Ternium S.A. (TX) Bundle
Understanding Ternium S.A. (TX) Revenue Streams
Understanding Ternium S.A.’s Revenue Streams
The revenue streams of the company are primarily derived from two segments: the Steel segment and the Mining segment. The breakdown of net sales for the third quarter of 2024 is as follows:
| Segment | Net Sales ($ Million) | Year-over-Year Change (%) |
|---|---|---|
| Steel Segment | 4,368 | -13% |
| Mining Segment | 112 | -25% |
| Total Net Sales | 4,480 | -14% |
In the first nine months of 2024, the total net sales reached $13,773 million, reflecting a 9% increase compared to $12,679 million during the same period in 2023.
Year-over-Year Revenue Growth Rate
The year-over-year revenue growth rates for the Steel and Mining segments indicate significant fluctuations:
- Steel Segment: Decreased by 13% in Q3 2024 compared to Q3 2023.
- Mining Segment: Decreased by 25% in Q3 2024 compared to Q3 2023.
Year-to-date, the Steel segment net sales increased by 7% from $12,531 million in 2023 to $13,453 million in 2024, while the Mining segment's net sales surged by 115%, from $149 million to $320 million.
Contribution of Different Business Segments to Overall Revenue
In Q3 2024, the contributions of the business segments to overall revenue were as follows:
| Segment | Contribution to Total Revenue (%) |
|---|---|
| Steel Segment | 97.5% |
| Mining Segment | 2.5% |
The Steel segment remains the dominant revenue generator, contributing over 97% of total net sales, while the Mining segment contributes a smaller share.
Analysis of Significant Changes in Revenue Streams
The Steel segment's revenue decline was primarily attributed to lower steel prices in key markets and a decrease in industrial contract prices in Mexico. In contrast, the Mining segment benefitted from an increase in iron ore prices, despite lower sales volumes.
Notably, the company achieved record-high sales volumes in Mexico, with steel shipments increasing by 7% sequentially in Q3 2024. However, the revenue per ton in the Steel segment decreased to $988 from $1,116 year-over-year, indicating a 11% decline in realized prices.
Revenue Performance Overview
The following table summarizes the revenue performance across segments for Q3 2024:
| Segment | Net Sales ($ Million) | Shipments (Thousand Tons) | Revenue per Ton ($/Ton) |
|---|---|---|---|
| Steel Segment | 4,368 | 4,123 | 1,061 |
| Mining Segment | 112 | 1,781 | 63 |
This detailed analysis reflects the company’s revenue dynamics and highlights the impact of market conditions on its financial health. The ongoing adjustments in pricing strategies and market conditions will continue to influence revenue streams as the company navigates through 2024.
A Deep Dive into Ternium S.A. (TX) Profitability
A Deep Dive into Ternium S.A.'s Profitability
Gross Profit Margin: In the third quarter of 2024, Ternium reported a gross profit of $578 million on net sales of $4,480 million, resulting in a gross profit margin of 12.9%. This is a decline from 19.2% in the same quarter of 2023.
Operating Profit Margin: The operating income for the third quarter of 2024 was $175 million, yielding an operating profit margin of 3.9%. This marks a decrease from 10.2% in the third quarter of 2023.
Net Profit Margin: The net income for the third quarter of 2024 was $93 million, leading to a net profit margin of 2.1%. This is a significant drop from 6.3% in the same quarter of the previous year.
| Metric | 3Q24 | 3Q23 |
|---|---|---|
| Gross Profit Margin | 12.9% | 19.2% |
| Operating Profit Margin | 3.9% | 10.2% |
| Net Profit Margin | 2.1% | 6.3% |
Trends in Profitability: Over the past year, Ternium's profitability metrics have shown a declining trend. The gross profit dropped from $993 million in the third quarter of 2023 to $578 million in the third quarter of 2024. This reflects a decrease in demand and lower steel prices affecting overall revenue.
Comparison with Industry Averages: The steel industry average for gross profit margin is approximately 15%, while Ternium's gross profit margin of 12.9% is below this average. The operating profit margin for the industry is typically around 5%, which indicates Ternium's 3.9% margin is also trailing behind.
Operational Efficiency Analysis: Ternium has faced challenges in cost management, with selling, general and administrative expenses totaling $412 million in the third quarter of 2024, compared to $443 million in the same quarter last year. The cash operating income per ton for the steel segment was $75 in 3Q24, down from $157 in 3Q23, indicating reduced operational efficiency and higher production costs.
| Metric | 3Q24 | 3Q23 |
|---|---|---|
| Cash Operating Income per Ton - Steel | $75 | $157 |
| SG&A Expenses ($ million) | $412 | $443 |
Adjusted EBITDA: The adjusted EBITDA for the third quarter of 2024 was $368 million, representing an adjusted EBITDA margin of 8%. This is a decline from $698 million and a margin of 13% in the third quarter of 2023.
Financial Performance Summary: The financial results indicate a challenging environment for Ternium, with revenues affected by fluctuating steel prices and increased competition within the market. The company is expected to navigate these challenges while focusing on cost management and operational efficiency to improve profitability metrics moving forward.
Debt vs. Equity: How Ternium S.A. (TX) Finances Its Growth
Debt vs. Equity: How Ternium S.A. Finances Its Growth
Overview of Debt Levels
As of September 30, 2024, Ternium S.A. reported total borrowings of $2.2 billion, which includes $590 million in short-term borrowings and $1.6 billion in long-term borrowings.
Debt-to-Equity Ratio
The debt-to-equity ratio for Ternium S.A. stands at approximately 0.13. This ratio is significantly lower than the industry average, which typically ranges from 0.5 to 1.0, indicating a conservative approach to leveraging.
Recent Debt Issuances and Credit Ratings
Recently, Ternium S.A. issued $852 million in new borrowings during the third quarter of 2024. The company's credit rating remains stable, with a current rating of Baa3 from Moody's and BBB- from S&P, reflecting its solid financial position.
Balancing Debt Financing and Equity Funding
Ternium S.A. maintains a balanced approach between debt financing and equity funding. The company has a net cash position of $1.7 billion as of September 30, 2024, which provides flexibility in managing its capital structure.
| Financial Metric | Value |
|---|---|
| Total Borrowings | $2.2 billion |
| Short-term Borrowings | $590 million |
| Long-term Borrowings | $1.6 billion |
| Debt-to-Equity Ratio | 0.13 |
| New Debt Issued (Q3 2024) | $852 million |
| Credit Rating (Moody’s) | Baa3 |
| Credit Rating (S&P) | BBB- |
| Net Cash Position | $1.7 billion |
Assessing Ternium S.A. (TX) Liquidity
Assessing Ternium S.A.'s Liquidity
Current and Quick Ratios
The liquidity position of Ternium S.A. can be evaluated through its current and quick ratios. As of September 30, 2024, the current ratio was calculated at 2.92, indicating a robust ability to cover short-term liabilities with current assets. The quick ratio, which excludes inventories from current assets, stood at 1.65, suggesting a healthy liquidity position even when accounting for more liquid assets only.
Analysis of Working Capital Trends
Working capital has shown fluctuations over recent quarters. As of September 30, 2024, working capital was approximately $7.7 billion, reflecting a $1.2 billion increase from the previous quarter. This increase was primarily driven by a $258 million decrease in trade payables, alongside a $54 million decrease in inventories and a $49 million net decrease in trade and other receivables.
Cash Flow Statements Overview
In the third quarter of 2024, cash provided by operating activities was $303 million, showcasing a healthy operational cash flow despite the working capital increase. The capital expenditures for the same period were $446 million, reflecting ongoing investments in expansion projects. The net cash position decreased to $1.7 billion as of September 30, 2024, down from $1.9 billion at the end of June 2024.
| Cash Flow Item | 3Q24 ($ million) | 2Q24 ($ million) | 3Q23 ($ million) |
|---|---|---|---|
| Cash from Operations | 303 | 656 | 1,020 |
| Capital Expenditures | (446) | (409) | (430) |
| Net Cash Position | 1,700 | 1,900 | 2,400 |
Potential Liquidity Concerns or Strengths
Despite the positive liquidity indicators, potential concerns include the increase in working capital, which could affect cash flow in the short term. However, the overall cash flow from operations remains strong, and the liquidity ratios indicate that the company is well-positioned to meet its short-term obligations.
Overall, Ternium S.A.'s liquidity position as of 2024 is characterized by solid current and quick ratios, positive cash flow from operations, and a substantial working capital balance that supports its operational and investment activities.
Is Ternium S.A. (TX) Overvalued or Undervalued?
Valuation Analysis
To assess whether Ternium S.A. is overvalued or undervalued, we will analyze key valuation ratios, stock price trends, dividend yield, and analyst consensus.
Price-to-Earnings (P/E) Ratio
The P/E ratio is a crucial metric for evaluating a company's valuation relative to its earnings. As of the third quarter of 2024, Ternium reported earnings of $0.16 per American Depositary Share (ADS). The stock price was approximately $20.50, leading to a P/E ratio of:
P/E Ratio = Stock Price / Earnings per ADS = $20.50 / $0.16 = 128.125
Price-to-Book (P/B) Ratio
The P/B ratio compares a company's market value to its book value. As of September 30, 2024, the book value per share was approximately $12.00. Thus, the P/B ratio is calculated as follows:
P/B Ratio = Stock Price / Book Value per Share = $20.50 / $12.00 = 1.708
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
For the third quarter of 2024, Ternium reported an Adjusted EBITDA of $368 million. The enterprise value (EV) can be estimated by adding market capitalization and net debt. Assuming a market cap of $10 billion and net debt of $1.7 billion (as of September 30, 2024), the calculation is:
EV = Market Cap + Net Debt = $10 billion + $1.7 billion = $11.7 billion
EV/EBITDA Ratio = EV / Adjusted EBITDA = $11.7 billion / $368 million = 31.8
Stock Price Trends
Over the past 12 months, Ternium's stock price has seen fluctuations, starting at around $25.00 in early 2023, dropping to a low of $15.00 in mid-2023, before recovering to approximately $20.50 as of November 2024.
Dividend Yield and Payout Ratios
Ternium announced an interim dividend payment of $0.90 per ADS. With the current stock price of $20.50, the dividend yield is calculated as:
Dividend Yield = Annual Dividend / Stock Price = $0.90 / $20.50 = 4.39%
The payout ratio, based on the latest earnings per ADS of $0.16, indicates:
Payout Ratio = Dividend / Earnings = $0.90 / $0.16 = 562.5%
Analyst Consensus
Analyst consensus on Ternium's stock is currently a "Hold," with mixed sentiments regarding its valuation based on recent performance and market conditions.
Summary Table of Valuation Metrics
| Metric | Value |
|---|---|
| P/E Ratio | 128.125 |
| P/B Ratio | 1.708 |
| EV/EBITDA Ratio | 31.8 |
| Stock Price (Nov 2024) | $20.50 |
| Dividend Yield | 4.39% |
| Payout Ratio | 562.5% |
| Analyst Consensus | Hold |
Key Risks Facing Ternium S.A. (TX)
Key Risks Facing Ternium S.A.
Understanding the financial health of Ternium S.A. requires a thorough examination of the various risk factors that could impact its operations and profitability. Below are the primary internal and external risks identified for Ternium as of 2024.
Industry Competition
The steel industry is characterized by intense competition, with numerous players vying for market share. The company faces competition from both domestic and international steel producers. This competitive landscape can lead to pricing pressure and reduced margins. In the third quarter of 2024, Ternium's steel revenue per ton decreased to $1,060, down from $1,100 in the previous quarter, reflecting these competitive pressures.
Market Conditions
Market conditions in the steel sector are highly cyclical and influenced by global economic trends. As of 2024, Ternium anticipates a decline in apparent demand in Mexico and Brazil due to year-end seasonality, which could adversely affect sales volume and revenue. Total net sales for the third quarter of 2024 were $4,480 million, down 1% sequentially.
Regulatory Changes
Changes in government regulations, particularly related to environmental standards and trade policies, present a significant risk. The company must comply with various regulations in the countries it operates, including emissions standards and tariff regulations. Non-compliance could result in fines or operational restrictions. In the third quarter of 2024, the effective tax rate was reported at 61%, influenced by local regulations.
Operational Risks
Operational risks include potential disruptions in production due to equipment failures or supply chain issues. Ternium's capital expenditures reached $446 million in the third quarter of 2024, aimed at expanding production capabilities and mitigating these risks. Additionally, the company has made significant investments in renewable energy, including a new wind farm in Argentina, to reduce reliance on external energy sources.
Financial Risks
Financial risks are associated with fluctuations in currency exchange rates and interest rates. In the third quarter of 2024, Ternium reported a net financial gain of $74 million, primarily due to favorable foreign exchange movements. However, ongoing volatility in currency rates can affect profitability, particularly for operations in countries with fluctuating currencies like the Mexican Peso and Brazilian Real.
Strategic Risks
Strategic risks may arise from decisions regarding mergers, acquisitions, or divestitures. Ternium has been involved in litigation related to its acquisition of a stake in Usiminas, resulting in a provision of $814 million in ongoing litigation costs. Such strategic decisions can significantly impact the company's financial position and public perception.
Mitigation Strategies
Ternium has implemented various strategies to mitigate these risks. This includes active monitoring of market trends and competitive positioning, investments in technology and infrastructure to enhance operational efficiency, and maintaining a diversified product portfolio to reduce dependence on any single market segment. Additionally, the company's focus on renewable energy initiatives aims to address regulatory pressures and operational costs.
| Risk Factor | Description | Recent Financial Impact |
|---|---|---|
| Industry Competition | Intense competition affecting pricing and margins | Steel revenue per ton decreased to $1,060 |
| Market Conditions | Cyclical demand fluctuations | Total net sales of $4,480 million, down 1% sequentially |
| Regulatory Changes | Compliance with environmental and trade regulations | Effective tax rate of 61% |
| Operational Risks | Production disruptions and supply chain issues | Capital expenditures of $446 million |
| Financial Risks | Currency and interest rate fluctuations | Net financial gain of $74 million |
| Strategic Risks | Litigation and acquisition-related risks | Provision for ongoing litigation of $814 million |
Future Growth Prospects for Ternium S.A. (TX)
Growth Opportunities
Future growth prospects for Ternium S.A. are driven by several key factors including product innovations, market expansions, and strategic initiatives.
Key Growth Drivers
- Product Innovations: The introduction of new products, particularly in high-demand sectors such as automotive and construction, positions the company to capture additional market share.
- Market Expansions: Ternium has reported record-high shipments in Mexico and increased shipments in Brazil, reflecting effective market penetration strategies.
- Acquisitions: The company's ongoing investment in partnerships and acquisitions, particularly in the Southern region, is expected to enhance operational capabilities and market reach.
Future Revenue Growth Projections and Earnings Estimates
For the full year of 2024, Ternium projects a slight increase in adjusted EBITDA, with expectations of improved margins despite a reduction in shipments. The company anticipates a continued decrease in cost per ton, while realized steel prices are projected to decline due to price resets in contracts with industrial customers in Mexico.
Strategic Initiatives and Partnerships
The company is advancing several strategic initiatives that may drive future growth:
- The construction of new facilities in the Pesquería industrial center and a new wind farm in Argentina is expected to enhance production efficiency and sustainability.
- Partnerships with local industries in Mexico and Brazil are aimed at increasing product offerings and enhancing customer relationships.
Competitive Advantages
Ternium's competitive advantages include:
- Strong Market Presence: With a robust distribution network and established relationships in key markets, Ternium is well-positioned to meet customer demand across various sectors.
- Cost Efficiency: The ongoing reduction in cost per ton, attributable to the consumption of lower-priced inventory, enhances profit margins.
- Innovative Technologies: Investment in low carbon emissions steelmaking technologies supports Ternium's commitment to sustainability, appealing to environmentally-conscious customers.
Financial Overview
The financial health of Ternium indicates promising growth potential:
| Metric | 3Q24 | 2Q24 | 3Q23 | 9M24 | 9M23 |
|---|---|---|---|---|---|
| Net Sales ($ million) | 4,480 | 4,514 | 5,185 | 13,773 | 12,679 |
| Adjusted EBITDA ($ million) | 368 | 545 | 698 | 1,768 | 2,089 |
| Net Income ($ million) | 93 | (743) | (783) | (159) | 433 |
| Cash from Operations ($ million) | 303 | 656 | 1,020 | 1,435 | 1,783 |
| Capital Expenditures ($ million) | 446 | 409 | 430 | 1,304 | 864 |
The company’s net cash position decreased to $1.7 billion as of September 30, 2024, from $1.9 billion at the end of June 2024.
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Resources:
- Ternium S.A. (TX) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Ternium S.A. (TX)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Ternium S.A. (TX)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.