Ternium S.A. Q2 2021 Results Summary
Business Context and Reporting Period
This Form 6-K filing reports Ternium S.A.'s financial and operational results for the second quarter and first half ended June 30, 2021. Ternium is Latin America's leading flat steel producer with operations in Mexico, Brazil, Argentina, Colombia, and the southern United States. The results reflect a strong global steel market environment with elevated demand and significantly higher realized steel prices compared to the prior year.
Key Financial Metrics
| Metric | Q2 2021 | Q2 2020 | 1H 2021 | 1H 2020 |
|---|---|---|---|---|
| Net Sales ($ million) | 3,919.8 | 1,745.8 | 7,169.1 | 4,017.1 |
| Operating Income ($ million) | 1,271.4 | 65.6 | 2,177.2 | 201.3 |
| EBITDA ($ million) | 1,420.2 | 223.9 | 2,477.6 | 526.0 |
| EBITDA Margin (%) | 36% | 13% | 35% | 13% |
| Net Result ($ million) | 1,158.3 | 43.6 | 1,864.9 | 24.2 |
| Equity Holders' Net Result ($ million) | 1,022.1 | 44.0 | 1,625.0 | 32.5 |
| Earnings per ADS ($) | 5.21 | 0.22 | 8.28 | 0.17 |
| Free Cash Flow ($ million) | 467.0 | 392.9 | 665.1 | 578.0 |
| Net Debt ($ billion) | 0.2 | 0.9 | 0.2 | 0.9 |
| Net Debt / LTM EBITDA | 0.1x | 0.8x | 0.1x | 0.8x |
Material Changes vs. Prior Period
- Revenue Surge: Q2 2021 net sales increased 125% year-over-year (YoY) to $3.9 billion, driven by an 82% increase in revenue per ton ($1,253 vs. $690) and a 25% increase in steel shipment volumes.
- Profitability Expansion: Operating income jumped 1,839% YoY to $1.3 billion. EBITDA per ton rose to $462.9 in Q2 2021, up $371.5 from the prior year, reflecting strong pricing power that outpaced cost increases.
- Volume Recovery: Steel shipments reached 3.1 million tons in Q2 2021, up 25% YoY. Mexico shipments recovered 48% YoY, and the Southern Region recovered 85% YoY, as markets rebounded from COVID-19 restrictions.
- Cost Pressures: Cost of sales increased due to higher raw material costs, purchased slabs, energy, and maintenance expenses. However, these were significantly offset by higher realized steel prices.
- Investment Income: Equity in earnings of non-consolidated companies turned positive ($171.1 million in Q2 2021 vs. a loss of $19.7 million in Q2 2020), primarily due to improved results from Usiminas and a favorable Brazilian court ruling.
Outlook, Risks, and Management Commentary
- Guidance: Management expects continued solid performance for the remainder of 2021. EBITDA is anticipated to increase sequentially in Q3 2021 with higher margins and volumes.
- Capacity Expansion: A new flat steel hot-rolling mill in Pesquería, Mexico, is ramping up and expected to add approximately 600,000 tons of high-quality steel products for the rest of the year.
- Regional Outlook:
- Mexico: Strong demand expected to continue.
- Argentina: Shipments expected to remain stable in Q3, supported by domestic demand in construction and industry.
- Brazil: Shipments to third parties from the Rio de Janeiro slab facility are expected to decrease in Q3 due to increased internal integration with other Ternium mills.
- Risks: Forward-looking statements are subject to risks including global GDP uncertainty, market demand fluctuations, production capacity, tariffs, and cyclicality in steel-consuming industries. Foreign exchange volatility (e.g., Mexican Peso, Brazilian Real, Argentine Peso) remains a factor.
Investor Verification Checklist
- Working Capital Impact: Verify the sustainability of cash flow given the $1.3 billion increase in working capital during 1H 2021, driven by higher inventory values and receivables.
- Cost Pass-Through: Monitor the ability to maintain EBITDA margins as raw material and energy costs continue to rise in Q3 and Q4.
- Usiminas Contribution: Assess the sustainability of the $171.1 million equity earnings from Usiminas, noting the one-time impact of the Brazilian Federal Supreme Court ruling.
- Debt Position: Confirm the net debt position of $0.2 billion remains stable despite significant dividend payments ($412.2 million in 1H 2021).
- Regional Mix: Track the shift in shipment volumes, specifically the decrease in "Other Markets" (Brazil slab exports) as integration with internal mills increases.