Ternium Shares Plunged Temporarily: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Latin American steelmaker Ternium (NYSE: TX  ) melted down earlier in the trading session by as much as 11% before recovering nearly all of its losses following the release of its fourth-quarter results.

So what: Ternium, the second-largest steelmaker in Latin America, reported a profit of $0.53 with net sales rising 14% to $2.2 billion. Unfortunately, because the Mexican peso depreciated so much during the quarter against the company's U.S. dollar-denominated debt, the company posted $0.25 in foreign-exchange losses and missed the Wall Street consensus EPS estimate of $0.59 by $0.06. Perhaps more troubling, Ternium cautioned that while sales will remain stable, raw material costs are expected to rise.

Now what: Normally, I can overlook an earnings miss related to foreign currency, because it's understandable. But, rising costs that the company doesn't seem to have much control over…now that could be an issue. Ternium is clearly inexpensive on a forward-earnings basis, trading at only seven times fiscal-2012 earnings, but the company has missed EPS in three consecutive quarters, and it guided toward weaker first-quarter profits. Get the yellow caution tape out because I'm not going anywhere near Ternium until it gets its rising costs under control.

Craving more input? Start by adding Ternium to your free and personalized watchlist so you can keep up on the latest news with the company.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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10/27/2016 4:02 PM
TX $23.71 Down -0.29 -1.21%
Ternium CAPS Rating: *****