Ternium SA - $TX - Earnings Analysis: Strong operating cash flow and a robust net cash position of $1.6 billion.
Business Model
Ternium generates revenue primarily through the production and sale of steel and mining products to various industries in the Americas, including automotive, construction, manufacturing, and the energy sector.
Revenue Sources
- Sales of steel products to customers in Mexico, Brazil, the Southern Region, and other markets.
- Sales of mining products to third parties and through intercompany sales.
Income Statement Analysis
- Net sales decreased by 13.5% compared to the previous quarter due to lower steel shipments and decreased realized steel prices.
- Operating income decreased by 76.0% sequentially, reflecting lower margins.
- Net income increased significantly due to a $404 million provision reversal for ongoing litigation related to the acquisition of a participation in Usiminas in 2012.
- Excluding the extraordinary item, adjusted net income decreased from $124 million in 3Q24 to a loss of $71 million in 4Q24.
Balance Sheet Analysis
- Total assets decreased by 4.34% compared to the previous year, mainly due to reductions in inventories and receivables.
- Total stockholders' equity decreased by 4.05% mainly due to dividend payments and currency translation adjustments.
- Total liabilities decreased by 5.02% reflecting reductions in borrowings and trade payables.
Cash Flow Analysis
- Net cash provided by operating activities increased by 55.78% compared to the previous quarter due to a decrease in working capital.
- Net cash used in investing activities decreased, reflecting lower capital expenditures during the quarter.
- Net cash used in financing activities decreased compared to net cash provided in the previous quarter, primarily due to the payment of interim dividends in the fourth quarter.
- Overall, cash and cash equivalents increased by $165 million during the quarter.
Capital Allocation
In 2024, Ternium allocated capital towards significant business reinvestments and shareholder returns. The company invested $1.9 billion in capital expenditures, focusing on the expansion of its industrial center in Pesquería, Mexico, and the construction of a new wind farm in Argentina. Additionally, Ternium paid dividends totaling $609 million to shareholders, demonstrating a commitment to returning value to shareholders. There were no share repurchases reported during the period.
Management Commentary
Our operations generated $2 billion in cash.
Our expansion projects in Mexico are crucial for strengthening Ternium's integration into the North American market.
I expect our shipments will continue recovering throughout this year.
US trade actions during the last few weeks have been creating substantial uncertainty in the global market.
Imports from China have significantly disrupted the Brazilian market.
The commercial market in Mexico experienced a downturn.
Overall Sentiment: Management remains cautiously optimistic, highlighting strong operational cash flow and strategic investments, while acknowledging challenges from international trade uncertainties and market softness in key regions.
Disclaimer: This report is for informational purposes only and not investment advice. The analysis is based on limited information and subject to change. Investing in securities involves risks, including potential loss of principal. Past performance doesn't guarantee future results. Always conduct your own research, understand the risks, and consult a financial professional before making investment decisions.