Ternium reported strong quarterly performance. The company has rebounded exceptionally well from the credit crisis and is positioning itself as a big player in the South American economic expansion. The company keeps generating huge amounts of cash and building a strong balance sheet, I believe the company will put the access cash to work for entry into Brazil. Some highlights from the quarter:
- Generated over $200M of cash from operation in Q2 and free cash flow of $382M in the first half.
- Shipped over 2M tons in Q2.
- Ended Q2 with a net cash position of $600M and expected to receive over $400M of payments in the second half for Sidor.
- Management expects shipment to stabilize for the rest of the year.
I believe the company will end 2010 with over 1B of net cash. I believe management is building the cash for expansion in 2011. I’ve read that TX could be looking to add a 5-6M ton per year plan in Brazil. This could be huge for a company that recently did 2M tons in Q2 (8M tons on an annual basis). If this is true, the company will increase production by over 60%. It might take couple of years for the company to get the plant ready, but I’m willing to wait patiently and let management execute.
TX is the best steel producer in the Americas. The management team has an exceptional record of capital allocation and has done a great job in steering the company through the economic crisis. I expect management to capitalize of its huge cash position and strong cash generation to make the company one of the biggest steel producer in the Americas.