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Tenaris S.A. 2021 Second 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 ended June 30, 2021. The filing, submitted on August 4, 2021, covers the second quarter of 2021 (2Q 2021) and the first half of 2021 (6M 2021), comparing performance against the same periods in 2020 and the preceding quarter (1Q 2021). The company operates primarily in the oil and gas sector, with significant exposure to North and South America.

Key Financial Metrics

Segment Performance (2Q 2021): The Tubes segment generated $1,397 million in net sales with an operating income of $130 million. The Others segment generated $132 million in net sales with an operating income of $21 million.

Material Changes vs. Prior Periods

• Revenue Growth: Net sales increased 29% sequentially and 23% year-over-year in 2Q 2021, driven by higher volumes (up 21% sequentially) and average selling prices (up 6% sequentially). This contrasts with a 10% sales decline in the first half of 2021 compared to 2020.
• Profitability Turnaround: Operating income surged 194% sequentially to $152 million, reversing a loss of $91 million in 2Q 2020. Net income improved from a loss of $50 million in 2Q 2020 to a gain of $290 million.
• Equity Earnings: Equity in earnings of non-consolidated companies (primarily Ternium and Usiminas) contributed significantly, rising to $146 million in 2Q 2021 from $4 million in 2Q 2020, reflecting record steel prices.
• Cash Flow Dynamics: Operating cash flow turned negative ($50 million used) in 2Q 2021 due to a $314 million increase in working capital (inventories and receivables) to support higher activity levels. Free cash flow was negative $102 million.

Guidance, Outlook, and Management Commentary

• Market Outlook: Management anticipates sales will continue to increase in the third quarter, led by North and South America, though tempered by destocking in the Middle East and seasonal slowdowns in Europe. Drilling activity is expected to rise in the U.S. and Canada, albeit at a slower pace.
• Margin Expectations: EBITDA margins are projected to reach 20% as price increases and fixed cost absorption offset rising raw material costs.
• Operational Expansion: North American facilities are ramping up. The company has hired 700 employees since October 2020 and plans to hire an additional 450 by year-end. Facilities in Ambridge (PA) and Baytown (TX) are scheduled to reopen in August 2021.
• Unusual Items: Results included a $33 million extraordinary gain from the recognition of fiscal credits in Brazil. Conversely, 1Q 2021 results were impacted by $23 million in costs related to Winter Storm Uri.
• Risks: Forward-looking statements are subject to risks regarding future oil and gas prices, which directly impact investment programs by customers.

Key Facts for Investor Verification

• Working Capital Build: Verify the sustainability of the $314 million increase in working capital and its impact on future operating cash flows.
• Non-Operating Gains: Assess the impact of the $33 million fiscal credit gain in Brazil and the $146 million equity earnings from Ternium/Usiminas on core operational profitability.
• Dividend Impact: Note the $165 million dividend payment in May 2021, which reduced the net cash position from $1.1 billion to $854 million.
• Cost Inflation: Monitor the trajectory of raw material costs against the company's ability to pass these costs through via price increases to maintain the projected 20% EBITDA margin.
• Drilling Activity Correlation: Track U.S. and Canadian drilling rig counts to validate the management's forecast of continued sales growth in the third quarter.