Tenaris S.A. Form 6-K Summary: Q2 2011 Results
Business Context and Reporting Period
This filing reports the unaudited consolidated financial results for Tenaris S.A. for the quarter and six-month period ended June 30, 2011. Tenaris is a global manufacturer of tubular products and services for the oil and gas industry. The results are presented in U.S. dollars in accordance with IFRS.
Key Financial Metrics
| Metric | Q2 2011 | Q2 2010 | H1 2011 | H1 2010 |
|---|---|---|---|---|
| Net Sales (US$ million) | 2,403.1 | 1,981.8 | 4,727.1 | 3,620.5 |
| Operating Income (US$ million) | 412.4 | 405.3 | 853.8 | 714.6 |
| Net Income (US$ million) | 304.7 | 295.0 | 628.9 | 517.2 |
| Shareholders' Net Income (US$ million) | 287.2 | 282.1 | 606.6 | 501.6 |
| EBITDA (US$ million) | 548.4 | 531.2 | 1,119.2 | 966.6 |
| EBITDA Margin | 23% | 27% | 24% | 27% |
| Cash Flow from Operations (US$ million) | 325.1 | 58.6 | 490.8 | 494.9 |
| Net Cash Position (US$ million) | 64.9 | N/A | 64.9 | N/A |
| Capital Expenditures (US$ million) | 251.2 | 190.4 | 461.8 | 348.4 |
Material Changes vs. Prior Period
- Revenue Growth: Q2 2011 net sales increased 21% year-over-year (YoY) and 3% sequentially. H1 2011 sales rose 31% YoY, driven by a 21% increase in sales volumes and a 4% increase in average selling prices.
- Margin Compression: Despite revenue growth, operating margins declined. Q2 operating income margin was 17.2% (down from 20.5% in Q2 2010). Cost of sales as a percentage of sales increased from 58% in H1 2010 to 62% in H1 2011 due to rising raw material costs that outpaced price increases.
- Segment Performance:
- Tubes: Sales increased 16% YoY in Q2. North America sales dipped 3% sequentially due to seasonal weakness in Canada. Europe and Far East sales grew significantly.
- Projects: Sales surged 126% YoY in Q2 to $212.4 million, driven by higher volumes in Brazil.
- Others: Sales increased 16% YoY in Q2, aided by industrial equipment sales in Brazil.
- Financial Items: Net interest expenses decreased significantly to $5.7 million in Q2 2011 from $17.5 million in Q2 2010. Other financial results recorded a loss of $12.4 million in Q2 2011, primarily due to foreign exchange fluctuations.
Guidance, Outlook, and Risks
- Outlook: Management expects global drilling activity to remain high in the second half of 2011, particularly in the Middle East and North America. They anticipate higher sales and operating income in H2 2011 compared to H1 2011, driven by a richer mix of specialized, high-end products and improved average selling prices.
- Capital Allocation: Capital expenditures increased to $251.2 million in Q2, largely due to investments in a new small diameter rolling mill in Veracruz, Mexico. A dividend of $247.9 million was paid in June 2011.
- Risks: Forward-looking statements are subject to risks including uncertainties in future oil and gas prices, which impact investment programs by oil and gas companies. Foreign exchange rate variations continue to affect financial results.
Investor Verification Checklist
- Verify the sustainability of the 21% volume growth in the Tubes segment given the seasonal weakness in Canada.
- Monitor the trajectory of raw material costs versus the ability to pass price increases to customers to assess margin recovery.
- Confirm the impact of foreign exchange fluctuations on future "Other financial results" given the significant loss in Q2.
- Review the progress and capital requirements of the Veracruz facility expansion.
- Assess the liquidity position following the $247.9 million dividend payment and increased working capital investment.