Ternium S.A. Q3 2022 Results Summary
Business Context and Reporting Period
This Form 6-K filing reports Ternium S.A.'s unaudited financial and operational results for the third quarter and first nine months ended September 30, 2022. Ternium is Latin America's leading flat steel producer with operations in Mexico, Brazil, Argentina, Colombia, the southern United States, and Central America. Results are presented in US dollars and metric tons in accordance with IFRS.
Key Financial Metrics
| Metric | 3Q 2022 | 9M 2022 | 3Q 2021 | 9M 2021 |
|---|---|---|---|---|
| Net Sales ($ million) | 4,125 | 12,868 | 4,592 | 11,761 |
| Operating Income ($ million) | 526 | 2,656 | 1,735 | 3,913 |
| Adjusted EBITDA ($ million) | 679 | 3,112 | 1,881 | 4,358 |
| Adjusted EBITDA Margin | 16% | 24% | 41% | 37% |
| Net Income ($ million) | 220 | 2,034 | 1,366 | 3,231 |
| Equity Holders' Net Income ($ million) | 153 | 1,728 | 1,202 | 2,827 |
| Earnings per ADS ($) | 0.78 | 8.80 | 6.12 | 14.40 |
| Free Cash Flow ($ million) | 898 | 1,299 | 475 | 1,141 |
| Net Cash Position ($ billion) | 1.8 | 1.8 | 0.3 | 0.3 |
Operational Volume: Steel shipments were 2.97 million tons in 3Q22 (down 3% YoY) and 8.88 million tons in 9M22 (down 4% YoY). Revenue per ton was $1,364 in 3Q22 and $1,421 in 9M22.
Material Changes vs. Prior Period
- Revenue Decline: 3Q22 net sales fell 7% sequentially and 10% year-over-year, driven by lower realized steel prices and a decrease in slab shipments to third parties.
- Margin Compression: Adjusted EBITDA per ton dropped to $229 in 3Q22 from $414 in 2Q22 and $612 in 3Q21. This reflects lower steel prices and increased costs for purchased slabs, raw materials, and energy.
- Unusual Items Impacting Net Income:
- A $95.0 million loss from the fair value adjustment of Argentine securities received as dividends in kind.
- A $120.4 million impairment write-down of the investment in Usiminas (equivalent to $0.57 per ADS).
- Cost Structure: Cost of sales increased $266 million sequentially due to higher raw material costs, partially offset by lower labor costs in Mexico.
Outlook, Risks, and Management Commentary
- Q4 2022 Guidance: Management expects lower adjusted EBITDA in Q4 2022 compared to Q3 due to a temporary mismatch between declining realized steel prices and high-cost raw material inventory flowing through the system. This dynamic is expected to reverse in Q1 2023.
- Regional Outlook:
- Mexico: Q4 shipments expected to increase slightly due to market share gains and restocking, despite softness in the industrial market linked to the US housing sector and ongoing auto supply chain constraints.
- Argentina: Steel demand remains stable with healthy activity in construction and industrial sectors.
- Liquidity: The company maintains a strong balance sheet with a net cash position of $1.8 billion. An interim dividend of $0.90 per ADS was approved for payment in November 2022.
- Risks: Key risks include global GDP uncertainty, market demand cyclicality, tariffs, and foreign exchange volatility (specifically the Argentine Peso).
Investor Verification Checklist
- Verify the impact of the $120.4 million Usiminas impairment on long-term investment strategy.
- Monitor the flow of high-cost raw material inventory through Q4 2022 and its effect on margins.
- Assess the sustainability of the $1.8 billion net cash position given the $1.7 billion in tax payments made in 9M22.
- Track the recovery of the Mexican auto industry and its correlation with Ternium's shipment volumes.
- Review the reconciliation of non-IFRS measures (Adjusted EBITDA, Free Cash Flow) in Exhibit I.