Ternium S.A. announced its results for the third quarter and nine months ended 30 September 2012.

Summary of Third Quarter 2012 Results
Ternium’s operating income in the third quarter 2012 was US$252.5 million, slightly lower than operating income in the second quarter 2012, mainly as a result of a $21 decrease in revenue per ton partially offset by a 91,000 ton increase in shipments. Ternium’s net income in the third quarter 2012 was $146.6 million, an increase of $21.4 million compared to net income in the second quarter 2012.

Operating income in the third quarter 2012 was $96.6 million lower than in the third quarter 2011 due to a $78 decrease in revenue per ton and a 61,000 ton decrease in shipments, partially offset by a $40 decrease in operating cost per ton mainly related to lower raw material and purchased slab costs. Net income in the third quarter 2012 was $123.1 million higher year-over-year mainly due to $278.7 million lower net financial expenses, partially offset by the above mentioned lower operating income and a consequently higher income tax expense. This decrease in net financial expenses was principally due to the change in the functional currency of Ternium’s Mexican subsidiaries, effective as of 1 January 2012, as there was no impact of the Mexican Peso fluctuation on Ternium’s Mexican subsidiary’s U.S. dollar denominated debt in the third quarter 2012, while there was a $257.2 million net foreign exchange non-cash loss in the third quarter 2011.

Summary of Results for First Nine Months of 2012
Ternium’s operating income in the first nine months of 2012 was $187.1 million lower than its operating income in the first nine months of 2011, mainly as a result of a $39 lower revenue per ton partially offset by a $14 lower operating cost per ton mainly related to lower raw material and purchased slab costs.

Ternium’s net income in the first nine months of 2012 was $462.2 million, a decrease of $51.3 million year-over-year, mainly due to the above mentioned $187.1 million lower operating income partially offset by a $143.5 million lower net financial expense and a consequently lower income tax expense. This change in net financial results was principally related to lower net foreign exchange non-cash losses due to the aforementioned change in the functional currency of Ternium’s Mexican subsidiaries and a better result from changes in fair value of derivative instruments, partially offset by higher net interest expenses due to a higher net indebtedness.

Outlook
Ternium expects steel demand in the Americas to increase in 2013 as a result of gradually improving market conditions in North America and Brazil. In the fourth quarter, the company anticipates shipments to remain relatively stable compared to the third quarter of 2012, with a lower steel production level in Argentina as a result of the outage for repairs of a blast furnace. Ternium expects reduced operating income in the last quarter of the year compared to the third quarter of 2012 mainly due to lower average prices in the North America Region and higher operating costs.

Analysis of Third Quarter 2012 Results
Net income attributable to Ternium’s equity holders in the third quarter 2012 was $122.6 million, compared to $6.4 million in the third quarter 2011. Including non-controlling interest, net income for the third quarter 2012 was $146.6 million, compared to $23.4 million in the third quarter 2011. Earnings per ADS in the third quarter 2012 were $0.62, compared to $0.03 in the third quarter 2011.

Net sales in the third quarter 2012 were $2.2 billion, 10% lower than net sales in the third quarter 2011. Shipments of flat and long products were 2.3 million tons in the third quarter 2012, 3% lower compared to shipments in the third quarter 2011, with lower shipments in the South & Central America Region being offset by higher shipments in the North America Region. Revenue per ton shipped was $967 in the third quarter 2012, a 7% decrease compared to the third quarter 2011.

Sales of flat and long products in the North America Region were $1.2 billion in the third quarter 2012, a decrease of 6% compared to the same period in 2011 mainly due to lower revenue per ton, partially offset by higher shipments. Shipments in the region totaled 1.4 million tons during the third quarter 2012, or 3% higher than in the same period in 2011. Revenue per ton shipped in the region decreased 9% to $901 in the third quarter 2012 over the same quarter in the third quarter 2011.

Flat and long product sales in the South & Central America Region were $940.0 million during the third quarter 2012, a decrease of 14% compared to the same period in 2011 mainly as a result of lower shipments and lower revenue per ton. Shipments in the region totaled 876,000 tons during the third quarter 2012, or 11% lower than in the third quarter 2011. Revenue per ton shipped in the region was $1,073 in the third quarter 2012, a decrease of 4% compared to the same quarter in 2011.

Sales of other products totaled $8.1 million during the third quarter 2012, $17.3 million lower than in the third quarter 2011, mainly as a result of lower iron ore sales.

Cost of sales was $1.8 billion in the third quarter 2012, a decrease of $137.1 million, or 7%, compared to the third quarter 2011. This was due to a $150.7 million, or 10%, decrease in raw material and consumables used, mainly reflecting a decrease in raw material costs and lower sales volumes, partially offset by a $13.6 million increase in other costs, including a $20.1 million increase in maintenance expenses, related in part to repairs in a blast furnace in Argentina, a $5.4 million increase in labor costs and a $7.4 million decrease in depreciation of property, plant and equipment and amortization of intangible assets.

During the third quarter 2012, there were higher expenditures included in the cost of sales related to the replacement of staves under a scheduled repair of Siderar’s Blast Furnace #2. At the beginning of October, there were certain problems during the last stage of this repair works and, as a result of this, the blow-in process was interrupted. Due to these problems, Blast Furnace #2 will need an extraordinary repair that will take between three and four months to be completed. Lost production will be replaced with purchases of slabs and hot rolled coils from third parties in order not to affect market supply.

Operating income in the third quarter 2012 was $252.5 million, or 11.5% of net sales, compared to operating income of $349.1 million, or 14.2% of net sales, in the third quarter 2011.

Flat steel products segment
Operating income for the flat steel products segment was $188.2 million in the third quarter 2012, a decrease of $77.1 million compared to the third quarter 2011, reflecting lower sales and operating costs. Sales of flat products in the third quarter 2012 decreased 12% compared to the third quarter 2011, reflecting a decrease in shipments and revenue per ton shipped, mainly due to lower steel prices in Ternium’s main steel markets.

Operating cost decreased 9%, reflecting lower sales volumes and a decrease in operating cost per ton mainly from lower raw material costs.

Long steel products segment
Operating income for the long steel products segment was $64.0 million in the third quarter 2012, a decrease of $11.2 million compared to the third quarter 2011, reflecting lower revenue per ton partially offset by higher shipments. Sales of long products in the third quarter 2012 were 2% higher than in the third quarter 2011.

Operating cost increased 8%, reflecting higher shipments and stable operating cost per ton.

EBITDA in the third quarter 2012 was $339.9 million, or 15.5% of net sales, compared with $447.6 million, or 18.2% of net sales, in the third quarter 2011.

Net financial results were a $33.8 million loss in the third quarter 2012, compared with a $312.4 million loss in the third quarter 2011.

Analysis of Results for First Nine Months of 2012
Net income attributable to the Company’s equity holders in the first nine months of 2012 was $393.0 million, compared to $408.8 million in the first nine months of 2011. Including non-controlling interest, net income in the first nine months of 2012 was $462.2 million, compared to $513.5 million in the first nine months of 2011. Earnings per ADS were $2.00 in the first nine months of 2012, compared to $2.08 in the first nine months of 2011.

Net sales were $6.5 billion in the first nine months of 2012, 6% lower than net sales in the first nine months of 2011. Shipments of flat and long products were 6.6 million tons in the first nine months of 2012, or 1% lower compared to shipments in the first nine months of 2011, with lower shipments in South & Central America partially offset by higher shipments in North America. Revenue per ton shipped was $987 in the first nine months of 2012, a 4% decrease compared to the first nine months of 2011, mainly as a result of lower flat steel prices in Mexico.

Sales of flat and long products in the North America Region were $3.8 billion in the first nine months of 2012, a decrease of 1% compared to the first nine months of 2011, mainly due to lower revenue per ton, partially offset by higher shipments. Shipments in the region totaled 4.1 million tons in the first nine months of 2012, a 6% increase compared to the first nine months of 2011. Revenue per ton shipped in the region decreased 6% to $930 in the first nine months of 2012 over the first nine months of 2011.

Flat and long product sales in the South & Central America Region were $2.7 billion in the first nine months of 2012, a decrease of 10% compared to the first nine months of 2011, due to lower shipments. Shipments in the region totaled 2.5 million tons in the first nine months of 2012, or 10% lower than in the first nine months of 2011. Revenue per ton shipped was $1,081, which was stable compared to the same period in 2011.

Sales of other products were $21.5 million in the first nine months of 2012, compared to $76.0 million in the first nine months of 2011, a reduction mainly related to lower iron ore sales.

Cost of sales was $5.1 billion in the first nine months of 2012, a decrease of $153.3 million, or 3%, compared to the first nine months of 2011. This was due to a $173.1 million, or 4%, decrease in raw material and consumables used, mainly reflecting a decrease in raw material costs and lower sales volumes, partially offset by a $19.8 million increase in other costs, including a $37.7 million increase in maintenance expenses, an $18.0 million increase in labor costs and a $23.5 million decrease in depreciation of property, plant and equipment and amortization of intangible assets. 

Operating income in the first nine months of 2012 was $793.2 million, or 12% of net sales, compared to operating income of $980.4 million, or 14% of net sales, in the first nine months of 2011.

 Flat steel products segment
The flat steel products segment’s operating income was $613.0 million in the first nine months of 2012, a decrease of $158.1 million compared to the first nine months of 2011, reflecting lower sales and operating cost. Sales of flat products in the first nine months of 2012 decreased 7% compared to the first nine months of 2011, reflecting a 3% decrease in shipments, due to lower shipments in the South & Central America Region partially offset by higher shipments in the North America Region, and a 4% decrease in revenue per ton shipped, mainly due to lower prices in the North America Region.

Operating cost decreased 5%, reflecting lower sales volumes and a decrease in operating cost per ton mainly from lower raw material costs.

Long steel products segment
The long steel products segment’s operating income was $181.5 million in the first nine months of 2012, stable when compared to operating income in the first nine months of 2011, reflecting higher sales and operating costs. Sales of long products in the first nine months of 2012 increased 11% compared to the first nine months of 2011, reflecting a 10% increase in shipments, due to higher shipments in the North America Region partially offset by lower shipments in the South & Central America Region, and a 1% increase in revenue per ton.

Operating cost in the first nine months of 2012 increased 13% year-over-year, reflecting higher sales volumes and an increase in operating cost per ton mainly related to higher raw material costs.

EBITDA in the first nine months of 2012 was $1.1 billion, or 16.2% of net sales, compared to $1.3 million, or 18.5% of net sales, in the first nine months of 2011.

Net financial results were an $88.6 million loss in the first nine months of 2012, compared with a $232.2 million loss in the first nine months of 2011.

Capital Expenditures
Capital expenditures in the first nine months of 2012 were $710.2 million. Ternium’s ongoing projects included, among others, in Mexico the construction of a greenfield facility for the manufacture of cold rolled and galvanized steel products and the development of mining activities, and, in Argentina, the investment in new equipment and enhancements in the steel shop, repairs and enhancements at the coking and blast furnace areas, and the expansion and enhancements of the hot strip mill. In addition, the company completed during the period the revamping and expansion of two galvanizing units in Argentina and Guatemala.