Aggressive pricing and increased cement sales helped Carib Cement Company turn a big loss last year into a profit this year. For the quarter ending September, profit jumped to $169 million, a marked change from a $245 million loss in the similar quarter of 2012.
For the nine months, profit was only $32 million reflecting a very poor first quarter resulting from a loss incurred along with a big foreign exchange loss of $689 million and interest of $349 million. The nine month figures may not appear great, but when viewed against a mammoth loss of $1.45 billion in the same period in 2012, the extent of the about turn is vivid.
Admittedly, the parent company had to step in to restructure loans that were lent to Carib Cement and were choking them, thus cutting interest cost. Revenues climbed 50 percent to reach $3.2 billion in the quarter and $8.89 billion for the nine months, an increase of 30 percent. The improvement flowed from increased volume of cement and clinker sales which accelerated in the third quarter by 34 percent over the 2012 quarter. For the year to date, volume sales climbed 7.6 percent, as exports declined in the 2013 nine months period. Export sales rose in the latest quarter by 44 percent and local sales by 19 percent, year to date it is up by only 10 percent.
Price increases | Since last year, the company has increased the price of its product on a number of occasions. In January, cement prices increased by 16.5 percent on average, 3 percent in April, 1 percent in July and in October, a 2.7 percent increase, which was on top of a 9.2 percent increase in July last year.
The full 2013 results should come out to be in the order of 20-25 cents per share if all goes well, but it’s the 2014 numbers investors should be focusing on from now as it looks like earnings could well be in the 80 cents per share range, which would see a big hike in the stock price. The situation could get even better if some of the major infrastructure works that have been announced come on stream along with any pick up in the housing market.
All this is why IC Insider has now upgraded the stock to Buy Rated. There are still risks involved. Cement plants are notorious for bad news flowing from accidents or other major setbacks, as is the case in the company parent Trinidad Cement. The company seemed to have been doing very well only to be hit by problems in the factory, as well as in Barbados, and just barely reported a profit in the September quarter. While the company has depended on Trinidad Cement to bank roll it, the group is under strict dictates of its lenders.
Balance sheet | End of the period cash funds were down to $149 million from $244 million at the end of December last year. This needs to be rebuilt to reasonable levels to provide for smooth operations and for the company to be able to ride out any storm they may encounter.
Even if the company was able to continue the profits levels seen in the third quarter, it is going to take about 7 to 8 years for them to wipe out the huge accumulated loss of $7.5 billion and be in a position to start paying dividends again. It may well happen before that time frame due to the likely impact of inflation in driving up profits in the years ahead and, if the Jamaican economy starts to grow at a reasonable pace, sales of cement could surge and boost profits.
Both Trinidad Cement Limited (TCL) and Caribbean Cement Company are IC Insider Buy Rated stock.
Related posts | Cement profit surge – not so fast | Carib Cement profit mired in concrete | Cement could be good for your pocket
