The sequential expansion in gross margin from 17.5% to 21.7% between 2026Q1 and 2026Q2 suggests that Ternium is capturing better steel spreads or benefiting from cost efficiencies, but the historical volatility—net margin swung from -16.1% in 2024Q2 to 7.9% in 2026Q2—indicates that these margins are not yet stable. Operating margin at 12.2% in 2026Q2 is the highest in the last ten quarters, implying strong operating leverage, yet the sustainability of this level is questionable given the cyclical nature of steel prices. Investors should monitor whether the gross margin can hold above 20% or if it retreats toward the mid-teens as seen in prior quarters.

The upward trajectory in ROIC from 0.2% in 2024Q4 to 2.2% in 2026Q2 is encouraging, yet the absolute level is low, suggesting that Ternium is not yet generating returns that exceed its weighted average cost of capital. The improvement is driven primarily by margin recovery rather than asset efficiency, as asset turnover has remained flat around 0.16-0.18 over the period. With net PPE expanding to $11.0B, the company is investing heavily, but the return on that investment is still in the early stages of recovery. If steel prices soften, ROIC could easily revert to sub-1% levels, as seen in 2025Q1, indicating that the current return is highly sensitive to the commodity cycle.

The CCC has remained elevated, ranging from 104 to 141 days over the last ten quarters, with inventory days consistently above 110, suggesting that Ternium is holding significant stock, possibly due to production planning or demand uncertainty. DSO improved to 55 days in 2026Q2 from 63 days in 2025Q3, indicating better receivables collection, but DPO at 55 days is relatively stable, limiting the offset. The negative free cash flow in five of the last ten quarters, including -$175M in 2026Q2, is partly attributable to this working capital build, as cash is tied up in inventory and receivables. This inefficiency may indicate that Ternium is not optimizing its supply chain or that it is preparing for higher demand, but it warrants monitoring as it pressures cash generation.

The sharp increase in D/EBITDA from 2.76 to 5.59 over the last ten quarters is primarily due to depressed EBITDA in the cyclical trough, not a surge in absolute debt, which only rose from $2.4B to $3.0B. Interest coverage improved to 10.67 in 2026Q2 from 1.35 in 2025Q4, indicating that debt service is currently comfortable, but the coverage ratio is volatile, having been negative in 2024Q2. The low D/E of 0.18 versus peers like CLF at 1.29 suggests that Ternium has significant balance sheet capacity, but the rising D/EBITDA highlights the cyclicality of earnings. If steel prices decline again, EBITDA could compress, pushing D/EBITDA higher and potentially straining coverage, though the absolute debt level appears manageable.

The current ratio has declined from 3.32 to 2.58 over the last ten quarters, yet it remains above 2.0, suggesting that Ternium has a comfortable liquidity cushion. The quick ratio of 1.43 in 2026Q2, down from 1.98 in 2024Q1, indicates that even excluding inventory, current assets cover current liabilities, which is reassuring given the high inventory days. Cash stood at $1.4B, providing a buffer against operational shocks, but the negative free cash flow in recent quarters and heavy capex could erode this cushion if the cycle turns. The liquidity position appears adequate for now, but investors should monitor whether the current ratio continues to drift lower as capex and working capital demands persist.