Ternium(TX) - 2024 Q1 - Earnings Call Transcript

Financial Data and Key Metrics - Adjusted EBITDA for Q1 2024 was $655 million, up 31% from the previous quarter, with an adjusted EBITDA margin of 17% [21] - Net cash increased to $2 billion as of the end of March 2024 [5] - Net income and earnings per ADS showed significant strength in Q1, partially offset by losses from divestment of certain assets and sovereign bond holdings [23] - Cash flow from operations was healthy despite a $266 million increase in working capital due to higher inventories and receivables [31] Business Line Performance - Mexico operations remained strong, with slight sequential volume decline due to transitory re-stocking but strong demand from industrial customers [24] - Brazil saw stable steel shipments, with a year-over-year increase due to the consolidation of Usiminas [25] - Argentina experienced a sharp decline in shipments due to government economic stabilization measures, but a gradual recovery is expected starting in Q2 [14][25] - Usiminas in Brazil improved operational efficiency, with lower steel production costs following the restart of its main blast furnace [12] Market Performance - Nearshoring in North America is intensifying, benefiting Ternium's operations in Mexico due to geographical proximity and lower logistics costs [5] - Brazil's steel consumption improved slightly, driven by lower interest rates, improved consumer confidence, and infrastructure projects [6] - Argentina's medium-term outlook remains uncertain, but recovery is anticipated in agribusiness, energy, and mining sectors [14] Strategic Direction and Industry Competition - Ternium is focusing on upstream and downstream projects at its industrial center, with the first stage expected to come online in 2024 [15] - The company aims to benefit from nearshoring, advance its CO2 emissions roadmap, and strengthen its competitive position in the Mexican steel market [16] - Usiminas has set a decarbonization goal to reduce Scope 1 and 2 emissions intensity by 15% by 2030 [13] - New tariffs in Mexico and Brazil aim to level the playing field against unfair competition, particularly from China [10][11] Management Commentary on Operating Environment and Future Outlook - Management highlighted strong performance across all regions despite macroeconomic challenges [4] - Nearshoring trends and new tariffs in Mexico are seen as positive developments for the company [5][10] - Argentina's recovery is expected to be gradual, with significant uncertainty remaining [14][39] - The company anticipates a sequential increase in shipments in Q2, driven by positive trends in industrial demand [9] Other Important Information - Ternium refined its operational segments to reflect the integration of Usiminas operations, with new segments including steel and mining [19] - The company recorded a $56 million gain related to the readjustment of electricity transmission costs in Mexico [21] - Usiminas announced a decarbonization roadmap, with plans to reduce emissions intensity by 15% by 2030 [13] Q&A Session Summary Question: Clarification on the $56 million gain related to electricity transmission charges in Mexico - The gain was due to a reversal of overpaid charges from previous periods, now reflected as an operational item [38] Question: Outlook for Argentina's recovery and bond holdings - Argentina's recovery is expected to be gradual, with a 20% decline in Q2 compared to the previous year, but a 25% increase sequentially [39] - The company sold bonds received as payment from Argentina, with no further impact expected in future quarters [41][43] Question: Impact of new tariffs in Brazil and blast furnace outage - The new tariffs are a positive step but may not be sufficient to fully address unfair trade practices from China [48] - The blast furnace outage in Brazil is being resolved, with no significant impact expected on shipments or costs [50] Question: Guidance on pricing and costs - Lower prices are expected in most markets, with stable costs due to a mix of factors including slab purchases and iron ore price changes [56][57] Question: Capital allocation and dividend policy - Ternium has increased dividends and plans to sustain the current level, considering ongoing CapEx plans [66] - No specific new investment opportunities outside Mexico are currently being pursued [69]