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Tenaris S.A. Q2 2024 Financial Summary

Business Context and Reporting Period

Tenaris S.A., a global manufacturer of tubular products and services for the oil and gas industry, reported unaudited consolidated results for the quarter and six months ended June 30, 2024. The company operates primarily through its Tubes segment (seamless and welded pipes) and an Others segment (coating, oilfield services). The reporting period reflects a challenging market environment characterized by declining OCTG prices in the Americas and ongoing industry consolidation.

Key Financial Metrics

Capital Allocation: In Q2 2024, the company paid $459 million in dividends and repurchased $492 million of shares. For the first half of 2024, total share buybacks reached $803 million.

Material Changes vs. Prior Period

• Revenue Decline: Net sales decreased 18% year-over-year in Q2 2024, driven by a 16% drop in average selling prices for tubular products, particularly in North and South America. Volume decreased 6% year-over-year for the first half.
• Profitability Compression: Operating income fell 60% year-over-year in Q2. The Tubes segment operating margin dropped from 31.9% in Q2 2023 to 14.6% in Q2 2024.
• Unusual Items: Results were significantly impacted by a $171 million non-cash provision for ongoing litigation related to the 2012 acquisition of a participation in Usiminas. This charge reduced Q2 EBITDA by approximately 26% and Q2 Net Income by roughly 49%.
• Segment Performance: While the Tubes segment faced headwinds, the Others segment saw net sales increase 61% year-over-year in Q2, largely due to the consolidation of a newly acquired coating business.

Guidance, Outlook, and Risks

Outlook: Management expects Q3 2024 sales and EBITDA to be affected by lower activity in the United States and Latin America, continued declines in OCTG prices in the Americas, and scheduled maintenance stoppages at several mills, including a new furnace installation at Siderca.

Market Conditions:

• United States: High OCTG imports persist, but drilling activity is constrained by industry consolidation, low natural gas prices, and high financing costs. Inventories are rising, pressuring prices.
• Latin America: Political and economic volatility in Mexico and Argentina is affecting drilling. Delays in pipeline infrastructure for the Vaca Muerta shale in Argentina remain a concern.
• International: Demand remains supportive in offshore developments and LNG-related gas drilling projects through 2025.

Risks and Contingencies:

• Legal: The $171 million provision relates to CSN claims regarding the Usiminas acquisition. Further developments in this litigation could impact future results.
• Commodity Prices: Future oil and gas prices directly influence customer investment programs and drilling activity.
• FX Exposure: Foreign exchange devaluation in Mexico impacted the income tax charge in Q2.

Investor Verification Checklist

• Usiminas Litigation: Verify the status of the CSN claims and the potential for additional provisions beyond the $171 million recorded.
• OCTG Price Trends: Monitor the trajectory of OCTG prices in North America and the impact of rising inventories on future pricing power.
• Working Capital Efficiency: Review the increase in operating working capital days from 120 (2023) to 129 (2024) to assess liquidity management.
• Capital Expenditures: Confirm the schedule and cost of the new furnace installation at Siderca and other maintenance stoppages planned for Q3.
• Shareholder Returns: Assess the sustainability of the current dividend and buyback program given the compressed margins and lower EBITDA.