Ternium S.A. (NYSE: TX) today announced its results for the fourth quarter and full year period ended December 31, 2014.

The financial and operational information contained in this press release is based on Ternium S.A.'s operational data and consolidated financial statements prepared in accordance with International Financial Reporting Standards (IFRS) and presented in U.S. dollars (USD) and metric tons.

Summary of Fourth Quarter 2014 Results

Ternium's operating income in the fourth quarter 2014 was USD191.3 million, down sequentially by USD123.3 million, mainly due to lower operating margin4 and a non-recurring USD57.5 million insurance recovery in the third quarter 2014. Operating margin decreased sequentially mainly as a result of USD35 lower steel revenue per ton, partially offset by USD6 lower steel operating cost per ton5. Steel revenue per ton decreased mainly as a result of lower steel prices in Ternium's main steel markets. The decrease in steel operating cost per ton included lower purchased slabs costs and higher energy costs.

Compared to the fourth quarter 2013, the company's operating income in the fourth quarter 2014 decreased by USD104.3 million, mainly as a result of lower operating margin, partially offset by higher shipments. Operating margin decreased year-over-year in the fourth quarter 2014 mainly as a result of a USD31 decrease in steel revenue per ton and a USD20 increase in operating cost per ton. Steel revenue per ton decreased mainly as a result of lower steel prices in the Southern Region and Other Markets, partially offset by a better product mix in Mexico. The increase in operating cost per ton included higher purchased slabs and energy costs.

Net income in the fourth quarter 2014 was USD60.1 million, a decrease of USD100.1 million compared to net income in the third quarter 2014 mainly due to the above mentioned lower operating income and a higher effective tax rate, partially offset by improved financial results. The higher than normal effective tax rate in the fourth quarter 2014 was mainly related to the non-cash effect on deferred taxes of the significant depreciation of the Mexican peso and the Colombian peso against the US dollar during the period.

Relative to the prior-year period, net income in the fourth quarter 2014 decreased by USD111.0 million. The year-over-year decrease included the above mentioned lower operating income, higher than normal effective tax rate in the fourth quarter 2014 and lower results from non-consolidated companies, partially offset by improved financial results.

Summary of Full Year 2014 Results

Operating income in 2014 was USD1.1 billion, slightly lower than operating income in 2013. Steel shipments increased by 647,000 tons year-over-year in Mexico, and decreased a combined 254,000 tons in the Southern Region and Other Markets. Operating margin decreased slightly reflecting USD14 lower steel revenue per ton, partially offset by USD3 lower steel operating cost per ton. A decrease in steel prices in the Southern Region was mostly offset by higher steel prices and a higher value added product mix in Mexico. Net income in 2014 was USD588.8 million, relatively stable compared to net income in 2013, mainly as a result of the above mentioned slightly lower operating income, offset by an improved financial result.

Usiminas

As of December 31, 2014, Ternium performed an impairment test of its investment in Usiminas and subsequently wrote down such investment by USD196.4 million. The main changes to the Company's previous estimation of its investment's value in use that led to this impairment were related to expectations of a weaker industrial environment in Brazil, and consequently steel demand, as a result of worsening economic activity, as well as a significant downturn in international prices of iron ore and steel, both of which led to diminished cash flow expectations.

In addition, during the fourth quarter 2014 Ternium applied its purchase price allocation procedures in connection with its October 2014 acquisition of additional shares of Usiminas from PREVI. The Company determined a higher value of net assets at fair value versus book value and, accordingly, recognized a gain of USD188.9 million.

Annual Dividend Proposal

Ternium's board of directors proposed that an annual dividend of USD0.09 per share (USD0.90 per ADS), or approximately USD180.4 million in the aggregate, be approved at the company's annual general shareholders' meeting, which is scheduled to be held on May 6, 2015. If the annual dividend is approved at the shareholders' meeting, it will be paid on May 15, 2015, with record-date of May 12, 2015.

Outlook

Ternium had record steel shipments in 2014, largely due to a 13% increase in shipments in the Mexican market. Strong fundamentals for steel demand, including a vibrant manufacturing industry and a slowly improving construction sector, underpin the company's continued positive outlook for shipments in Mexico. Ternium's shipments in the Argentine market decreased 6% in 2014, mainly as a result of a decrease in flat steel demand in most end markets.

Steel prices in the North American market began to trend downward during the fourth quarter 2014. North American prices have continued to decline in the current quarter in line with the downturn in international steel prices and a significant increase in imports into the US market. The significant drop in the price of oil also has negatively affected flat steel prices in North America, mainly as a result of a decrease in the energy industry's demand for related flat steel products.

Prices of raw materials, purchased slabs and energy are today significantly below the average in 2014. These lower prices, together with the positive effect the devaluation of the Mexican Peso is having on local-currency-based costs, should reflect in a decreasing cost per ton, although pass-through to costs will be gradual as Ternium consumes its inventories over time.

Ternium expects a relatively stable operating income in the first quarter 2015 compared to its operating income in the fourth quarter 2014. This forecast is based on lower revenue per ton in Ternium's main markets, offset by lower cost per ton and slightly higher shipments mainly due to an increase in shipments in Mexico.

Analysis of Fourth Quarter 2014 Results

Net income attributable to Ternium's equity holders in the fourth quarter 2014 was USD61.6 million, compared to net income of USD125.6 million in the fourth quarter 2013. Including non-controlling interest, net income for the fourth quarter 2014 was USD60.1 million, USD111.0 million lower in comparison to the fourth quarter 2013. Earnings per ADS in the fourth quarter 2014 were USD0.31 compared to Earnings per ADS of USD0.64 in the fourth quarter 2013.

Net sales in the fourth quarter 2014 were USD2.2 billion, 2% higher than net sales in the fourth quarter 2013, mainly as a result of higher steel products net sales in Mexico, partially offset by lower steel product net sales in the Southern Region and in Other Markets. The following table outlines Ternium's consolidated net sales for the fourth quarter 2014 and fourth quarter 2013:

Cost of sales was USD1.8 billion in the fourth quarter 2014, an increase of USD154.8 million compared to the fourth quarter 2013. This was principally due to a USD139.6 million, or 11%, increase in raw material and consumables used, mainly reflecting a 5% increase in steel shipment volumes, higher purchased slabs costs and higher energy costs; and to a USD15.0 million increase in other costs, including a USD16.9 million increase in depreciation of property, plant and equipment and amortization of intangible assets and a USD6.2 million increase in maintenance expenses, partially offset by USD6.5 million decrease in labor cost.

Selling, General & Administrative (SG&A) expenses in the fourth quarter 2014 were USD201.7 million, or 9.4% of net sales, a decrease of USD8.7 million compared to the fourth quarter 2013, mainly due to lower labor expenses and taxes and contributions (other than income tax), partially offset by higher freight and transportation expenses.

Operating income in the fourth quarter 2014 was USD191.3 million, or 8.9% of net sales, compared to operating income of USD295.6 million, or 14.0% of net sales, in the fourth quarter 2013. The following table outlines Ternium's operating income by segment for the fourth quarter 2014 and fourth quarter 2013:

Steel reporting segment

The steel segment's operating income was USD189.5 million in the fourth quarter 2014, a decrease of USD67.6 million compared to the fourth quarter 2013, reflecting higher operating cost in the fourth quarter 2014, partially offset by higher sales.

Net sales of steel products in the fourth quarter 2014 increased 2% compared to the fourth quarter 2013, reflecting a 122,000 ton, or 5%, increase in shipments, mainly due to higher sales volume in Mexico and Others Markets, partially offset by lower sales volume in the Southern Region. Revenue per ton decreased USD31, or 3%, mainly due to lower steel prices in the Southern Region and in Other Markets partially offset by a better product mix in Mexico.

Operating cost increased 6% due to a 5% increase in shipment volumes and a 1% increase in cost per ton in comparison to cost per ton in the fourth quarter 2013. The increase in cost per ton included higher purchased slabs and energy costs.

Mining reporting segment

The mining segment's operating income was a loss of USD1.1 million in the fourth quarter 2014, compared to a gain of USD38.7 million in the fourth quarter 2013, mainly reflecting lower iron ore net sales and higher operating cost.

Net Sales of mining products in the fourth quarter 2014 were 35% lower than net sales in the fourth quarter 2013, mainly as a result of lower revenue per ton. Shipments were 1.0 million tons, 3% higher than in the fourth quarter 2013.

Operating cost increased 2% year-over-year, due to the above mentioned 3% increase in shipment volumes partially offset by a 1% decrease in operating cost per ton.

EBITDA in the fourth quarter 2014 was USD300.9 million, or 14.0% of net sales, compared to USD390.0 million, or 18.4% of net sales, in the fourth quarter 2013.

Net financial results were an USD8.7 million gain in the fourth quarter 2014, compared to a USD30.4 million loss in the fourth quarter 2013. During the fourth quarter 2014, Ternium's net financial interest results totaled a loss of USD25.8 million, compared to a USD24.6 million loss in the fourth quarter 2013.

Net foreign exchange was a gain of USD26.3 million in the fourth quarter 2014 compared to a gain of USD2.3 million in the fourth quarter 2013. The fourth quarter 2014 gain was primarily associated with the effect of the Mexican peso depreciation against the US dollar on a net short local currency position in Ternium's Mexican subsidiaries.

Change in fair value of financial instruments included in net financial results was a USD9.6 million gain in the fourth quarter 2014, mainly related to results from changes in the fair value of financial assets, compared with a USD3.1 million loss in the fourth quarter 2013.

Equity in results of non-consolidated companies was a loss of USD27.5 million in the fourth quarter 2014, compared to a loss of USD4.5 million in the fourth quarter 2013. Equity in results of non-consolidated companies in the fourth quarter 2014 included the above mentioned USD196.4 million loss related to an impairment of Ternium's investment in Usiminas, partially offset by an income recognition in the amount of USD188.9 million related to Ternium's acquisition of additional shares in Usiminas during October 2014 as a result of a higher value of net assets at fair value versus book value after applying purchase price allocation procedures.

Income tax expense in the fourth quarter 2014 was USD112.4 million, or 65% of income before income tax expense, compared with an income tax expense of USD89.6 million in the fourth quarter 2013, or 34% of income before income tax expense. The higher than normal effective tax rate in the fourth quarter 2014 was mainly related to the non-cash effect on deferred taxes of the significant depreciation of the Mexican peso and the Colombian peso against the US dollar during the period, which reduces, in US dollar terms, the tax base used to calculate deferred tax at our Mexican and Colombian subsidiaries (which have the US dollar as their functional currency) and to the impact of non-taxable losses stemming from the investment in Usiminas.

Net loss attributable to non-controlling interest in the fourth quarter 2014 was USD1.5 million, compared to net gain of USD45.5 million in the same period in 2013, mainly due to a lower result attributable to non-controlling interest in Siderar.

Analysis of Full Year 2014 Results

Net income attributable to Ternium's equity holders in 2014 was USD452.4 million, compared to net income of USD455.4 million in 2013. Including non-controlling interest, net income in 2014 was USD588.8 million, compared to net income of USD592.9 million in 2013. Earnings per ADS in 2014 were USD2.30, compared to earnings of USD2.32 in 2013.

Net sales in 2014 were USD8.7 billion, 2% higher than net sales in 2013, mainly as a result of higher steel products sales in Mexico, partially offset by lower steel products sales in the Southern Region and Other Markets. The following table shows Ternium's consolidated net sales for 2014 and 2013:

Cost of sales was USD6.9 billion in 2014, an increase of USD324.9 million compared to 2013. This was principally due to a USD248.0 million, or 5%, increase in raw material and consumables used, mainly reflecting a 4% increase in steel shipment volumes, higher purchased slabs costs and higher energy costs, partially offset by lower iron ore and coking coal costs; and a USD76.9 million increase in other costs, including a USD44.6 million increase in maintenance expenses, a USD39.7 million increase in depreciation of property, plant and equipment and amortization of intangible assets and a USD2.6 million increase in services and fees, partially offset by a USD6.9 million decrease in labor costs and USD2.5 million decrease in insurance costs.

Selling, General & Administrative (SG&A) expenses in 2014 were USD816.5 million, or 9.4% of net sales, a decrease of USD26.8 million compared to SG&A in 2013, mainly as a result of lower taxes and contributions (other than income tax) and lower freight and transportation expenses.

Other net operating income in 2014 was USD71.8 million, higher than the USD23.0 million gain in 2013. Other net operating income in 2014 and 2013 included a USD57.5 million and a USD11.7 million income recognition on insurance recovery, respectively.

Operating income in 2014 was USD1.1 billion, or 12.1% of net sales, compared to operating income of USD1.1 billion, or 13.0% of net sales, in 2013. The following table shows Ternium's operating income by segment for 2014 and 2013:

Steel reporting segment

The steel segment's operating income was USD1.0 billion in 2014, a decrease of USD6.1 million compared to 2013, reflecting higher operating cost, offset by higher sales.

Net sales of steel products in 2014 increased 3% compared to 2013, reflecting an increase in shipments partially offset by a decrease in revenue per ton. Shipments increased 393,000 tons, or 4%, compared to 2013, mainly due to higher sales volume in Mexico partially offset by lower sales volume in the Southern Region and Other Markets. Revenue per ton decreased USD14, mainly due to lower steel prices in the Southern Region, mostly offset by higher steel prices and a higher value added product mix in Mexico.

Operating cost increased 4%, due to the above-mentioned 4% increase in shipment volumes and relatively stable operating cost per ton.

Mining reporting segment

The mining segment's operating income was USD42.3 million in 2014, a decrease of USD52.8 million compared to 2013 mainly reflecting lower iron ore sales, partially offset by lower operating cost.

Net Sales of mining products in 2014 were 19% lower than in 2013, reflecting lower shipments and revenue per ton. Shipments were 3.9 million tons, 9% lower than in 2013, mainly as a result of lower iron ore production at Peña Colorada.

Operating cost decreased 7% year-over-year, due to the above mentioned 9% decrease in shipment volumes, partially offset by a 3% increase in operating cost per ton. Operating cost per ton increased mainly due to higher depreciation of property, plant and equipment.

EBITDA in 2014 was USD1.5 billion, or 16.9% of net sales, compared with USD1.5 billion, or 17.4% of net sales, in 2013.

Net financial results were a USD69.5 million loss in 2014, compared with a USD135.5 million loss in 2013. During 2014, Ternium's net financial interest results totaled a loss of USD106.8 million, compared to a loss of USD111.5 million in 2013.

Net foreign exchange result was a gain of USD26.7 million in 2014 compared to a gain of USD0.3 million in 2013. The gain in 2014 was primarily associated with the effect of the Mexican peso depreciation against the US dollar on a net short local currency position in Ternium's Mexican subsidiaries.

Change in fair value of financial instruments included in net financial results in 2014 was a USD17.8 million gain, mainly related to results from changes in the fair value of financial assets, compared with a USD12.3 million loss in 2013.

Equity in results of non-consolidated companies was a loss of USD34.2 million in 2014, compared to a loss of USD31.6 million in 2013. Equity in results of non-consolidated companies in 2014 included the above mentioned USD196.4 million loss related to an impairment of Ternium's investment in Usiminas, partially offset by an income recognition of USD188.9 million related to Ternium's acquisition of additional shares in Usiminas during October 2014 as a result of a higher value of net assets at fair value versus book value after applying purchase price allocation procedures.

Income tax expense in 2014 was USD363.7 million, or 38% of income before income tax, compared with an income tax expense of USD349.4 million, or 37% of income before income tax, in 2013. The relatively high effective income tax rate in 2014 was mainly related to the above mentioned non-cash effect on deferred taxes of the significant depreciation of the Mexican peso and Colombian peso against the US dollar during the period, an amendment of a previous period tax return in Mexico and the impact of non-taxable losses stemming from the investment in Usiminas, partially offset by a net gain related to a non-cash reduction of deferred tax liabilities at one of Ternium's subsidiaries.

Net gain attributable to non-controlling interest in 2014 was USD136.4 million, compared to a net gain of USD137.5 million in 2013.

Cash Flow and Liquidity

Net cash provided by operating activities in the year 2014 was USD505.8 million. Working capital increased USD551.0 million in the year 2014 as a result of a USD357.0 million increase in inventories, an aggregate USD108.0 million net decrease in accounts payable and other liabilities and an aggregate USD86.0 million net increase in trade and other receivables. Inventories increased in the year 2014 mainly reflecting higher inventory volumes in a context of ramped-up production, and higher costs of raw materials, goods in process and finished goods. The above mentioned increase in working capital in the year 2014 included a negative non-cash effect of USD149.9 million reflecting variations in the exchange rates used by subsidiaries with functional currencies other than the U.S. dollar, mainly related to inventories.

Capital expenditures in the year 2014 were USD443.5 million, down from USD883.3 million in the year 2013. The main investments carried out during the period included, in Mexico, those made in the new cold rolling mill (Pesquería facility), in mining and iron ore reduction facilities and for the expansion of service center capacity and, in Argentina, those made for the expansion and enhancement of the coking facilities, for the expansion and enhancement of the steelmaking facilities (including a new continuous caster in the steel shop, inaugurated during the first quarter) and for the revamping of the hot-rolling mill.

In the year 2014, Ternium had free cash flow of USD62.4 million8. The company acquired during the fourth quarter 2014 additional ordinary shares of Usiminas for a total consideration of USD249.0 million. In addition, net dividends paid to shareholders were USD147.2 million and net dividends paid to minority shareholders were USD33.6 million. The company's net proceeds from borrowings were USD265.4 million during the year 2014. As of December 31, 2014, Ternium's net debt position was USD1.8 billion9.

Net cash provided by operating activities in the fourth quarter 2014 was USD208.3 million. Working capital decreased by USD2.2 million in the fourth quarter 2014 reflecting an aggregate USD105.9 million decrease in trade and other receivables and a USD54.8 million decrease in inventories, offset by an aggregate USD158.5 million net decrease in accounts payable and other liabilities. Inventories decreased in the fourth quarter 2014 mainly reflecting lower inventory costs and lower volumes of raw materials and purchased steel, partially offset by higher volumes of goods in process. Capital expenditures were USD108.7 million in the fourth quarter 2014, compared to USD158.2 million in the fourth quarter 2013. Ternium's free cash flow in the period was USD99.6 million10.

Forward Looking Statements

Some of the statements contained in this press release are "forward-looking statements". Forward-looking statements are based on management's current views and assumptions and involve known and unknown risks that could cause actual results, performance or events to differ materially from those expressed or implied by those statements. These risks include but are not limited to risks arising from uncertainties as to gross domestic product, related market demand, global production capacity, tariffs, cyclicality in the industries that purchase steel products and other factors beyond Ternium's control.

About Ternium

Ternium is a leading steel producer in Latin America, with an annual production capacity of approximately 10.9 million tons of finished steel products. The company manufactures and processes a broad range of value-added steel products for customers active in the construction, automotive, home appliances, capital goods, container, food and energy industries. With production facilities located in Mexico, Argentina, Colombia, the southern United States and Guatemala, Ternium serves markets in the Americas through its integrated manufacturing system and extensive distribution network. In addition, Ternium participates in the control group of Usiminas, a Brazilian steel company. More information about Ternium is available at www.ternium.com.

Original Article: http://money.cnn.com/news/newsfeeds/articles/marketwire/1176088.htm