Ternium S.A. (TX) Earnings

Management highlights

Overall Financial Performance - Adjusted EBITDA increased 50% sequentially, reaching an EBITDA margin of 16.5% (up from 12.2% in Q1 2026) - Net income for Q2 2026 was $465 million; first half 2026 net income hit $837 million, with adjusted EBITDA of $1.2 billion (up 65% year-over-year) and an EBITDA margin of 14% (up from 9% in H1 2025) - Ended Q2 2026 with a net debt position of $112 million, maintaining a very strong balance sheet - Capital expenditures for H1 2026 were $837 million, primarily for the Pesquería expansion project; a $255 million 2025 fiscal year final dividend was paid in Q2 Market & Segment Operations - **Mexico**: Shipments increased and margins expanded, with the commercial market improving due to value chain restocking that balanced inventory levels. Ternium gained market share helped by lower imports and customer preference for its reliability and service. Industrial demand growth remained uneven: the auto sector is healthy and HVAC demand is improving from data center investment, but Section 232 tariffs pressure manufacturing customers. U.S.-Mexico trade talks for a new framework have advanced, with a fourth round scheduled for early September 2026 in Washington. The new Pesquería downstream lines are ramping up, with the slab facility on track for startup in early 2027; this new capacity will deliver low-carbon steel for the automotive industry, positioning Ternium to benefit from growing demand for regional steel supply. - **Brazil**: Trade defense advanced, with the steel quota system renewed through June 2027 and a final decision on the Chinese hot-rolled coil anti-dumping case expected in 2026. Demand is uneven: automotive production is expected to grow 6% in 2026 and infrastructure equipment demand remains dynamic, while other sectors are weak due to slow demand and unfair import competition. Usiminas improved profitability through better industrial performance, strict cost control and higher productivity, following completion of the structural Pulverized Cold Injection Project. - **Argentina**: Shipments increased sequentially on seasonal factors. Energy, mining and agriculture remain the most dynamic sectors, with construction recovering gradually from low levels; manufacturing remains weak due to soft demand and strong import competition. Sustainability & Safety - Held the annual company-wide Safety Week, with 21,000 employees participating and production lines paused to emphasize safety as a core priority - Published the 2025 Sustainability Report, updating the 2030 decarbonization target to include Usiminas and use 2024 as a new base year: Ternium is committed to a 50% reduction in emissions intensity per ton of hot-rolled steel (covering scope 1, 2 and 3 under GHG Protocol methodology) - Received multiple customer recognitions across operations, including Caterpillar's 4th consecutive supplier excellence award, Trinity's premier steel supplier award, GM's Supplier of the Year, and Honda's gold best supplier award

Guidance

- Adjusted EBITDA is expected to increase sequentially in Q3 2026, with expanding EBITDA margin reflecting higher revenue per ton, partially offset by higher per-ton costs across all markets - Shipments are expected to continue recovering, primarily in Mexico supported by sustained commercial market momentum, and in Brazil as trade measures take effect and inventories normalize - Gradual volume recovery is expected in Mexico in Q3, supported by upcoming public infrastructure projects and replacement of Asian imported steel for automotive OEMs - Full year 2026 capital expenditures are expected to be $1.6 billion, moderating to around $1.2 billion in 2027 as the company exits the peak investment cycle for the Pesquería project - Management expects solid overall performance in Q3 2026, supported by Mexico's recovery, a more balanced trade environment in Brazil, and steady progress on strategic projects

Segment performance

Steel Segment: Consolidated shipments increased 4% sequentially quarter-over-quarter. Mexico shipments rose, supported by stronger commercial market demand and effective trade defense measures, while Brazil sales volumes stayed broadly flat as the company prioritized margin over volume. Southern region volumes saw a typical seasonal recovery. Steel cash operating income rose $240 million sequentially, with revenue per ton increasing slightly on higher volumes and improved realized steel prices. Mining Segment: Shipments normalized in Q2 2026, reflecting seasonal recovery of iron ore shipments from Brazilian operations. Cash operating income declined slightly sequentially, as lower realized iron ore prices were partially offset by higher sales volumes.

Risks & headwinds

- Global excess steel capacity remains an ongoing industry challenge that requires continued trade defense efforts - Section 232 tariffs continue to negatively impact Ternium's manufacturing customers in Mexico - Uneven demand across consuming sectors in both Brazil and Argentina creates performance headwinds, with weak domestic demand and unfair import competition pressuring non-core sectors - Persistent macroeconomic and geopolitical uncertainty remains a key factor monitored closely by management - The ramp-up and certification process for the new Pesquería slab facility is complex and time-consuming, with full value capture expected to take place over multiple quarters in 2027

Analyst Q&A

• Q: Analyst asked about Mexican steel price evolution and the likelihood of a U.S.-Mexico trade agreement by the end of 2026, given expectations of sector-by-sector deals rather than a full USMCA revision.

  A: Current market mix in Mexico (heavier weighting to commercial market shipments than industrial) is driving current price dynamics. Management expects moderate price increases in Q3 with no large movements, as demand is gradually improving but has not yet fully recovered. On trade talks, management did not speculate on timing or structure, but noted that U.S. priorities include stronger Mexican trade defense against unfair imports, which would benefit Ternium, and expressed hope for progress soon.

• Q: Analyst asked for details on incremental volume upside from Mexican public infrastructure projects, and whether the volume impact is coming earlier than previously expected.

  A: Total planned volume from projects under the Mexican steel industry agreement is 600,000 to 700,000 tons, but this volume will be delivered over 1.5 to 2 years, with only limited incremental volume coming in the near term, matching prior guidance for a late 2026/2027 rollout.

• Q: Analyst asked whether dividend increases are possible now that earnings are improving and capex is declining after the Pesquería project, following a prior dividend cut amid uncertainty.

  A: Management confirmed that after the peak capex period, with capex falling to ~$1.2 billion in 2027, returning more capital to shareholders is a priority if sustained improved earnings are confirmed. Geopolitical and economic uncertainty persists, so management will maintain a conservative approach to the balance sheet, but a dividend increase is a clear possibility in the near future. Longer term, simplifying the corporate structure (such as acquiring remaining Usiminas shares) is a stated goal, but conditions are not yet right for a short-term move.

• Q: Analyst asked what is driving the large HRC price gap between Mexico and the U.S., and whether new U.S. steel capacity poses a downside risk to U.S. prices.

  A: The price gap stems primarily from the U.S.'s Section 232 tariffs and stronger existing trade defense measures in the U.S., not differing inventory or lead time levels (which are similar between the two markets). An agreement removing Section 232 between the U.S. and Mexico would likely narrow the gap. For new U.S. capacity, management noted that U.S. steel imports are falling and demand is expected to grow enough to absorb the new capacity, so no major price inflection or downside risk is expected.