Tenaris S.A. Q1 2018 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 ended March 31, 2018. The filing (Form 6-K) incorporates a press release dated April 26, 2018. Results are presented in U.S. dollars in accordance with IFRS.
Key Financial Metrics
| Metric | Q1 2018 | Q1 2017 | Change (YoY) |
|---|---|---|---|
| Net Sales ($ million) | 1,866 | 1,154 | +62% |
| Operating Income ($ million) | 212 | 36 | +489% |
| Net Income ($ million) | 235 | 206 | +14% |
| EBITDA ($ million) | 354 | 198 | +79% |
| EBITDA Margin | 19.0% | 17.2% | +180 bps |
| Earnings per Share ($) | 0.20 | 0.17 | +15% |
| Net Cash Position ($ million) | 557 | 1,649 | -66% |
| Operating Cash Flow ($ million) | (30) | 26 | Usage vs. Generation |
| Capital Expenditures ($ million) | 92 | 139 | -34% |
Material Changes vs. Prior Period
- Sales Growth: Net sales surged 62% year-over-year, driven by exceptional shipments for East Mediterranean pipelines (Zohr project) and peak drilling season activity in Canada.
- Profitability: Operating income increased 489% year-over-year due to higher sales volume absorbing fixed costs, despite a 2% decline in average selling prices and higher raw material costs.
- Working Capital: A significant increase in working capital of $364 million occurred, primarily due to higher receivables from end-of-quarter sales, resulting in a net cash outflow from operations of $30 million.
- Regional Performance: Middle East & Africa sales rose 98% YoY; North America sales increased 69% YoY. South America sales grew 40% YoY but declined 4% sequentially.
- Equity Earnings: Gains from non-consolidated companies (Ternium and Usiminas) increased to $46 million from $35 million in the prior year.
Outlook, Risks, and Management Commentary
- Guidance: Management expects shipments to be lower in coming quarters compared to Q1 2018. However, sales and margins are projected to benefit from price increases that offset rising raw material costs. EBITDA and operating income are expected to continue growing through the year.
- Tariff Impact: Regarding US Section 232 tariffs on steel imports, Tenaris expects to be well-positioned to increase production at US domestic facilities if imports are restricted by quotas or tariffs.
- Market Conditions: US shale drilling activity is growing steadily. Canadian growth faces takeaway capacity constraints. Latin America drilling remains slow outside of Colombia and Guyana.
- Risks: Forward-looking statements are subject to risks including future oil and gas price uncertainties and their impact on investment programs by oil and gas companies.
Investor Verification Checklist
- Verify the sustainability of the 62% sales growth given the expectation of lower shipments in subsequent quarters.
- Monitor the impact of US Section 232 tariffs on steel imports and the company's ability to ramp up US domestic production.
- Assess the trajectory of working capital requirements, which consumed $364 million in cash during the quarter.
- Review the composition of the $557 million net cash position and the company's leverage relative to total borrowings of approximately $1.0 billion.
- Confirm the realization of price increases in the coming quarters to offset rising raw material costs as projected by management.