Ternium S.A. First Quarter 2010 Results Summary
Business Context and Reporting Period
This Form 6-K filing, dated May 4, 2010, reports the consolidated financial results for Ternium S.A. for the first quarter ended March 31, 2010. Ternium is a leading steel manufacturer in Latin America with principal operations in Mexico and Argentina, serving markets across the Americas. The financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) and presented in U.S. dollars.
Key Financial Metrics
| Metric | 1Q 2010 | 4Q 2009 | 1Q 2009 |
|---|---|---|---|
| Net Sales (US$ million) | 1,650.6 | 1,365.2 | 1,174.7 |
| Operating Income (US$ million) | 293.5 | 216.1 | (26.5) |
| EBITDA (US$ million) | 384.8 | 315.9 | 95.0 |
| EBITDA Margin | 23% | 23% | 8% |
| Net Income (US$ million) | 245.1 | 194.8 | (117.0) |
| Net Income to Equity Holders (US$ million) | 205.2 | 159.3 | (93.2) |
| Earnings per ADS (US$) | 1.02 | 0.79 | (0.46) |
| Shipments (Metric Tons) | 1,908,000 | 1,655,000 | 1,504,000 |
| Free Cash Flow (US$ million) | 258.6 | N/A | 341.0 |
| Net Cash Position (US$ billion) | 0.4 | N/A | N/A |
| Financial Debt (US$ billion) | 2.0 | N/A | N/A |
Material Changes vs. Prior Periods
- Revenue Growth: Net sales increased 41% year-over-year (YoY) and 21% quarter-over-quarter (QoQ), driven by a 27% increase in shipments and a 10% increase in revenue per ton.
- Profitability Turnaround: The company returned to profitability, reporting an operating income of $293.5 million compared to an operating loss of $26.5 million in 1Q 2009. EBITDA surged 305% YoY.
- Regional Performance: North America shipments rose 41% YoY, while South & Central America shipments increased 73% YoY. Revenue per ton increased in North America but decreased slightly in South & Central America.
- Foreign Exchange Impact: Net income included a significant non-cash foreign exchange gain of $101.0 million (vs. a $160.5 million loss in 1Q 2009) due to the revaluation of the Mexican Peso against the U.S. dollar on the company's USD-denominated debt.
- Cost Structure: Cost of sales increased to $1.2 billion due to higher volumes, though cost per ton decreased YoY due to lower raw material costs and the absence of inventory write-downs.
Outlook, Management Commentary, and Risks
Outlook: Management expects a gradual recovery in the NAFTA region and restocking in the steel value chain to sustain shipment levels in 2Q 2010. Shipments in South & Central America are expected to resume growth following a seasonally weak 1Q. Operating income is projected to increase in 2Q 2010 due to slightly higher shipments and improved margins, though higher raw material costs may partially offset higher steel prices.
Unusual Items: The company collected $300.2 million in March 2010 from the transfer of Sidor shares to Venezuela. Additionally, the 1Q 2009 results included a $35.4 million tax benefit from a dispute resolution in Mexico, which is not present in the current period.
Risks: Forward-looking statements are subject to risks including uncertainties in GDP, market demand, global production capacity, tariffs, and cyclicality in steel-consuming industries.
Investor Verification Checklist
- Non-Cash Gains: Verify the impact of the $101.0 million foreign exchange gain on net income, as this is a non-cash item offset by equity translation adjustments.
- Sidor Proceeds: Confirm the status and utilization of the $300.2 million proceeds from the Sidor share transfer.
- Debt Reduction: Review the net repayment of borrowings ($289.0 million) and the resulting net cash position of $0.4 billion.
- Margin Sustainability: Assess whether the 23% EBITDA margin is sustainable given the noted increase in raw material costs (slabs, scrap, energy) and the shift in sales mix toward third-party slab-based products.
- Regional Mix: Monitor the divergence in revenue per ton between North America (increasing) and South & Central America (decreasing) to understand pricing power in core markets.