Ternium (TX) Q4 2025 Earnings Call Transcript

Image source: The Motley Fool.

DATE

Wednesday, February 18, 2026 at 8:30 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Maximo Vedoya
• Chief Financial Officer — Pablo Daniel Brizzio

TAKEAWAYS

• Adjusted EBITDA Margin -- 10%, benefiting from a cost reduction and efficiency program that delivered $250 million in savings compared with 2024.
• Adjusted EBITDA -- Declined slightly from the previous quarter, matching internal forecasts amid seasonal shipment decreases and stable margins.
• Net Income -- $171 million, affected by one-time impairment charges in Mexican mining operations, which was offset by an income tax refund and improved financial results.
• Steel Segment Shipments -- Declined sequentially, mainly from lower volumes in the US and Brazil, while Mexican volumes increased due to new government trade measures.
• Mining Segment Cash Operating Income -- Rose sequentially on higher shipments and better realized iron ore prices, partially offset by higher unit costs.
• Full-Year Cash Flow from Operations -- $2.3 billion, supporting significant capex needs, especially for downstream expansion and slab facility construction at Pesquería.
• Capital Expenditures -- $463 million in the quarter, reflecting the completion of downstream expansion and ongoing slab facility build-out at Pesquería; company is now past peak capex.
• Dividend Proposal -- Annual dividend proposed at $2.70 per ADS for 2025 (including $0.90 already paid as an interim dividend), implying a dividend yield over 6% at the current share price.
• Net Cash Position -- Ended the period at $700 million, with guidance suggesting a shift to net debt during 2026 as capex and dividends outweigh cash generation.
• Mexico Steel Market Dynamics -- Apparent steel consumption dropped 10% in 2025, with a sharper 14% decline in flat products; management gained market share in the flat segment.
• Expected 2026 Growth for Mexican Market -- CANACERO estimates a 4% rise in steel demand, with management expecting further market share gains due to trade measures.
• Capex Guidance -- $2 billion for 2026, expected to decline to approximately $1.2 billion in 2027 and around $800 million in 2028, including consolidated figures for Usiminas.
• Downstream Expansion Progress -- All new lines at Pesquería (cold-rolling, galvanizing, pickling, finishing) are operational, with the slab facility on track for startup by year-end.
• Sustainability Financing -- Secured a $1.25 billion green loan in 2025 to fund the new slab plant, recognized with multiple sustainability awards.
• Trade Policy Impacts -- Tariffs in Mexico climbed from 25% to 35% for steel imports (for non-FTA countries); anti-dumping actions were also implemented in Brazil and Argentina, driving local demand.
• Cost Savings Outlook -- Additional savings anticipated from further operational efficiency and logistics enhancement, especially as the slab facility begins production.
• EBITDA Margin Objective -- Management reiterated a normalized range of 15%-20%, targeting recovery to 15% by year-end 2026 barring major external trade agreement changes.

Need a quote from a Motley Fool analyst? Email pr@fool.com

RISKS

• Maximo Vedoya stated, "Our performance, however, was affected by a fatal accident at Turnure Mexico in 2025 and another at Ternium Brazil during this quarter," with additional mention of a Usiminas fatality in 2025; management described these as "a significant setback" and "unacceptable," indicating elevated operational and reputational risk.
• Pablo Daniel Brizzio cited, "Net income for the fourth quarter totaled $171,000,000 in the fourth quarter, We show a lower operating income mainly impacted by one time charges, mostly related to an impairment in less one of our mining operations in Mexico," which materially reduced quarterly profit.
• Management said, "Apparent consumption of steel decreased 10% That it is a huge decrease. I have never seen something like that in Mexico," underscoring historically weak demand conditions in a key market.
• Pablo Daniel Brizzio explained, "So we will move Pablo Daniel Brizzio: to a net debt position but again, at very low levels." in 2026 as large capital expenditures, dividends, and recent acquisitions outpace operating cash flows.

SUMMARY

Management executed a $250 million cost reduction program that enabled Ternium S.A. (NYSE:TX) to sustain a 10% EBITDA margin despite severe market headwinds. The completion and ramp-up of new downstream capacity at Pesquería positions the company for growth once slab production commences late in the year. Dividend guidance remains unchanged at $2.70 per ADS, aligning with proactive capital allocation in a period of elevated capex.

• Local trade protection, most notably Mexico's increase of steel import tariffs to 35% for non-FTA countries, materially supported share gains, helping offset a 10% collapse in domestic steel demand.
• Full-year cash flow from operations was $2.3 billion, financing ongoing major projects and cushioning the balance sheet even as sequential net income and adjusted EBITDA declined.
• Capex is forecast at $2 billion for 2026, dropping to $1.2 billion in 2027 and around $800 million in 2028 (including Usiminas); management indicated this could allow some reduction in net debt as investments normalize, but the outcome is uncertain.
• Management stated that improvement in EBITDA margins toward the 15%-20% target range is possible by late 2026 through internal efficiencies and ongoing cost controls, even absent additional trade policy changes.
• The $1.25 billion green loan for the new slab project, coupled with industry sustainability awards, was presented as strengthening Ternium's competitive and environmental positioning.

INDUSTRY GLOSSARY

• CANACERO: The National Chamber of the Iron and Steel Industry (Cámara Nacional de la Industria del Hierro y del Acero), the primary industry association and data source for Mexico's steel market.
• USMCA: United States-Mexico-Canada Agreement, the primary trade framework governing steel-related trade in North America.
• Section 232: Refers to U.S. trade action—specifically tariffs—imposed on steel imports under Section 232 of the Trade Expansion Act of 1962 for national security reasons.

Full Conference Call Transcript

Maximo Vedoya: Thank you, Sebastián, and good morning, everyone. We appreciate you being here today in our conference call. Can you deliver resilient results in 2025, overcoming challenging market conditions by adapting rapidly and acting roughly to protect profitability. The company's cost reduction and efficiency program generated $250,000,000 in savings in 2025 over 2024. Key initiatives included enhancing blast furnace stability, negotiating service contracts, optimizing iron ore sourcing, and improving logistics. As a result, our EBITDA margin reached 10%. Our performance, however, was affected by a fatal accident at Turnure Mexico in 2025 and another at Ternium Brazil during this quarter. Usiminas also experienced a fatality in 2025. We take safety extremely seriously and consider these events a significant setback.

Such outcomes are unacceptable prompting us to reinforce our safety programs. In response, we are ramping up preventive actions with a special focus on critical risk. Let me now review the latest changes in the global trade environment. The United States took significant trade measures in 2025. To counter unfair trade practices from China and other Asian countries. And this is reshaping the global steel market. As other countries around the world are following a similar path. In Mexico, the government recently raised import

Maximo Vedoya: tariffs

Maximo Vedoya: more than 1,400 tariff lines for countries without a free trade agreement. In the case of steel, import tariffs increased from 25 to 35%. Meanwhile, negotiations surrounding the North American region trade framework are ongoing. Many stakeholders from both sides of the border continue to engage in discussions. We have taken an active role in sharing the concerns and priorities of the manufacturing industry throughout this process. I see broad support for public policies that promote greater regional integrations. The aim is to keep trade fair addressing balance, avoid transshipment, and reinforce rule of origins. It is important to mention that an agreement to intensify trade flows should evolve restrictions on intra regional trade.

Like those based on section two three two. As a USMCA, joint review take place removing restriction to trade among its member will be essential to ensuring the benefit of deeper integration. Ternium is also doing its part in this process of greater regional integrations. Since our arrival in Mexico over twenty years ago, we have significantly expanded our footprint in the country, investing in state of the art technology to offer a wider range of high value added products to our customers in the region’s manufacturing industry. In this line, I am pleased to share some exciting news. rolling mill We have started production in our new cold and also in our galvanized line at the Pesqueria facility.

This achievement completes our downstream expansion at the site made possible by outstanding teamwork. The entire project also added a picking line and a finishing line center. All these facilities are now operational with the cold rolling and the galvanized lines starting the ramp up phase. Meanwhile, construction of the slab plant is moving ahead as plant. As we expect to start up the facility by the end of the year. This new plant will allow us to produce high quality automotive steel with a lower c o two emission per ton in the industry.

Adding a touch of color, in 2025, we secure a 1 and a quarter billion dollar loan through a green financing facility to support this project. The loan received several awards last quarter, including IFR's Sustainable Loan of the Year, the GBM awards sustainable loan deal of the year in Latin America and Caribbean, and honorable mention from Latin finance. Coming to Brazil, the recent implementation of anti dumping measures and the increase in import taxes of nine steel products represent a significant shift the market environment. These decisive action signal a stronger government commitment to support local producers and achieve a balanced competitive

Maximo Vedoya: landscape.

Maximo Vedoya: Looking ahead, will be key to monitor the market closely to prevent attempts to circumvent these measures, ensuring that these new continue to support fair competition. In Argentina, growing concerns have emerged regarding unfair trade practice from China. In this situation, the new trade agreement between Argentina and The United States is important because both countries have agreed to work together to address unfair trade policies from other nations. While we believe Argentina should further integrate with the global economy, it is crucial to approach this process with cautions, particularly in view of China's excess production capacity and predatory trade tactics. Samiva, I am optimistic about Tarmium's outlook for the coming years.

I expect Ternium I expect Ternium's profitability improve in 2026, starting from the first quarter. On one hand, we will continue working on reducing costs and enhancing operational efficiency. On the other, although there are still several important trade issues to be worked out, I am encouraged by the growing support of market economy governments around the world for addressing unfair trade practices. A discussion between The United States and Mexico Advance, I am confident that a mutually beneficial agreement will be reached as a world structure agreement is good for all parties involved. Mexico has demonstrated its commitment to reinforce regional defenses against unfair trade practices and encouraging investment within the region.

Align strategy with that of The United States in ongoing negotiations. In addition, promising changes in Brazil steel market environment and advancing economic reform in Argentina give us give us hope for the future in South America. In this context, we have reached an important milestone in the largest industrial expansion in our company's history. Together, these developments will put us in a unique positions as they will help create a stronger foundation for growth across the region. Thank you all for your attention. And before I hand it over to Pablo, let me thank especially our colleagues in Brazil all the analysts there who made it join us during the Carnival season.

So I hope you have a very good holiday. So, Pablo, please go ahead. Thanks, Maximo. Thanks, everybody, for being today with us. In this conference call. So let me begin with a review of our operational and financial performance. If we move to the page three in the webcast presentation, you can see that adjusted EBITDA declined slightly sequentially. In the fourth quarter. It was in line with our expectations. EBITDA margin remained relatively stable and there was small seasonal decrease in shipment. As we move into the 2026,

Pablo Daniel Brizzio: we anticipate a sequential higher adjusted EBITDA mainly driven by an increase in EBITDA margin as well as growth our shipments. Let’s move to the next slide. Net income for the fourth quarter totaled $171,000,000 in the fourth quarter, We show a lower operating income mainly impacted by one time charges, mostly related to an impairment in less one of our mining operations in Mexico. On the other hand, we have a better income tax refund. Along with stronger financial results. In the sequential comparison, we have deferred tax write down using in the register in the third quarter. Let’s turn to page five to review the performance of our steel segment. Shipments declined mostly during the quarter.

Primarily due to weaker volumes in other markets. Mainly in The US and in Brazil, reflecting seasonally slower activity. This effect were mostly offset by higher volumes in Mexico and in the southern region. In Mexico, we saw better volumes to the commercial market as a result of government measures aimed at curbing unfair trade practices. Looking forward to the first quarter, we anticipate a sequential increase in shipments mainly as a result of the stronger demand in Mexico. Turning to Page six. Steel cash operating income decreased sequentially. Driven by slightly lower sales volume and a decline in realized steel prices. Which was partially offset by reduced raw material purchase lab costs together with efficiency gains.

Turning to the next slide, The mining cash operating income increased sequentially, driven by stronger shipments and higher realized iron ore prices partially offset by higher unit cost. We will review our cash performance and balance sheet performance on page eight where we see that in the fourth quarter, we record another solid level of cash generation by operations. Supported by a reduction in working capital primarily driven by a decrease in trade and other receivables. Also, offset by a decrease in trade payables and other liabilities. We are now past the peak of our capital expenditures.

Which in the fourth quarter totaled $463,000,000 primarily reflecting continued progress in the construction of new facilities at the Turner Industrial Center in Pesqueria. Mexico. Our net cash position remains stable in the fourth quarter of the year. And we have a neutral free cash flow. In addition, dividend payments to shareholders and minority interest were largely offset by an increase in the value of financial security. Let’s now turn to the final slide to summarize our full year performance. In a challenging year for the steel industry, we were able to defend profitability as we had proactively to mitigate the impact of the drop of steel prices and volumes.

And as a result, our EBITDA margin achieved a two digit level. In 2025, cash generated by operation reached strong $2,300,000,000 allowing us to finance demanding CapEx requirement as we completed the downstream project in Pesqueria and keep working on the slab facility. Looking forward, we anticipate a decrease in CapEx in 2026 to a level of around $2,000,000,000. In this context, Therneos was board of directors has proposed an annual dividend of 2.7 per a d dollars per ADS for fiscal year twenty five. Keeping at the same level as for the year 2024. Of this total, we have already anticipated and paid 90¢ as an interim dividend in November.

The proposal showed our confidence in the company's prospects even though we are currently undergoing a phase of significant capital expenditure. As the current market price of 10 new NDAs this implies a dividend yield of over 6%. With this, we conclude our prepared remarks. I will now turn the call over to the operator to begin the Q&A session. Thanks.

Operator: At this time, I would like to remind everyone, in order to ask a question, press star and one on your telephone keypad. Your first question comes from the line of Rafael Barcellos from Bradesco BBI. Your line is live.

Rafael Barcellos: Hello. Good morning, and thanks for taking my questions. So firstly, would like to get a bit more color on your outlook. For the Mexican market. So demand today is still running well below the peak levels we saw a

Maximo Vedoya: few years ago. So I am trying to better understand how do you see the recovery path from here. Specifically, I mean, with the recently announced TRC Mexico, I mean, how do you how should we think about the potential impact on demand growth for thousand twenty six? And other than that, I mean, how are you thinking about the likelihood of the timing of a USMCA deal What showing impact if a significant part of this impact could be captured in 2006 or if it is a war story for 2027 and beyond. Could be helpful.

And as a second question, turning to Brazil, I would like to get your thoughts on the recently announced anti dumping measures I mean, how do you expect these measures to place into pricing dynamics? Over the past few quarters? Should we think about a relatively quick pass through into domestic prices or is the impact to be a more gradual depending on, inventories and competitive behavior And if you could even, like, give some color on the magnitude of a potential hikes here. Thanks.

Pablo Daniel Brizzio: Thank you, Rafael. Let’s start with the first question. The next

Maximo Vedoya: Mexican market and demand. Your quite, right demand is very low. It was very low in Mexico in 2025. Apparent consumption of steel decreased 10% That it is a huge decrease. I have never seen something like that in Mexico. To be honest. And this was even worse if you separate long products and flat products. The upon consumption in flat products, which is our main market, this was 14% below that of 2024. So this is a huge decrease. Ternium in that

Rafael Barcellos: our shipment in Mexico were a little bit

Maximo Vedoya: the decrease was smaller because we managed to gain market share in the flat products. So it was an important measure. I think in 2026, the estimation of Canacero is that the market is gonna grow 4%. But I think all these measures are going to allow the local steel mills to gain more market

Rafael Barcellos: share against imports. You have to remember that

Maximo Vedoya: in Mexico, there is still a huge amount almost 9,000,000 tons of finished products that are reimported in Mexico. So our target with all these measures is to gain

Rafael Barcellos: more market share as we did in 2025,

Maximo Vedoya: And although the market is not growing as much

Rafael Barcellos: as we expect, gain in our shipment with the market share.

Pablo Daniel Brizzio: In 2026, so the timing then the timing in the USMCA it is very difficult at the moment. I mean,

Maximo Vedoya: there is a target that is that in July, USMCA should be renewed. I really do not

Rafael Barcellos: know at this moment if that is gonna be achievable. In our projections, we are not seeing a lot of increase

Maximo Vedoya: of the of the timing of the USMCA for 2026. And we are putting that more in the 2027. I mean, of course,

Rafael Barcellos: we hope that this is sooner, but we have to expect or we are making our plans

Maximo Vedoya: in order that it is a little bit later.

Rafael Barcellos: Then

Maximo Vedoya: the second question was regarding Brazil.

Pablo Daniel Brizzio: And the dumping measures.

Maximo Vedoya: I mean, to give a little more color, I think this is a very important step. If you remember,

Rafael Barcellos: have not been Brazil has not been very much advocate in the last years of defending industries again unfair trade policies, the predatory

Maximo Vedoya: tactics by China. But this change with four dumping cases, The plate one, the repainting, and last week, the cold rolled and the So this is a very important news a very important first step that Brazil joined most of the rest of the economies. I mean, from Europe to India to Mexico to The US, all the countries are fighting unfair trade from China and from Asia. Impact on prices, I think the impact will be gradual. I do not expect a huge increase in prices because of this. Again, this is a first step But it is gonna be a more gradual, as you said, impact in the future.

I think, Rafael, I answered your questions, but I do not know if you want more clarity.

Rafael Barcellos: That is perfect. Thank you. Thanks a lot.

Operator: Your next question comes from the line of Carlos de Alba from Morgan Stanley. Your line is live.

Carlos de Alba: Good morning, everyone. Thank you very much. Maybe, Maximo, first of all, clarification. You said that Canacero sees demand up 4% or down 4% in 2026?

Pablo Daniel Brizzio: Up 4% in 2026.

Carlos de Alba: Great. Thank you.

Operator: Fantastic. Okay. And then, my two questions will be first,

Pablo Daniel Brizzio: on USMCA. And what would be

Maximo Vedoya: in the event that there is not a renewal of USMCA and so that Mexico cannot reach a commercial agreement, stand alone with the US.

Carlos de Alba: What would be attorney's plan b?

Maximo Vedoya: Given that a lot of the particularly on the auto side,

Carlos de Alba: you the volumes going to that sector and then

Maximo Vedoya: Mexico exports a significant amount of the cards that are producing in the country. And my second question, if you can give us maybe a little bit of an outlook on how do you see earnings volumes performing in 2026? What are the expectations in terms of volume growth, in the different in the different countries where you are or operation where you are

Carlos de Alba: actively right now.

Maximo Vedoya: Yeah. Can you repeat the first question of the USMCA? Because we Yeah. We did not hear very well. Yeah. Sorry. Just what would be what is Theranos plan b? What would be your strategy if there is not a renewal of the trade agreement? And also Mexico does not reach an agreement exclusively with the US. Yeah. I mean, we operate all twenty five with these premises. There is no I mean, on a sense, the USMCA, if it is renewable, the great benefit is that the section two three two is gonna disappear between Mexico and The US. I do not see a renewal of agreement with the two three two onboard.

And that would be the biggest benefits of the renewal. So in 2025, we operate without it is a USMCA, but the two three two in steel derivative and a lot of products

Carlos de Alba: made it the way to operate if there is not a renewal.

Maximo Vedoya: Again, I think that some of these measures are going to be taken away, although prob if or the renewal is postponed. So we are operating in this environment, Carlos.

Pablo Daniel Brizzio: The

Maximo Vedoya: volumes of 2026 Okay. Let me take that one. I am not sure.

Pablo Daniel Brizzio: As you know, as you hear, you know, we are at you know, with Outlook, we are expecting volumes to start increasing already through the first quarter. And in this case, mainly coming from Mexico. So let me divide the answer to this question into a different market where we are. Because there we have different situation. In South America, the first quarter is the seasonally lowest quarter. Of the year. So you are not seeing any increase during the first part of the year, during the first quarter. And the opposite situation is in Mexico where we seasonality is coming at the last part of the fourth quarter.

So taking into consideration what Maximo said that expectation is at least an increase of 4% in peak consumption for the year. And the possibility of, further increases in our market share because of the volumes that we will be able to increase and produce with the new facilities. And even without taking into consideration the possible outcome of the USMC annualization and the consequences of that, we are positive that the increase in the Mexican shipments will be above at least the numbers that Maximo mentioned and expectation for the for the for the Mexican market.

In the case of Argentina or the southern region, you know that volumes were decreased, at the beginning of the 2025 because we were getting out from a big recession in Argentina. So numbers tend to recover volumes tend to recover in the part of the year. So we are expecting to have a positive number coming out in the second vision. In initiating in the second quarter of the year, not during the first quarter. Differently, the situation in Brazil where we saw volumes, but healthy level during 2025, and going with the increase of the GDP growth of the country. So expectation for Brazil is to keep growing at moderate levels.

So volumes will be more related to these changes in the general economy of the country.

Operator: Thank you.

Pablo Daniel Brizzio: Thank you, Carlos.

Operator: Your next question comes from the line of Timna Tanners from Wells Fargo. Your line is live.

Timna Tanners: Yeah. Hey. Good morning. I wanna to drill down, if I could, please, on the EBITDA margin in the past, you have guided to a normalized level of 15 to 20%. And in the second quarter call, you had said you expected 15%, the low end by the fourth quarter. I am just wondering, you know, the last two years have been challenging. I acknowledge that. But just trying to get a sense of what it takes to get back to that 15 to 20%. Could we see that in 2026? What, you know, what are gonna be the puts and takes to get there again? Thanks.

Pablo Daniel Brizzio: Hi, Timna. This is Paulo. How are you? So let me let me try to answer your question, which first of all, you are right. We were expecting further recovery in the last part of last year that at the very end did not materialize because among other things, the impact of certain things are happening in the different markets the impact on in Brazil because of the imports, especially coming from China and the lack of anti dumping measures at the moment. So depressing prices in the market. The impact on the changes in the new rules of trade coming from The US that impacted especially industrial sector during the second semester of the year.

And the increase of the two three two margin during the year. So that is put a lot of pressure on margins and did allow us to reach the original expectation. In the in the meantime, taking that into consideration, we implemented a cost reduction program that, as Maximo explained, gained more than around $250,000,000 during the year and, clearly, we will continue.

Maximo Vedoya: Doing that. So

Pablo Daniel Brizzio: the kind of explanation why we were not able to reach the number that we were expecting. I have probably would not say exactly the same, but we have the chance to reach the number by the end of this year because we will not reach that number during the first part of the year for sure. Though even we are announcing and it will allow us very clear on that, that we will increase the margins during this first part of the year.

Because of, increases in prices across the board, of course, that we also have an impact on cost that will be also increased, but we are expecting to have better margins during the first quarter of the year. We will continue to work, as I mentioned, in further core reduction program to further increase this margin. But a lot will depend on what we have been discussing up to now and Maximo described at length. Which is the consequence or the situation related to the negotiation of February and the impact that is we have.

So again, not initially, we will not be able to read the number, We have a chance, and we will work for that to reach the number which is, as you know, our goal. You mentioned between 15 to 20% All I am saying is to try to reach initially 15%. And keep you working on that. As you know, the company is always working with that goal and trying to find ways to reduce our cost and to be able to take advantage of the situation that appear in the market.

Maximo Vedoya: So, again,

Pablo Daniel Brizzio: hopefully, this year, we will do right.

Timna Tanners: Okay. Very helpful. If I could follow-up on that, I saw with interest in the DIO CCIL yesterday. You have the announcement that Mexico is doing a dumping investigation into cold rolled imports. From The US. And I guess it just prompted me to think that you know, is it enough to have the trade action so far in Mexico and Brazil especially when you have 50% tariffs in The US, but also the 50% coming in steel action plan in Europe. And the CBAM, of course, already implemented. So even if the, you know, Mexico and Brazil started some actions, the rest of the world is taking even more aggressive actions.

So I am just wondering if you think these are enough to move the needle, as much as necessary to reach those goals you have just enumerated.

Maximo Vedoya: Thank you, Steven. Hello. How are you? You made a very good point. I think all the things that you are saying are very positive. I mean, again, I think that, as I said before, Brazil this is a very good first step. As you say, The US, Canada, even Mexico, Europe, are much more ahead in this trade measures against unfair trade. Than Brazil. But it changed a lot from last quarter to this one. All these change of mood in Brazil. And Mexico the dumping case against the cold rolled, it is it is not only from The US. US, Malaysia, and China. Remember? And I think, again, we will continue

Pablo Daniel Brizzio: presenting dumping cases if we see

Maximo Vedoya: that they were pursuing. In the in this case, we think it is, and the Mexican government accept the petition to open it. So they see some merit or they see merit in this investigation. But Mexico is also going continue probably with some measures to not duplicate by but trying to be similar to The US market.

Maximo Vedoya: And so all these measures are counting, and I think

Maximo Vedoya: more are coming. So you are right. They are not sufficient, but they are in the right path.

Timna Tanners: Okay. Great. Thank you.

Pablo Daniel Brizzio: You are welcome.

Operator: Your next question comes from the line of John Brandt from HSBC. Your line is live. Hey, good morning, guys. Thanks for taking my question.

John Brandt: First wanted to ask about CapEx. I know you said $2,000,000,000 for 2026. Presumably, that continues to fall as we go into 2027 and 2028. So I am I am hoping you can give us a little bit of guidance as to what those numbers might be or what a normalized CapEx number might be as the major CapEx is rolling off and the projects are completed. And then, you know, what then does that mean for, you know, the additional free cash flow that you have? Right? I mean, you painted a good picture of increasing demand, increasing prices, improving profitability, falling CapEx means there is some free cash flow.

So I am wondering about capital allocation, if we should see your net cash position has also fallen over the years as these CapEx has ramped up. Should we expect the net cash position to rise? Or are there other alternatives for this cash? And I guess my second question is kind of related to that Now that you have sort of completed the acquisition of Nippon stake and Usiminas, is there any sort of additional consideration about potentially taking out the minorities in Usiminas Have you analyzed what sort of benefits or cost savings you would have if you own that a 100% Anything you could tell us there would be great. Thanks.

Maximo Vedoya: Thank you, John. Good morning. CapEx,

Pablo Daniel Brizzio: CapEx as you said, 2,000 this year would be around 2,000,000,000.

Maximo Vedoya: 2027 will be around 1,200,000,000.0, so it is decreasing. And then in 2028, we do not have an exact number, but it is gonna be around 800. Million, the CapEx. That is a regular CapEx This is including Usiminas. So you are right. The capital allocation for

Pablo Daniel Brizzio: probably the 2027 We are gonna have a different view. Today, 2026,

Maximo Vedoya: we still are going to have a huge CapEx, and probably we have to increase, our working capital. Because the last three week three quarters, we have a decrease in capital. So I do not know if I do not think it is gonna change lot, but I do not know if you want to add something, Pablo, to that. Yes. Okay. Hi, John. How are you?

Pablo Daniel Brizzio: Let me add a little bit into that because 2256 for sure will be a year in which we will be using cash and capital because if you add up the $2,000,000,000 in CapEx, The dividend that we are paying and the amount that we, as you mentioned, already paid for the shares of Usiminas from Nippon. So these add up more than or close to $3,000,000,000 and most probably the cash generation that we were describing will be in with this year or even higher, but also take into consideration that we will reverse the reduction working capital and probably we will need to allocate certain cash over there.

So for sure, we will be reducing our net cash position that we end up at the 2025 with $700,000,000 of net cash. This will be reversed

Maximo Vedoya: So we will move

Pablo Daniel Brizzio: to a net debt position but again, at very low levels. And then move to 2027, as Maximo mentioned, we will be reducing our CapEx. We will be we will we will not know yet the how the outlook for the working capital will be will continue with the payment. So probably, we will be able to regenerate a little bit the or reduce the net debt position at this moment. But we are not seeing significant changes in our capital allocation at the moment. We will continue the CapEx. We will continue with the dividend. And we already made an investment in the case of.

So, clearly, 2026 will be a year to use and probably 2027 will be a year to recover a little bit of cash. But, Martin, I think that you have a well, there was a different part of the question from John. Yeah. Then the Nippon and

Maximo Vedoya: and the minority shares of Usiminas Today, we are not considering launching a tender offer or buying share the rest of the shares of convenience. To be clear. But, you know, Brazil for us, Fortunium is a very important market. We have already a significant footprint in country with our stake in Usiminas, with our operation in Tamil Brazil, in Rio De Janeiro, also know we have a huge commitment to the community investing $45,000,000 in the new technical school for the community of Santa Cruz near our plant in Rio De Janeiro.

Pablo Daniel Brizzio: So we will continue looking to further opportunities

Maximo Vedoya: As I said, we do not have any plans today. Of doing anything, but we are continuously looking for new opportunities to grow. I hope, John, I answered the question there.

John Brandt: That is great. Thanks, Maxwell.

Pablo Daniel Brizzio: You are welcome.

Operator: As a reminder, if you would like to ask a question, simply press star followed by the number one on your telephone keypad. Your next question comes from the line of Henrique Marquez from Goldman Sachs. Your line is live.

Henrique Marquez: Hi, everyone. Thanks for taking my question. Just wanted to get more details on the upstream project in Piscataea. Think that is in the end increasing volumes. Relies a lot on the market situation. But do you think there is room for higher

Maximo Vedoya: steel volumes when you finish the project? And

Henrique Marquez: also, if you could share more details on how much you expect to save in terms of cost, with your own slide production versus third party purchase, that would also be great. Thank you.

Maximo Vedoya: Yeah. Remember, the Pesqueria project, we have the upstream project was always focused for the automotive industry. As you remember, when the USMCA was negotiate, was a clause for 2027 where most of the automotive industry has to have melt and pour for gaining origin. So this project

Pablo Daniel Brizzio: is going through that.

Maximo Vedoya: Probably, it is gonna allow us to sell even more volume to the automotive industry that we are selling today We have a footprint of around 2,000,000 tons for the automotive industry. And probably with this project, we will be able to sell much more. These 2,000,000 tons today comes from slabs that we make in Brazil, and we shipped to Pesqueria for the hot roll, cold roll, and galvanize. So we are changing that and probably will allow us to replace more volume from Japan, from Korea, from other region, from even Europe that are selling in Mexico. So it is not a safe cost. Then again, we have more capacity today of hot rolled.

So if the market improve, we will be able to serve other different sectors with our spare capacity that we have today in Mexico.

John Brandt: I hope, Enrique, this was clear or

Pablo Daniel Brizzio: if you want more

Henrique Marquez: more on this.

Maximo Vedoya: Yeah. No. Just sorry. I think I just wanted to

Henrique Marquez: better understand, like,

Caio Greiner: when you produce in these labs in Mexico, like, how much of that connection, like, save you in terms of cost, in terms of logistics, Just to try to better understand the I know it is the motive of the project is also strategic, but just to try to get, like, the benefits from the from the production project. Apart from increasing volumes in the in the outdoor in the outdoor industry.

Pablo Daniel Brizzio: Hi, everybody. This is Paulo. Let me try to add a little bit to them. As I was explaining, we are, substituting slabs that we are bringing from some other places or even from Brazil or the ones that we will produce. So there, you will gain part of the margin because you will move from buying to produce. Which is already an important saving, then this will be a very efficient and sophisticated facility And, also, the this will allow us to produce products that we were not able to produce before with our own with our own facility.

So that will also add savings in logistics, savings in the way we produce, and also we will have we will give out the possibility. Of course, probably this will take a little longer. To be realized the possibility to increase volumes of sales because we have a higher capacity of the one that we are utilizing today for the auto sector. And if the market continues to grow as we expect, after a good negotiation with USMCA, this could allow us further increase volume. So all in all, it is it is a key project for Ternium. For many different reasons.

And among that reasons is because of the savings and the reduced cost that we were able to take from that process.

Caio Greiner: Right. Thank you.

Henrique Marquez: You are welcome.

Operator: Your final question comes from the line of Caio Greiner from UBS. Your line is live.

Caio Greiner: Hello. Good morning. Thank you, everyone. Two follow ups from me. The first one on to Timna’s question. I wanted to understand what do you guys see in terms of margin potential for Turing that does not rely on The US removing or lowering section two three two. So what level of so how much more do you see EBITDA margin rising over the next couple of quarters? Again, assuming that Section two thirty two is not withdrawn or is not lowered, by The US. And the second question, also a follow-up to John’s question on capital allocation. So thank you guys for the visibility that you provided for 2026 and 2027. That is that is really helpful.

But I think, it would be interesting to hear your, your thoughts for Ternium post 2027. So we still have a hard time understanding what the company, looks like, in the next five years, in the next ten years. And what are management’s priorities? And we do know that in the batch, you have talked about corporate simplification, especially with focus on Argentina.

Again, John has asked specifically about the Ximena’s minority stake Also, I wanted to know if any of these again, are your priorities or you could have other priorities going forward being that growing through M and A, being that doing working on other projects in Mexico, organic projects and, or it is all of this is still or if management still has little visibility on all of this provided that we still do not have visibility on the USMCA agreement and so on. Be I would be keen to hear your talk on this. Thank you.

Pablo Daniel Brizzio: Thank you, Caio. Did you take the first one, Pablo? I will the first one. Relationship to emergency. After a good negotiation of the SNCA for first of all, Cairo, thanks for the question. First of all, the as already was mentioned during one of the answers, the real impact of a good negotiation of recent 2027. So if that is the case, there should be an adjustment on pricing environment in the North American market where there needs to be a reaction of the impact of the tariff and this will help using that one and increasing margins for premium with of course, we never know where this will end up being.

And, also, if that is the case, there should be an and this is not merging, but this is volumes and increasing volume that will help us numbers of forward. Again, there is still a lot of discussion, negotiations to be take that needs to take place. And that is something that we will see during this year. There is uncertainty the timing on the agreement. There is uncertainty on the expected result. Of that agreement. So we are positive on the outcome, as Maximo explained very clearly. And so we should we are positive on the on the outlook and the possibility of turning increasing and enhancing margin.

And, again, this was part of the answer, as you mentioned, to team language we are expecting that margins to increase and to get back to the places or the place where we used to be in the past. And regarding the capital allocation, CAIO for the further for the long term, as you put it, five, ten years,

Maximo Vedoya: Simplification is still a goal that we have. And we always are we are going to see when is the best moment on when or when it can be done.

Caio Greiner: Depending on which part,

Maximo Vedoya: But it is always in our to do list in a sense.

Pablo Daniel Brizzio: I think that we tend to shareholders where so we would always be

Maximo Vedoya: a priority in our capital allocation. And I do see further opportunities

Caio Greiner: then in the long term or the medium term both in Brazil and Mexico. As you know,

Maximo Vedoya: both markets are growing,

Caio Greiner: And as I said before, Mexico has a huge opportunity of growing against, imports

Maximo Vedoya: and the market our customers have very willingness to buy from us. So I think there is still opportunities over there. I think it is too early to try to put them on a paper or make it public, but we are always analyzing these opportunities in time, in Brazil and Mexico. Think, Caio That is great. That answer your question, but

Caio Greiner: Yes. That is that is great. So just maybe two follow ups, if I may. Pablo, I think you mentioned that you see margins recovering towards the normalized range of 15 to 20% And I am just not sure, if you if you mentioned that is including, the upside potential from, from US sensing renegotiations or if that is, those factors. My question was, if, assuming that, that the current environment stays. So it is assuming that nothing changes regarding the USMC agreement, what level, what level of margin, of what level of margin upside do you do you still see that Ternium can reach without that specifically? Thank you.

Pablo Daniel Brizzio: Yeah. Sorry. Sorry. Probably, I did not answer it correctly what you what you were asking for, but my intention was that because we believe, as Maximo said, that the impact of the USMC negotiation is positive as we believe will not be during this year. So this is more for 2027. So my answer before, our intention for answering that we will work and we will be enhancing our margin that we have, we could have a possibility of reaching the 15% of the lower part of the range that we are looking for was without taking into consideration any impact of the negotiation.

We are already expecting an enhanced on our margins during the first part of the year. Of course, not reaching 15%, and we will continue working. We think there is a chance that possibility for Telion to reach by the end of the year a better margin than the one that we will have during the first part, hopefully reaching that target by the end of the year. Of course. After failing on the presentation last year, we will be more conservative and cautious on making the same one during this year, but the chance exists.

Caio Greiner: Understood. Thank you. And since I am the last question, I will I will I will take the opportunity and ask another follow-up and, to Maximo on capital allocation. Maximo so from your answer, I can understand that the company is still sees still sees great opportunity for growth at its main markets. So is that gonna be a priority instead of, potentially raising dividends further or creating a dividend policy that could maybe increase the company’s dividend potential going forward or even a buyback program? Thank you very much, guys.

Maximo Vedoya: Thank you, Caio.

Maximo Vedoya: I think that the two priorities for us, increase dividends, I mean, returning to shareholders and looking opportunities in our main markets that we know that we can value a lot of profitability or add added to our business growing in those markets. I think they are both. I do not think at

Caio Greiner: as we have discussed in the past, I do not think the share buyback

Maximo Vedoya: is something we are gonna do because of

Caio Greiner: of how much shares are in the market. But the other two are one priority. Both are priorities for us.

Maximo Vedoya: Caio.

Caio Greiner: Thank you very much, guys.

Operator: We actually have one more question from John Brandt from HSBC. Your line is live.

John Brandt: No.

Operator: John, your line is live.

John Brandt: Guys. Sorry about that. Thanks for taking my follow-up. Kyle’s question actually got me thinking a little bit. You mentioned there were some opportunities to grow in the main markets, and that is kinda one of the things you are looking for And I think I know the answer to the question, but I will ask it anyways. CSN have said they are looking for a potential partner or to do something with their steel assets in Brazil. I am wondering if is that a potential opportunity for you to grow? Or can you sort of rule out any, say, pot with them? Thanks.

Pablo Daniel Brizzio: Thank you, John.

Maximo Vedoya: Yeah. We heard what CSN is doing. Its main focus is the cement and I think the infrastructure assets they have. Regarding the steel, we at this moment, we are not analyzing any of the any thing with CSN. But as I said, before and I said several times, Brazil is important for us. So we are always open to analyze different opportunities if they appear. But at this time, with this CSM, we are not analyzing anything.

John Brandt: Okay. Thank you.

Pablo Daniel Brizzio: You are welcome, John.

Operator: Concludes the question and answer session. I would now like to turn the call back over to Ternium S.A. CEO for closing remarks.

Pablo Daniel Brizzio: Okay. Thank you all for joining us today, and please feel free to

Maximo Vedoya: share any comment with us. And goodbye. Have a good day. Thank you very much.

Operator: That concludes today’s meeting. You may now disconnect.

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.