Tenaris S.A. Q1 2014 Financial Summary
Business Context and Reporting Period
This Form 6-K filing, dated May 5, 2014, reports the unaudited consolidated financial results for Tenaris S.A. for the quarter ended March 31, 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 and presented in U.S. dollars.
Key Financial Metrics
| Metric | Q1 2014 | Q4 2013 | Q1 2013 |
|---|---|---|---|
| Net Sales ($ million) | 2,580 | 2,674 | 2,678 |
| Operating Income ($ million) | 566 | 589 | 554 |
| Net Income ($ million) | 428 | 408 | 423 |
| Shareholders' Net Income ($ million) | 423 | 409 | 425 |
| Earnings per ADS ($) | 0.72 | 0.69 | 0.72 |
| EBITDA ($ million) | 718 | 745 | 699 |
| EBITDA Margin (%) | 27.8% | 27.8% | 26.1% |
| Cash from Operations ($ million) | 612 | 427 | 556 |
| Net Cash Position ($ billion) | 1.3 | N/A | N/A |
Material Changes vs. Prior Periods
- Sales Decline: Net sales decreased 4% sequentially and 4% year-over-year. The sequential drop was driven by lower sales in the Middle East (following record Q4 2013 levels), Mexico, Colombia, and Venezuela.
- Profitability: Despite lower sales, Net Income increased 5% sequentially and 1% year-over-year. Operating income rose 2% year-over-year due to a richer product mix and operational efficiencies.
- Regional Performance: North American sales increased 6% sequentially due to seasonal effects in Canada and Permian basin activity. South American sales fell 15% sequentially. Middle East & Africa sales declined 15% sequentially from exceptional prior levels.
- Financial Results: The company recorded a $42 million financial gain, primarily due to a $51 million foreign exchange gain from the devaluation of the Argentine peso.
- Tax Rate: The effective tax rate was 32.7%, negatively impacted by the Argentine peso devaluation on deferred tax calculations.
Guidance, Outlook, and Risks
- 2014 Outlook: Management expects full-year 2014 results to be in line with 2013 results.
- Market Drivers:
- U.S.: Drilling activity is picking up, particularly in the Permian basin, though Q1 was affected by cold weather. An anti-dumping trade case determination in H2 2014 will impact sales.
- Mexico: Sales expected to recover in H2 2014 as Pemex reorganizes and contracts additional rigs.
- South America: Shale activity increasing in Argentina; Brazil projects remain delayed, affecting line pipe and OCTG sales.
- Eastern Hemisphere: Drilling activity increasing in the Middle East and sub-Saharan Africa. An inventory adjustment is expected in the Middle East following high purchase levels.
- Risks: Forward-looking statements are subject to risks including uncertainties in future oil and gas prices and their impact on customer investment programs.
Investor Verification Checklist
- Verify the impact of the pending anti-dumping trade case determination on U.S. sales in the second half of 2014.
- Monitor the recovery timeline for Mexican sales as Pemex reorganizes and contracts new rigs.
- Assess the sustainability of the 27.8% EBITDA margin given the sequential sales decline.
- Review the extent of the inventory adjustment expected in the Middle East region.
- Confirm the net cash position of $1.3 billion against total borrowings to evaluate liquidity strength.