Tenaris S.A. 2014 Third Quarter Results Summary
Business Context and Reporting Period
This Form 6-K filing, dated November 7, 2014, presents Tenaris S.A.'s unaudited consolidated financial results for the quarter and nine months ended September 30, 2014. Tenaris is a global manufacturer of tubular products and services for the oil and gas industry. The financial statements are prepared in accordance with IFRS.
Key Financial Metrics
| Metric | Q3 2014 | Q3 2013 | 9M 2014 | 9M 2013 |
|---|---|---|---|---|
| Net Sales ($ million) | 2,421 | 2,415 | 7,661 | 7,923 |
| Operating Income ($ million) | 434 | 464 | 1,549 | 1,595 |
| Net Income ($ million) | 323 | 314 | 1,171 | 1,167 |
| Shareholders' Net Income ($ million) | 318 | 300 | 1,148 | 1,143 |
| EBITDA ($ million) | 587 | 622 | 2,008 | 2,050 |
| EBITDA Margin | 24.3% | 25.7% | 26.2% | 25.9% |
| Earnings per ADS ($) | 0.54 | 0.51 | 1.94 | 1.94 |
| Operating Cash Flow ($ million) | 659 | 751 | 1,838 | 1,913 |
| Free Cash Flow ($ million) | 357 | N/A | N/A | N/A |
| Net Cash Position ($ billion) | 1.6 | N/A | 1.6 | 0.911 (Jan 1) |
Material Changes vs. Prior Period
- Sequential Decline (Q3 vs. Q2 2014): Net sales decreased 9% to $2,421 million, and operating income fell 21% to $434 million. This was driven by lower sales in Saudi Arabia, a slowdown in deepwater projects in sub-Saharan Africa, and reduced sales in Europe. Margins were pressured by an unfavorable product mix with lower volumes of premium OCTG sales and seasonal plant stoppages.
- Year-Over-Year Stability (Q3 2014 vs. Q3 2013): Net sales remained flat (0% change), while net income increased 3% to $323 million. North American sales grew 25% year-over-year, offsetting declines in other regions.
- Capital Expenditures: Capex reached a record $302 million in Q3 2014 (up from $206 million in Q3 2013), primarily due to the construction of a new greenfield seamless mill in Bay City, Texas.
- Liquidity: Despite high capital spending, the net cash position increased to $1.6 billion at September 30, 2014, up from $1.3 billion in the prior quarter.
Guidance, Outlook, and Risks
- Market Outlook: Management notes uncertainty regarding the impact of falling oil prices on 2015 drilling activity. Lower oil prices may reduce activity in marginal North American onshore plays and delay offshore projects globally.
- Positive Factors: The company expects benefits from a recent U.S. trade case ruling on unfair OCTG imports, anticipating better pricing and reduced imports. Sales in South America are expected to recover due to pipeline projects in Brazil and Argentina.
- EBITDA Guidance: Management expects the EBITDA margin to recover from the Q3 level to approximately 26% for the full year 2014.
- Dividend: The board approved an interim dividend of $0.15 per share ($0.30 per ADS), totaling approximately $177 million, payable November 27, 2014.
- Risks: Forward-looking statements are subject to risks including future oil and gas price volatility and its impact on operator investment programs.
Investor Verification Checklist
- Verify the impact of the U.S. trade case ruling on future pricing and import volumes.
- Monitor the progress and cost overruns of the new Bay City, Texas mill construction.
- Assess the sensitivity of North American onshore drilling activity to sustained low oil prices.
- Review the recovery trajectory of pipeline projects in Brazil and Argentina.
- Confirm the sustainability of the 26% full-year EBITDA margin target given the Q3 sequential decline.