Ternium S.A. Form 6-K Summary: Third Quarter and Nine Months Ended September 30, 2021
Business Context and Reporting Period
This Form 6-K filing reports Ternium S.A.'s financial and operational results for the third quarter (3Q) and the first nine months (9M) ended September 30, 2021. Ternium is Latin America's leading flat steel producer with operations in Mexico, Brazil, Argentina, Colombia, the southern United States, and Central America. The results are presented in accordance with IFRS and include non-IFRS measures such as EBITDA and Free Cash Flow.
Key Financial Metrics
| Metric | 3Q 2021 | 9M 2021 |
|---|---|---|
| Net Sales | $4,592.0 million | $11,761.1 million |
| Operating Income | $1,735.4 million | $3,912.6 million |
| EBITDA | $1,880.6 million | $4,358.2 million |
| EBITDA Margin | 41% | 37% |
| Net Result (Profit) | $1,366.4 million | $3,231.4 million |
| Equity Holders' Net Result | $1,202.1 million | $2,827.1 million |
| Earnings per ADS | $6.12 | $14.40 |
| Free Cash Flow | $475.4 million | $1,140.5 million |
| Net Debt/Position | Net Cash of $0.3 billion | Net Cash of $0.3 billion |
| Steel Shipments | 3.071 million tons | 9.238 million tons |
Material Changes vs. Prior Periods
- Revenue Growth: Net sales increased 115% year-over-year (YoY) in 3Q21 and 91% YoY for 9M21, driven by record-high realized steel prices and volume recovery.
- Profitability Surge: Operating income jumped from $7.0 million in 3Q20 to $1.7 billion in 3Q21. EBITDA per ton rose to $612.4 in 3Q21, up $488.2 YoY.
- Volume Trends: Steel shipments increased 8% YoY in 3Q21. Mexico and the Southern Region saw significant volume recoveries (17% and 14% respectively), partially offset by a 12% decrease in "Other Markets" due to lower slab shipments to third parties.
- Cost Pressures: Cost of sales increased due to higher raw material, energy, and purchased slab costs, though these were more than offset by price increases.
- Liquidity Shift: The company moved from a net debt position of $0.2 billion in June 2021 to a net cash position of $0.3 billion by September 2021.
Outlook, Guidance, and Risks
- Q4 2021 Outlook: Management anticipates a slight sequential decrease in Q4 EBITDA due to higher raw material and slab costs flowing through inventories, partially offset by higher revenue per ton from contract price resets. Shipments are expected to remain relatively stable.
- Regional Specifics:
- USMCA: Volumes expected to slightly increase; automotive demand remains challenged by semiconductor scarcity, and construction demand is weakening in Mexico.
- Argentina: Shipments expected to remain steady, though macroeconomic instability creates uncertainty for 2022.
- 2022 Outlook: The company anticipates a more balanced steel supply-demand environment with steady demand and gradual normalization of global supply chains.
- Risks: Key risks include macroeconomic uncertainty, cyclicality in steel-consuming industries, global production capacity, tariffs, and foreign exchange volatility (specifically the Argentine Peso).
- Dividends: An interim dividend of $0.08 per share ($0.80 per ADS) was approved, totaling approximately $157.0 million.
Investor Verification Checklist
- Price Realization vs. Cost Pass-Through: Verify the sustainability of record-high realized steel prices against rising raw material and energy costs in the upcoming quarter.
- Working Capital Impact: Confirm the impact of the $2.5 billion working capital increase (9M21) on future cash flow, driven by higher inventory values and receivables.
- Argentina Exposure: Assess the specific risks associated with the Argentine subsidiary's net local currency position and the depreciation of the Argentine Peso.
- Capital Expenditures: Monitor the ramp-up progress and cost efficiency of the new hot-rolling mill in Pesquería, Mexico, which faced energy-related bottlenecks in 3Q21.
- Non-Consolidated Earnings: Review the contribution of Usiminas to equity earnings, which was a significant driver of results in 9M21 due to a favorable tax ruling.