Ternium S.A. (TX) Q2 2025 Earnings Call Transcript
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Overview
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.
Key Financial Performance
Adjusted EBITDA Increased by 25% in the second quarter, mainly driven by stronger realized steel prices in Mexico, partially offset by a slight increase in cost per ton.
Net Income Amounted to $259 million in the second quarter of 2025. Includes a $40 million provision adjustment related to ongoing litigation and currency appreciation. Adjusted net income excluding this provision was $299 million, supported by better operational performance and favorable deferred tax results due to a 7.5% revaluation of the Mexican peso.
Steel Segment Shipments Declined primarily in Mexico and the U.S., partially mitigated by higher volumes in the Southern region. Margins improved due to higher average selling prices, especially in Mexico, despite lower shipments and a modest increase in cost per ton.
Mining Segment Iron ore shipments rose quarter-over-quarter due to increased production levels. However, net sales remained unchanged as lower realized iron ore prices offset volume gains. Margins slightly declined due to weaker prices, partially offset by lower operating costs per ton.
Cash from Operations Totaled $1 billion in the second quarter, aided by a significant reduction in working capital through inventory adjustments and decreased trade receivables.
CapEx Increased due to ongoing expansion at the Pesqueria Industrial Center in Mexico, marking 2025 as the peak year for investments.
Net Cash Position Decreased in the second quarter due to elevated CapEx levels and a $353 million dividend distribution, partially offset by robust operational cash flow generation. The cash position totaled $1 billion at the end of June.
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Operating Highlights
Pesqueria Expansion Project: The expansion project in Pesqueria, Mexico, continues as planned and serves as a cornerstone of Ternium's growth strategy.
Mexico Market: Higher realized steel prices and government measures to curb unfair trade practices have created a more level playing field, supporting expectations of higher shipments in Q3.
Brazil Market: The market faces challenges due to a surge in unfair steel imports, undermining local competitiveness and margins.
Argentina Market: Shipments increased in Q2 due to seasonal factors and a recovering macroeconomic environment, with strong performance in the automotive and agricultural machinery sectors.
Cost Efficiency Measures: Focused on optimizing logistics, improving procurement, enhancing production processes, and incorporating technology to boost labor productivity.
Mining Segment: Iron ore shipments increased due to higher production levels, but lower realized prices offset volume gains.
Sustainability Report: Released a report reaffirming commitment to environmental performance, social responsibility, and transparency.
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Risk or Challenges
Uncertain and volatile operating environment: The company faces challenges due to an uncertain and volatile operating environment, particularly in its main markets, which could impact its financial and operational performance.
Trade policy and tariff negotiations: Ongoing trade policy changes and tariff negotiations between the U.S. and Mexico create uncertainty, particularly in the Mexican market, which could affect shipments and pricing.
Unfair trade practices in Brazil: The Brazilian steel market is under pressure from a surge in unfair steel imports, particularly from Asian countries, undermining local manufacturers' competitiveness and margins.
Macroeconomic challenges in Argentina: While some sectors in Argentina are recovering, the construction sector remains weak, and certain market segments are affected by increased imports of finished goods, impacting local demand.
Cost pressures and efficiency challenges: The company is focusing on cost management and operational efficiency to address rising costs and maintain competitiveness, but these efforts may face execution risks.
Litigation-related financial impact: A $40 million provision adjustment related to ongoing litigation associated with the acquisition of a participation in Usiminas reflects potential financial risks.
Foreign exchange fluctuations: The company experienced a decline in net financial results due to foreign exchange fluctuations, particularly the revaluation of the Mexican peso, which could continue to impact financial performance.
High capital expenditure: Elevated capital expenditure levels, particularly for the expansion at the Pesqueria Industrial Center in Mexico, have reduced the company's net cash position, posing financial strain.
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Guidance & Outlook
Sequential improvement in EBITDA: The company anticipates a sequential improvement in EBITDA for the third quarter, driven by slightly increased shipments, particularly in Mexico, and stable volumes in Brazil.
Mexican market outlook: Higher sequential shipments are expected in Mexico in the third quarter, supported by government measures to reduce unfair trade practices and a decrease in steel imports.
Brazilian market challenges: The Brazilian steel market faces challenges due to a surge in unfair imported steel, impacting local manufacturers' competitiveness and margins. The company emphasizes the need for government intervention to address these issues.
Argentinian market trends: Shipments in Argentina are expected to remain steady following a strong second quarter, supported by a recovering macroeconomic environment and healthy activity in the automotive and agricultural machinery sectors.
Cost efficiency measures: The company continues to focus on cost management strategies, including optimizing logistics, improving procurement, enhancing production efficiency, and incorporating technology to boost labor productivity.
Pesqueria expansion project: The expansion project in Pesqueria, Mexico, remains on track and is a cornerstone of the company's growth strategy.
CapEx forecast for 2025: 2025 is identified as the peak year for investments, with elevated capital expenditures driven by the ongoing expansion at the Pesqueria Industrial Center in Mexico.
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Shareholder Return Plan
Dividend Distribution: The company distributed $353 million in dividends during the second quarter of 2025.
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Key Q&A
Q:What is the state of steel supply in Mexico, considering recent trade measures and the incident at ArcelorMittal?
A:Mexico's flat product market has about 40% imports, and consumption has decreased slightly this year. Ternium is positioned to gain market share due to reduced imports and government measures against unfair trade. The ArcelorMittal incident affects long products, where Ternium may gain marginal market share, but the main gains will be in flat products.
Q:Can you elaborate on the cost reduction initiatives and their impact on margins for the third quarter?
A:Ternium anticipates a $300 million cost reduction for the year, with 1/3 realized in Q1 and 2/3 expected in the next two quarters. Initiatives include procurement improvements ($70 million), process stability enhancements ($50 million), rebalancing production in Mexico, and energy cost reductions from a wind farm in Argentina. These are in addition to lower raw material costs.
Q:Are Mexico's trade import measures sufficient to balance the local steel market?
A:The measures are a good start, but Mexico is analyzing additional measures to align with U.S. and Canadian defense mechanisms. There is still a gap compared to U.S. measures, but the government is working to reduce it.
Q:What is the expected improvement in EBITDA in the short and long term?
A:Short-term, Ternium expects to reach an average EBITDA margin of around 15% by Q4, driven by cost reduction and efficiency measures. Long-term, new projects in Mexico will add 1.5 million tons of capacity, with an EBITDA increase of $30-$40 per ton from cost efficiency and $150-$200 per ton from new capacity. However, these projects have long ramp-up periods.
Q:What is the status of the CSN litigation and the Shreveport facility strategy?
A:For CSN litigation, there have been no significant developments since Q4 last year. Ternium has filed an appeal, and the Supreme Court of Justice in Brazil is yet to decide. For the Shreveport facility, Ternium is sourcing most supply locally due to a 50% tariff on imports.
Q:What is the comparison base for the $300 million cost reduction target, and does it include Usiminas?
A:The $300 million cost reduction is compared to 2024 figures, excluding raw material price changes. It does not include Usiminas, which has its own competitiveness plan.
Q:What is the impact of lower imports on steel prices in Mexico?
A:Steel prices in Mexico may see a mild improvement, but no radical changes are expected. Ternium is likely to gain market share.
Q:What measures is Mexico taking to address import issues?
A:Mexico is closing loopholes in import systems, enhancing dumping case analysis, and revising temporary imports to prevent abuses. The government is working on additional measures to strengthen trade defenses.
Q:When will Ternium's CapEx cycle peak, and what is the status of the Pesqueria project?
A:The CapEx cycle peaked in Q2 2023 with $800 million. For the year, CapEx is projected at $2.5-$2.6 billion, with $700 million per quarter for the rest of the year. The Pesqueria project is on track, with the galvanized line and PLTCM 2 starting ramp-up in December.
Q:What is Ternium's capital allocation strategy, including dividends and investments in Brazil?
A:Ternium is focused on sustaining dividend payments while executing its $4 billion CapEx plan. Investments in Brazil depend on the country addressing unfair trade practices. The company aims to improve EBITDA and margins while completing its current projects.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the next steps in the CSN litigation process, stating only that an appeal is pending with the Supreme Court of Justice in Brazil. Additionally, they did not provide clear insights into the potential future measures Mexico might take to address import issues, only mentioning that the government is analyzing options.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Argentina volume
BBI SA
Banco Bradesco
Bank Research
Barcellos Banco
Brazil base
Caio Greiner
Carlos De
China competition
Conference sir
Director Caio
Division Carlos
Division Conference
Division Rafael
ET Hello
Maximo
Research Division
United States
action
approach
challenge
commitment
competitiveness
conclusion
context
development
environment remark
field market
goal
level playing
market environment
negotiation
playing field
practice country
shipment Mexico
trade policy
trade practice
volatility
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
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