270.1 billion. In terms of profitability, consolidated adjusted EBITDA reached ARS 54.2 billion, down 6.7% year-over-year with margin contracting 74 basis points to 20.1% as our other businesses and the overall cement business, on the other hand, slightly improving its margin both year-over-year and sequentially despite the third quarter typically being our lower margin quarter due to cost. In dollar terms, EBITDA per ton stood at $32.5, up 24% year-over-year, highlighting the strength of our cash generation even in a still challenging demand environment. We also continued to strengthen our balance sheet. As of quarter end, net debt stood at $145 million, $40 million lower than in the second quarter, bringing our net debt to adjusted EBITDA ratio down to 1x. In addition, after the close of the quarter, we successfully issued a $150 million corporate bond to refinancing upcoming structured debt maturity. I will now hand over the call to Marcos, who will guide you through our market review and financial results. Please, Marcos, go ahead.

Thank you, Sergio. Good day, everyone. Please turn to Slide 4. On the macro front, recent data points to a softer activity trajectory. GDP grew 2% year-over-year in the second quarter, while the EMAE, Argentina's monthly economic activity indicator, declined 1.5% year-over-year in July and 1.7% in August, leaving cumulative growth at 1.2% through the first 8 months of the year. Market expectation according to the Central Bank's REM survey points to growth of 1.5% for 2026 and 2.5% for 2027. Construction activity also show a softer performance during the quarter. The ISAC declined 4.5% year-over-year in July and 4.4% in August, the latest available data, although we posted a 0.4% sequential improvement in August on a seasonally adjusted basis. Leading indicators were broadly flat. Registered private sector employment in construction declined 0.3% year-over-year in July and building permits authorized in the same month were also down 0.3% although they remain up 7.5% on a cumulative basis for the first 7 months of the year. Against this backdrop, industry cement dispatches declined 3.9% year-over-year during the quarter. July and August were both down 8.2% year-over-year, affected by still soft activity and heavy rainfall, while September rebounded strongly, growing 4.5% year-over-year and 18% sequentially on the back of more favorable weather. In terms of product mix, bulk cement continues to outperform, growing 2% year-over-year, while bagged cement declined 8%, still weighed down by the consumption environment. As a result, although bagged cement still represents the majority of the industry mix, bulk cement continues to gradually gain share. Looking ahead, while the recovery remains uneven, September's performance suggests underlying demand is there and reacts once weather conditions normalize. This, together with RIGI-related projects beginning to move forward towards the end of the year, supports a more positive perspective for the coming months. Turning to Slide 5 for a review of our top line performance by segment. Third quarter consolidated revenues decreased by 3.2% year-over-year. The decline was primarily driven by weaker performance in the concrete business, followed by the Cement and Railroad segments, while higher revenue in aggregates provide a partial offset. Revenues from the cement, masonry cement and lime segment decreased by 1.8% year-over-year. Sales volume declined by 6.3%, mainly due to the adverse weather conditions discussed earlier. Our performance relative to the industry was also affected by masonry cement and lime, which followed demand trends similar to those of bagged cement. Positive pricing dynamics mitigated part of the volume impact. Performance across the dispatch channels remained mixed with bulk cement supported by more resilient demand, while bagged cement continued to underperform. Concrete revenues decreased by 23.2% compared with the third quarter of 2025, reflecting a 24.9% decline in sales volume. This was mainly attributable to a lower contribution from special projects, weaker demand related to public works and reduced activity in industrial and architectural projects. Better pricing partly cushioned the impact of lower volumes. Railroad revenues decreased by 2.2% year-over-year in the third quarter of 2026. Favorable pricing dynamics were not sufficient to offset a 7% decline in transported volumes, mainly due to lower shipments of grain, frac sands and granitic aggregates. This was partially compensated by higher volumes of chemical and gypsum, supported by the resumption of services to Neuquén from the repair of the rail section in Bahía Blanca that have been damaged by late last year's storms. Revenues in the Aggregate segment increased by 3.7% year-over-year as a strong pricing environment and an improved sales mix more than compensate for a 16.1% contraction in volumes. Volumes were affected by similar factors to those in concrete, particularly weaker demand from public works and construction companies. Moving on to Slide 7. Consolidated gross profit decreased by 4% year-over-year, with gross margin barely contracted 14 basis points to 17.2%, mainly reflecting lower net revenues, partially mitigated by also lower cost of sales. Cost of sales decreased by 3% year-over-year, primarily reflecting lower costs in the Cement and Concrete segments, partially offset by higher cost of sales in the rail and aggregate businesses. In the Cement segment, cost of sales increased on a per ton basis, suffered a minor increase, mainly driven by higher depreciation. Excluding this effect, unit cost remains broadly in line with last year. The use of clinker produced during the warmer months, together with the planned kiln shutdowns helped mitigate seasonal energy pressures alongside lower fuel, electricity, packaging and contractual costs. In railroad, the increase of cost of sales was mainly related to higher track maintenance costs and to a lesser extent, higher third-party services and payroll costs. The concrete segment narrowed its gross loss compared with the third quarter of 2025, although it still remain in negative territory. Finally, SG&A expenses increased by 16.1% year-over-year, mainly driven by higher advertising and promotion spending as well as consulting and IT services. As a percentage of sales, SG&A reached 11.1%, up 184 basis points compared to the third quarter of 2025. Please turn to Slide 8. Consolidated adjusted EBITDA for the quarter reached $42 million, up 16.2% year-over-year, while in pesos, it stood at ARS 54.2 billion, representing a 6.7% decline. The decrease in pesos was primarily driven by weaker performance in the Rail segment and to a lesser extent, lower contribution from other business, partially offset by improved results in cement and concrete. As a result, the consolidated adjusted EBITDA margin contracted by 74 basis points year-over-year to 20.1%, while remaining broadly stable compared with the previous quarter. In the Cement segment, the adjusted EBITDA margin expanded by 67 basis points year-over-year to 24.9%, primarily reflecting favorable pricing dynamics. This more than offset the pressure on unit costs from lower volumes, which limited the dilution of fixed costs as well as higher SG&A expenses. In the Concrete segment, adjusted EBITDA margin improved 220 basis points to negative 4.6% compared with negative 6.8% in the third quarter of 2025, supported by better pricing. However, the segment remains in negative territory as current volumes are still too low to adequate cover its cost structure. In contrast, the Railroad segment adjusted EBITDA margin turned negative, reaching negative 11% in the third quarter compared with positive 3.4% in the same period of 2025, mainly driven by the higher cost discussed in the previous slide, partially offset by lower SG&A expenses. The Aggregate segment also recorded margin contraction with adjusted EBITDA margin declining to 19.4% from negative 16.7% in the same period last year. A stronger pricing environment partially mitigated the impact of lower volumes, while higher cost continues to weigh on the segment's profitability. Moving to the bottom line on Slide 10. Net income attributable to owners of the company amounted ARS 15.2 billion in the quarter compared with a net loss of ARS 11.3 billion in the third quarter of 2025. The improvement was primarily attributable to a net financial gain in the quarter compared with a net financial loss in third quarter '25 despite weaker operating performance. This improvement was partially offset by higher income tax expenses as the company recorded a net tax expense in third quarter '26 compared with a net tax benefit in the same period of previous year. On the financial side, the company recorded a net financial gain of ARS 8.5 billion in the quarter compared to a net financial loss of ARS 38.3 billion in the same period of 2025. This year-over-year improvement mainly reflect a more moderate pace of peso depreciation as well as lower net financial expenses, which declined to ARS 7.9 billion from ARS 23.3 billion in the third quarter of 2025, primarily to lower financial expenses. Moving on to the balance sheet. As you can see on Slide 11, we ended the quarter with net debt of ARS 220 billion and a net debt to adjusted EBITDA ratio of 1x, a significant improvement from 1.39x a year ago and 1.47x at the end of 2025. Cash flow from operation activities totaled ARS 86.3 billion in the quarter, more than doubling the ARS 42.6 billion generated in the third quarter of 2025. This year-over-year improvement was mainly driven by favorable working capital dynamics, reflecting an improvement in trade and other receivables, together with lower inventory levels and higher tax payables. Regarding investment activities, the company used ARS 18.8 billion with CapEx totaling ARS 18.1 billion compared to ARS 19.5 billion in the same quarter of last year. On the financial side, the company used ARS 25 billion during the quarter, mainly related to loan repayments compared to net cash generated in the third quarter of 2025 when the company issued its Class 5 corporate bonds. In U.S. dollar terms, net debt stood at $145 million with an average debt maturity of 1.2 years. As of quarter end, 91% of the total debt was denominated in U.S. dollars, while the remaining balance in pesos. As Sergio mentioned, after the close of the quarter on October 22, we issued our Class 7 corporate bond in the local market for $150 million with a 36-month tenor and a 6.25% interest rate. The transaction was very well received by the market, and we would like to thank all the investors who as in each of our issuances continue to place their trust in the company. Proceeds will be used mainly to refinance upcoming structured debt maturities, extending the average maturity of our debt and further strengthening our debt profile. Now for our final remarks, I'll 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. Volume continue to come in below our expectation, still heavily affected by a particularly rainy winter. September show that demand respond quickly when the weather conditions are supportive, which we see a positive sign as we look ahead. At the same time, many of the large-scale projects linked to the RIGI, which received approval until recently were only news are now becoming a reality with several of them already getting underway even before year-end. We expect their contribution to demand to gradually build as the months go by. Bagged cement is a segment where the outlook remains less clear, which recovery will depend more closely on the evolution of the real economy, real wage and the return of credit. In this context, Loma Negra remains focused on maintaining healthy pricing dynamics and strict cost discipline in order to preserve profitability. Finally, I would like to highlight the successful debt placement completed in October, which strengthened our financial position and reaffirm investor confidence in our company. This is the end of our prepared remarks. We are now ready to take questions. Operator, please open the call for questions.

[Operator Instructions] Also, please note that Mr. Sergio Faifman will be responding in Spanish immediately following an English translation. Our first question comes from Sofia Vatta of Latin Securities.

It's regarding volumes and what are the main drivers you see for 2027 that were not present in 2026?

Sofia, thank you for your question. [Interpreted] The truth is that we have seen is a change in the weather conditions that impacted severely during 2026. And when you see an improvement like in September was better, the volumes start to pick up. In October, again, with some rain volumes are again below. We see days with good climate, the difference is between 15% and 20% with the rainy days. And what we are seeing looking forward is some projects that we are participating in tenders linked to the RIGI. For example, we communicated that Loma Negra is going to be participating in the project of a Pampa. We are also participating in some other tenders and projects that should boost volumes looking forward to 2027. The sum of these 2 factors and also coupled with the recovery of the economy, we are optimistic about the outlook for next year.