Ternium Argentina disclosed a net result below expectations due to decreases in deliveries and operating margin, along with lower associated companies results. Estimated target price may be lower.
Ternium Argentina's consolidated net sales fell 10,8% y-o-y in 1Q 2019, as a consequence of a decrease (-24,6%) in deliveries in tons due to domestic market contraction. Cost of sales dropped 0,3% driven by a lower dispatched volume, offset by higher costs of raw materials and supplies, labor, and maintenance. Operating result thus showed a serious deterioration due to all of the aforementioned, added to a lower value-added sales mix, the operating margin fell (from 11,5% to 1,3%).
The lower operating result was accompanied by a decrease in associated companies income due to lower profit from Ternium Mexico and Usiminas; this largely offset the improvement in financial results which became positive. Thus, consolidated net income reached $1.071,5 million, falling 66,7% y-o-y.
Deliveries may increase taking into account a slow recovery of the local market, and the operating result may improve in 2Q 2019.
It should be mentioned that the company has stated that 2018 and 2019 values are expressed in constant Argentine pesos as of March 31, 2019, in accordance with International Financial Reporting Standards (IFRS), including the international accounting standard 29 (financial reporting in hyperinflationary economies).
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