Ternium S.A. American Depositary Shares 2026 Q2 Earnings Call

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It seems we had some technical issues. I hope you can hear us now. Okay, let's go again. Good morning, and thank you for joining us today. My name is Sebastián Martí, and I'm Ternium's Global IR and Compliance Senior Director. Yesterday, we announced our financial results for the second quarter and first half of 2026. Today's call is intended to provide additional context to that presentation. I'm joined by Máximo Vedoya, Ternium's Chief Executive Officer, and Pablo Brizzio, the company's Chief Financial Officer, who will discuss Ternium's operating environment and performance. Following our prepared remarks, we will open up the call to your questions. Before we begin, I would like to remind you that this conference call contains forward-looking information and that actual results may vary from those expressed or implied.

Factors that could affect results are contained in our filings with the Securities and Exchange Commission and on page two in today's webcast presentation. You will also find any reference to non-IFRS financial measures reconciled to the most directly comparable IFRS measure in the press release issued yesterday. I'll turn the call over to Mr. Vedoya.

Good morning, everyone, and thank you for joining us. Yesterday, we reported a significant increase in Ternium's result in the second quarter. Adjusted EBITDA was 50% higher sequentially, and our EBITDA margin reached 16.5%. Our balance sheet remained strong with net debt of only $112 million. With the peak of our investment program in Mexico behind us, we expect capital expenditures to keep declining further down the road. Before turning to our markets, let me say a few words on safety. Two weeks ago, we held Ternium's Safety Week, which we run every year across all of our operations. We stopped our production lines and more than 21,000 people took part in safety awareness routines. Stopping production across the company sends a clear message of our priority. Moving to Mexico, shipments increased and margin expanded. The business environment is slowly getting better.

Government measures against unfair trade are already helping steel volumes recover. The country continues to strengthen its trade defenses. The commercial market improved during the quarter, supported by restocking along the value chain, which is bringing inventories back to a more balanced level. We are also gaining market share in this segment, helped by lower imports and by our stronger performance versus peers as customers continue to value Ternium's reliability, service, and ability to respond quickly. Steel demand in the industrial market did not grow at the same pace. The auto sector remains healthy, and HVAC is improving on demand from data centers. Section 232 tariffs are affecting our customers in this and other manufacturing sectors. We expect volumes to continue recovering gradually in the third quarter. We are supplying steel for new gas pipeline projects and replacing Asia-imported steel from several automotive OEMs.

Public infrastructure projects under the agreement to promote the Mexican steel industry should add further demand ahead. Moving to trade, the U.S. and Mexico have held three meetings in the last month to work towards a new framework. These talks have advanced, although they have not yet produced concrete results. For the Mexican government, Section 232 remains a top priority. These tariffs are hard to justify in the case of steel, as the U.S. runs a large trade surplus with Mexico, and it's by far its larger external supplier. At the same time, there is still excess steel capacity in the world, and this makes it necessary to keep working on the trade front. A fourth round of talks will take place in Washington in early September.

Turning to Pesquería, our new downstream lines continue to ramp up, and the slab facility is progressing well, with startup expected in early 2027. This new capacity positions Ternium well for a more integrated and better-defended North American market, where local supplies becomes a competitive advantage. Ternium is prepared to serve that demand with local capacity, short lead times, and the technical support that industrial customers require. On top of that, the steel from our new slab mill will reach the automotive industry with a carbon footprint well below that of the blast furnace-based steel that still supplies most of the region's automotive needs. Before moving on to other markets, let me mention two recognitions we received in Mexico since our last call. Caterpillar distinguished Ternium through its Supplier Excellence Recognition program for the fourth year in a row.

We also received Trinity's Premier Supplier Award in the steel category. Awards repeated over time and across industries show that our customers value the quality of our products and the service of our team. Turning to Brazil, trade defense is advancing. In June, the steel quota system was renewed until June 2027, and the anti-dumping case on hot rolled coils from China should reach a final decision during this year. More is still needed, but the direction is positive. Demand across consuming sectors remain uneven. Automotive is solid, with production expected to grow by 6% this year. Road and infrastructure equipment remains dynamic. Other sectors are weaker, affected either by slow demand or unfair competition from imported finished goods. Against this backdrop, Usiminas has improved its profitability over the last few quarters. This came from better industrial performance, strict cost control, and higher productivity.

A key milestone for this competitiveness was the completion of the pulverized coal injection project, a structural step forward that brings great efficiency and lower cost, while also reducing emissions intensity. We also received important customer recognitions. General Motors named us Supplier of the Year in the Industrialization and Trust category, and Honda Motor Co. granted us a Gold Best Supplier award. In Argentina, shipments increased sequentially in the second quarter, mostly for seasonal reasons. Our view on this market has not changed. We continue to expect energy, mining, and agriculture to be the most dynamic sectors, with construction recovering gradually from still low levels. Manufacturing remains weak, held back by soft demand and strong competition from imports. In July, we published Ternium's 2025 sustainability report.

One of the main updates in this revision is the revision of our 2030 decarbonization target, which now includes Usiminas and uses 2024 as a new base year. We are committed to reducing emissions intensity per ton of hot-rolled steel by 50%, covering Scope 1, 2, and 3 under GHG protocol methodology. The report also covers our progress in energy efficiency, environmental management, safety, and community engagement. I encourage you to read it. It gives a complete view of the work Ternium is doing in all these fronts. This was a quarter with a solid recovery in profitability and a balance sheet that remains very strong. Looking ahead, we expect performance to continue showing good results in the third quarter, supported by the recovery in Mexico, a more balanced trade environment in Brazil, and steady progress on our strategic projects.

All of this rests on the daily work and commitment of all our people, and I want to thank them all. With this, I'd like to move to a review of our quarterly performance.

Pablo, please go ahead. Thanks, Máximo, and thanks everybody for participating in this call.

Let me turn to our operational and financial performance for the second quarter of this year. Adjusted EBITDA rose in the second quarter, driven by higher volumes and better margin, with adjusted EBITDA margin expanding to 16.5% from 12.2% in the first quarter. Performance benefited from the strengthened market fundamentals in Mexico and more constructive steel market environment in Brazil. The key drivers behind this result was improvement in realized steel prices, mainly in Mexico and Brazil. Looking ahead, we expect adjusted EBITDA to increase sequentially in the third quarter, driven by higher shipments and an improved adjusted EBITDA margin. This margin expansion should reflect higher revenue per ton, partially offset by an increase in cost per ton across our markets. Net income reached $465 million in the second quarter, primarily driven by strong operating performance.