Ternium S.A. Q2 2024 Financial Summary
Business Context and Reporting Period
This Form 6-K filing summarizes Ternium S.A.'s unaudited financial results for the second quarter and first half ended June 30, 2024. Ternium is a leading steel producer in the Americas with operations in Mexico, Brazil, and the Southern Region (Argentina). The results reflect the consolidation of Usiminas, acquired in 2023, and are presented in accordance with IFRS.
Key Financial Metrics
| Metric | Q2 2024 | Q1 2024 | Q2 2023 | 1H 2024 | 1H 2023 |
|---|---|---|---|---|---|
| Net Sales ($ million) | 4,514 | 4,778 | 3,871 | 9,292 | 7,495 |
| Operating Income ($ million) | 371 | 675 | 732 | 1,045 | 1,089 |
| Adjusted EBITDA ($ million) | 545 | 855 | 883 | 1,400 | 1,391 |
| Adjusted EBITDA Margin | 12% | 18% | 23% | 15% | 19% |
| Net Loss ($ million) | (743) | 491 | 736 | (252) | 1,215 |
| Adjusted Net Income ($ million) | 40 | 491 | 736 | 531 | 1,215 |
| Loss per ADS ($) | (3.71) | 1.84 | 3.19 | (1.87) | 5.10 |
| Adjusted Loss per ADS ($) | (0.11) | 1.84 | 3.19 | 1.73 | 5.10 |
| Cash from Operations ($ million) | 656 | 475 | 127 | 1,132 | 763 |
| Capital Expenditures ($ million) | 409 | 449 | 231 | 858 | 434 |
| Net Cash Position ($ billion) | 1.9 | 2.0 | N/A | 1.9 | N/A |
Material Changes vs. Prior Period
- Revenue: Net sales increased 17% year-over-year (YoY) to $4.51 billion, driven by the consolidation of Usiminas, though they decreased 6% sequentially due to lower realized steel prices.
- Profitability: Adjusted EBITDA declined 38% YoY to $545 million, reflecting a weak pricing environment and slightly higher costs. Operating income fell 49% YoY to $371 million.
- Unusual Item: The company recorded a significant non-cash provision of $783 million related to ongoing litigation regarding the 2012 acquisition of a participation in Usiminas, following an adverse Brazilian court decision. This provision caused the reported Net Loss of $743 million, masking an Adjusted Net Income of $40 million.
- Shipments: Steel product shipments increased 29% YoY to 3.84 million tons, primarily due to Usiminas consolidation. Mining product shipments were 1.5 million tons.
- Dividends: The company paid $432 million in dividends in May 2024, completing the 2023 dividend declaration.
Outlook, Risks, and Management Commentary
- Guidance: Management expects a sequential decline in Adjusted EBITDA for Q3 2024 due to reduced margins, partially offset by increased shipments. Realized steel prices are expected to drop, particularly in Mexico due to contract price resets.
- Market Conditions:
- Mexico: Automotive demand remains strong, but commercial steel demand is soft due to price trends and high interest rates affecting construction.
- Brazil: Demand is picking up in automotive and industrial sectors, though high steel imports remain a challenge despite new quota systems.
- Argentina: A gradual recovery is observed, with shipments expected to increase in Q3 following a destocking process in Q2.
- Risks: Key risks include the outcome of the Usiminas litigation, volatility in steel and iron ore prices, foreign exchange fluctuations (specifically the Brazilian Real), and global economic cyclicality.
- Liquidity: Despite capital expenditures of $409 million and dividend payments, the company maintained a net cash position of $1.9 billion, supported by strong operating cash flow.
Investor Verification Checklist
- Verify the status and potential financial impact of the $783 million litigation provision related to the Usiminas acquisition.
- Monitor the trajectory of realized steel prices in Mexico and Brazil, which are driving the sequential margin compression.
- Assess the sustainability of the $1.9 billion net cash position given ongoing capital expenditure programs in Mexico and Argentina.
- Review the reconciliation of Adjusted EBITDA and Adjusted Net Income to IFRS measures in Exhibit I to understand the magnitude of non-recurring adjustments.
- Track the impact of high steel imports in Brazil on Ternium's market share and pricing power.