Ternium S.A. (TX) Q3 2024 Earnings Call Transcript
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Overview
The earnings call indicates a stable financial position with a strong net cash position, optimistic future revenue expectations, and a consistent dividend policy. The Q&A section reveals management's positive outlook on North American market opportunities, despite global overcapacity concerns. The interim dividend yield of 8% and a record dividend distribution suggest confidence in future performance. The potential risks in Mexico and Brazil are acknowledged but seem mitigated by strategic positioning and government reforms. Overall, the sentiment is positive, with expectations of improved margins and recovery in steel consumption in 2025.
Key Financial Performance
Adjusted EBITDA $368 million, down from previous year due to lower realized steel prices, partially offset by a small decline in steel cost per ton and an increase in shipments.
Net Income $93 million, lower than previous quarter due to lower deferred tax losses and improved financial results, partially offset by a decline in operating income.
Net Cash Position $1.7 billion, decreased due to lower cash flow from operations, increased working capital, and higher capital expenditure.
Capital Expenditure Expected to be between $1.7 billion to $1.8 billion in 2024, showing a significant year-over-year increase.
Dividend Payment $0.90 per ADS totaling $177 million, representing a dividend yield of about 8% based on current share price and a 68% payout ratio based on adjusted net income for the past 12 months.
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Operating Highlights
New Pickling Line: The new pickling line is boosting capacity for automotive and industrial markets as it ramps up production.
Wind Farm in Argentina: The wind farm in Argentina will begin operation by year-end, enhancing renewable energy use and reducing reliance on external sources.
Mexican Steel Market: Record high shipments in the Mexican steel market, with expectations for sequential shipment growth in Q1 2025.
Brazilian Steel Market: Steel consumption in Brazil has grown 9% year-over-year in the first nine months of 2024.
Argentinian Steel Market: Steel volumes in Argentina have shown recovery, with expectations for stable shipments despite seasonal slowdowns.
Operational Efficiencies: Usiminas' blast furnace operations recorded efficiency gains, particularly in fuel consumption.
Cost Reduction Initiatives: Continued work in cost-cutting initiatives is expected to improve margins.
Expansion Projects: Progress on expansion projects includes new finishing center lines and a slab making facility, enhancing product offerings and operational efficiency.
Sustainability Initiatives: Updated decarbonization targets include a 15% reduction in emissions intensity by 2030, now incorporating Scope 3 emissions.
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Risk or Challenges
Market Demand Risks: In Mexico, public investment has been soft recently following a change in administration, which may affect demand for infrastructure projects. A decline in shipments is expected in the fourth quarter due to seasonal weakness.
Competitive Pressures: In Brazil, flat steel imports surged by 20% year-over-year, primarily from China, leading to anti-dumping investigations. The Brazilian government has implemented a quota system with a 25% tariff on excess imports, but these measures have not yet yielded expected results.
Regulatory Risks: In Argentina, there is a risk of increased imports of unfair trade products, which could impact local steel demand. The government is implementing reforms that may promote investments, but the situation requires close monitoring.
Economic Factors: The overall steel market is facing pressures from global overcapacity, particularly from China, which affects pricing and competitiveness in North America. The potential for tariffs within the North American region poses additional risks.
Operational Risks: Ternium's ongoing capital expenditures are significant, with a total CapEx expected between $1.7 billion to $1.8 billion in 2024, which may impact cash flow and financial flexibility.
Environmental Regulations: Ternium is committed to reducing emissions intensity by 15% by 2030, which may involve compliance costs and operational adjustments to meet evolving regulatory requirements.
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Guidance & Outlook
Adjusted EBITDA: Ternium reported an adjusted EBITDA of $368 million for the third quarter.
Net Income: Net income for the third quarter was $93 million.
CapEx: Total CapEx for 2024 is expected to be between $1.7 billion to $1.8 billion.
Future CapEx: CapEx in 2025 is projected to be around $2.3 billion, primarily for the Pesquería project.
Wind Farm Operation: The wind farm in Argentina is expected to begin operations by year-end, enhancing renewable energy use.
Sustainability Targets: Ternium aims for a 15% reduction in emissions intensity by 2030, including Scope 3 emissions.
New Production Lines: New production lines in Pesquería will enhance product offerings and operational efficiency.
Shipment Expectations: For Q4, a decline in shipments is expected due to seasonal factors, but growth is anticipated in Q1 2025.
Market Outlook: Optimism about the Mexican market in 2025, with automotive production expected to reach 4.2 million units.
Margin Improvement: Margins are expected to gradually improve in 2025 due to lower raw material costs and cost-cutting initiatives.
Dividend Payment: An interim dividend of $0.90 per ADS totaling $177 million was announced, reflecting a high payout ratio.
Free Cash Flow: Positive operating cash flow is expected in the coming quarters despite increased CapEx.
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Shareholder Return Plan
Interim Dividend Payment: The Board of Directors announced the payment of an interim dividend of $0.90 per ADS totaling $177 million.
Dividend Structure: Over the past three years, the company has structured dividends so that the interim payment in November represents roughly one-third of the total annual amount, with the remaining two-thirds distributed in May following shareholders' approvals.
Total Dividend Yield: The total dividend payment corresponding to the fiscal year 2024 would represent a dividend yield of about 8% based on the current share price.
Payout Ratio: The dividend payout ratio is approximately 68% based on adjusted net income for the past 12 months.
Historical Dividend Payments: The Board has consistently decided to distribute a substantial dividend annually, even during periods of increased capital expenditures.
Shareholder Return Plan: The company aims to maintain a strong dividend payment with a high level of distribution, despite a nominal reduction in the dividend payment this year.
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Key Q&A
Q:Can you explain the reason behind the dividend cut this year?
A:The Board's decision was for a nominal reduction of dividend payment, but it maintains or increases the dividend yield and significantly increases the payout ratio. This is due to reduced EBITDA generation and a higher CapEx plan for next year.
Q:What are your thoughts on the outcome of the US election and its impact on Ternium?
A:The outcome is seen as an opportunity to strengthen the North American region. The new Mexican administration shares concerns about unfair trade from China, and there is a consensus on the need to strengthen the North American supply chain.
Q:What is the outlook for the steel industry in North America given the overcapacity problem globally?
A:There is an overcapacity in China, but North America is competitive in producing low-carbon intensity steel. The region is expected to have many regional markets, and Ternium is investing in capacity to meet regional needs.
Q:What is Ternium doing regarding steel imports in Brazil?
A:The government has implemented a quota system for steel imports, but it has loopholes. Ternium is working with the government to close these loopholes and is also filing dumping cases.
Q:What are the future investment plans for Ternium after the current CapEx plan?
A:Ternium will focus on investments in the Americas, particularly in completing the Pesquería project, which is the largest in the company's history.
Q:What is the expected CapEx for 2025?
A:The total CapEx for 2025 is expected to be around $2.3 billion, primarily for the Pesquería project.
Q:What are the expectations for free cash flow in the coming quarters?
A:Free cash flow is expected to improve due to positive operating cash flow and a reduction in costs, despite increased CapEx.
Q:Review of Unclear Management Responses
A:Management appeared to avoid giving a direct answer regarding the specific details of the dividend cut rationale, as they focused on the broader context of yield and payout ratios without addressing the underlying reasons for the reduction in nominal terms.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
China
North America
Pesquería project
President
Steel
USMCA
account
addition
administration Mexico
amount
capital expenditure
case
commitment
company
consideration
cost ton
dividend payment
dividend yield
emission
inventory
material slab
objective
outcome election
overcapacity
payment dividend
payout ratio
payouts
quota system
reason
respect
risk
segment
shipment market
steel import
tariff
way
work
TX Transcript
Ternium S.A. (TX) Q3 2025 Earnings Call Transcript
Unknown10-29
The earnings call presents a mixed picture. While there are positives like sequential improvement in EBITDA, cost efficiency measures, and the Pesqueria expansion, there are concerns such as declining mining segment sales, lower adjusted EBITDA, and challenges in the Brazilian market. The Q&A revealed cautious management responses and uncertainties in trade and market conditions. Despite some positive developments, the lack of strong guidance and potential market challenges suggest a neutral sentiment, with no significant short-term stock price movement expected.
Ternium S.A. (TX) Q2 2025 Earnings Call Transcript
Unknown7-30
The earnings call summary reveals mixed elements: strong operational cash flow and positive cost reduction initiatives, but with increased CapEx and a decrease in net cash position. The Q&A highlights potential market share gains in Mexico and improved EBITDA margins, but also notes concerns about ongoing litigation and unclear future trade measures. Overall, the sentiment is balanced, with positive operational strategies countered by financial pressures and uncertainties, leading to a neutral stock price prediction.
Ternium S.A. (TX) Q1 2025 Earnings Call Transcript
Unknown4-30
The earnings call presented mixed signals. Financial performance showed improvements in adjusted EBITDA and net income, but increased CapEx and operational delays pose financial risks. The Q&A revealed some optimism about margins and market share growth, but management provided vague responses on key issues. The lack of a share repurchase program and global trade uncertainties add to the cautious outlook. Overall, the sentiment balances between positive financials and negative external factors, suggesting a neutral stock price movement.
Ternium S.A. (TX) Q3 2024 Earnings Call Transcript
Positive11-6
The earnings call indicates a stable financial position with a strong net cash position, optimistic future revenue expectations, and a consistent dividend policy. The Q&A section reveals management's positive outlook on North American market opportunities, despite global overcapacity concerns. The interim dividend yield of 8% and a record dividend distribution suggest confidence in future performance. The potential risks in Mexico and Brazil are acknowledged but seem mitigated by strategic positioning and government reforms. Overall, the sentiment is positive, with expectations of improved margins and recovery in steel consumption in 2025.
TX Report
Frequently Asked Questions
Where does this earnings call transcript come from?
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Why do some answers appear as “Unclear” or “Inaudible”?
When audio quality is poor or multiple speakers talk over each other, we mark the section instead of guessing. This ensures complete accuracy rather than introducing potential errors.
Who creates the AI Summary and Key Q&A highlights shown above the transcript?
They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
