Ternium S.A. Q1 2024 Financial Summary
Business Context and Reporting Period
This Form 6-K filing summarizes Ternium S.A.'s unaudited consolidated results for the first quarter ended March 31, 2024. The company, a leading steel producer in the Americas, redefined its operating segments effective Q1 2024 to "Steel" and "Mining" to reflect the full integration of Usiminas operations consolidated since July 2023. Results are presented in US dollars and metric tons in accordance with IFRS.
Key Financial Metrics
| Metric | Q1 2024 | Q4 2023 | Q1 2023 |
|---|---|---|---|
| Net Sales | $4,778 million | $4,931 million | $3,623 million |
| Operating Income | $675 million | $582 million | $357 million |
| Adjusted EBITDA | $855 million | $651 million | $508 million |
| Adjusted EBITDA Margin | 18% | 13% | 14% |
| Net Income | $491 million | $554 million | $480 million |
| Equity Holders' Net Income | $361 million | $414 million | $374 million |
| Earnings per ADS | $1.84 | $2.11 | $1.91 |
| Cash from Operations | $475 million | $718 million | $636 million |
| Free Cash Flow | $26 million | $121 million | $433 million |
| Net Cash Position | $2.0 billion | $1.9 billion | $3.0 billion |
| Total Borrowings | $2.095 billion | $2.146 billion | N/A |
Material Changes vs. Prior Periods
- Revenue: Net sales decreased 3% sequentially but increased 32% year-over-year (YoY), driven by the consolidation of Usiminas which added $1.1 billion to steel sales and $131 million to mining sales.
- Profitability: Adjusted EBITDA rose 31% sequentially and 68% YoY. Margins expanded to 18% due to lower raw material costs, operational efficiency gains at Usiminas, and a $56 million gain from electricity transmission charge adjustments in Mexico.
- Regional Performance:
- Mexico: Net sales increased 5% sequentially due to higher industrial contract prices, despite a slight volume decline from commercial market destocking.
- Southern Region (Argentina): Net sales dropped 38% sequentially due to weaker demand and economic stabilization measures impacting construction and industry.
- Brazil: Sales remained relatively stable sequentially; however, a blast furnace outage at the end of Q1 caused temporary disruption.
- Financial Results: Net financial results were negative $163 million, primarily due to a $106 million loss on the divestment of Argentine government bonds and a $41 million foreign exchange loss.
Outlook, Risks, and Management Commentary
- Guidance: Management expects lower recurring Adjusted EBITDA in Q2 2024 due to margin reductions, though this will be partly offset by higher steel shipments. Revenue per ton is anticipated to decline in most markets while costs remain stable.
- Market Outlook:
- Mexico: Anticipated to remain robust, fueled by production relocation from Asia to North America.
- Brazil: Slight improvement expected with moderate growth in auto and construction sectors, though high steel imports remain a risk.
- Argentina: Outlook remains uncertain following a sharp Q1 demand decline; recovery expected in Q2 as the economy adapts to new policies.
- Operational Risks: Ternium noted a temporary blast furnace outage in Brazil requiring repairs. The company also faces risks related to global GDP, tariffs, and cyclicality in steel-consuming industries.
- Unusual Items: Q1 results included a $56 million gain on electricity charges in Mexico and a $106 million loss on Argentine bond divestment. The effective tax rate was unusually low at 8% due to deferred tax gains.
Investor Verification Checklist
- Argentina Exposure: Verify the impact of the $1.2 billion cash and investment position held in Argentina and the ongoing volatility of Argentine sovereign bonds.
- Usiminas Integration: Confirm the operational stability of Usiminas following the Q1 blast furnace outage and the sustainability of the reported efficiency gains.
- Margin Sustainability: Assess the durability of the 18% Adjusted EBITDA margin given management's guidance for margin compression in Q2.
- Working Capital: Review the $266 million increase in working capital, specifically the $153 million rise in inventories and $146 million increase in receivables.
- Non-IFRS Reconciliations: Cross-reference Adjusted EBITDA and Free Cash Flow figures with the IFRS statements in Exhibit I to understand the impact of non-cash adjustments and one-time gains/losses.