Tenaris S.A. 2021 Third Quarter Results Summary
Business Context and Reporting Period
Tenaris S.A., a global manufacturer of tubular products and services, reported its unaudited consolidated results for the quarter and nine months ended September 30, 2021. The filing, submitted on November 3, 2021, compares performance against the second quarter of 2021 and the third quarter of 2020. The company operates primarily in the energy sector, focusing on oil country tubular goods (OCTG) and line pipe.
Key Financial Metrics
Third Quarter 2021 (vs. Q2 2021 / Q3 2020):
- Net Sales: $1,754 million (up 15% sequentially; up 73% year-over-year).
- Operating Income: $231 million (up 52% sequentially; improved from a $70 million loss in Q3 2020).
- Net Income: $326 million (up 12% sequentially; improved from a $36 million loss in Q3 2020).
- EBITDA: $379 million (up 26% sequentially; up 254% year-over-year).
- EBITDA Margin: 21.6% (up from 19.7% in Q2 2021 and 10.6% in Q3 2020).
- Earnings per ADS: $0.56 (up from $0.50 in Q2 2021 and a loss of $0.06 in Q3 2020).
- Cash Flow: Operating cash flow was $53 million. Free cash flow was negative $21 million due to capital expenditures of $74 million and a $276 million increase in working capital.
- Liquidity: Net cash position stood at $830 million as of September 30, 2021, down from $854 million in the prior quarter.
Nine Months Ended September 30, 2021 (vs. 9M 2020):
- Net Sales: $4,464 million (up 11%).
- Operating Income: $434 million (improved from a $670 million loss in 9M 2020).
- Net Income: $717 million (improved from a $752 million loss in 9M 2020).
- EBITDA: $877 million (up 97%).
- Free Cash Flow: Negative $98 million (compared to positive $1,226 million in 9M 2020).
Material Changes and Drivers
Revenue Growth: Sales increased sequentially by 15%, driven by an 8% volume increase and a 6% rise in average selling prices. Growth was led by North and South America, where drilling activity recovered. Conversely, sales in the Middle East and Africa declined due to destocking, and Europe saw seasonal declines.
Profitability: Operating margins expanded significantly due to higher selling prices that outpaced increases in raw material and energy costs. Improved industrial performance and better absorption of fixed costs also contributed to margin expansion.
Working Capital: A significant increase in working capital ($276 million) occurred due to the ramp-up of operations in the United States, including the reopening of the Ambridge, PA seamless pipe mill and Baytown, TX facilities.
Equity Earnings: Equity in earnings of non-consolidated companies (primarily Ternium and Usiminas) generated a gain of $154 million in Q3 2021, reflecting strong dynamics in the flat steel sector.
Outlook, Risks, and Unusual Items
Guidance and Outlook: Management anticipates further sales increases in the fourth quarter, led by North America where excess inventories have been absorbed. EBITDA margins are expected to remain close to current levels as price increases offset rising input costs.
Joint Venture Termination: On November 2, 2021, Tenaris reached a preliminary agreement with JFE Holdings to terminate their joint venture, NKKTubes, which operates a seamless pipe facility in Kawasaki, Japan. Operations will cease by June 2022, and the company will dissolve by December 2022. This decision follows JFE's plan to permanently cease steel manufacturing at the Keihin complex in 2024.
Trade Risks: On October 27, 2021, the U.S. Department of Commerce initiated anti-dumping and countervailing duty investigations on OCTG imports from Mexico, Argentina, and Russia. Tenaris intends to vigorously challenge these claims but notes the potential impact is currently unpredictable.
Dividend: The Board approved an interim dividend of $0.13 per share ($0.26 per ADS), totaling approximately $153 million, payable on November 24, 2021.
Key Facts for Investor Verification
- Verify the impact of the NKKTubes joint venture termination on future revenue streams and potential restructuring costs.
- Monitor the outcome of the U.S. Department of Commerce anti-dumping investigations regarding imports from Mexico and Argentina.
- Assess the sustainability of the 21.6% EBITDA margin given rising raw material and energy costs.
- Review the trajectory of working capital requirements as U.S. facilities continue to ramp up operations.
- Confirm the timeline and financial implications of the NKKTubes liquidation process.