Tenaris S.A. Q3 2013 Financial Summary
Business Context and Reporting Period
Tenaris S.A., a global manufacturer of tubular products and services for the oil and gas industry, reported unaudited consolidated results for the quarter and nine months ended September 30, 2013. The filing, submitted on November 13, 2013, compares performance against the second quarter of 2013 and the third quarter of 2012.
Key Financial Metrics
| Metric | Q3 2013 | Q2 2013 | Q3 2012 | 9M 2013 | 9M 2012 |
|---|---|---|---|---|---|
| Net Sales ($ million) | 2,415 | 2,829 | 2,657 | 7,923 | 8,076 |
| Operating Income ($ million) | 464 | 578 | 584 | 1,595 | 1,771 |
| Net Income ($ million) | 314 | 430 | 434 | 1,167 | 1,338 |
| Shareholders' Net Income ($ million) | 300 | 418 | 433 | 1,143 | 1,328 |
| EBITDA ($ million) | 622 | 730 | 679 | 2,050 | 2,142 |
| EBITDA Margin | 25.7% | 25.8% | 25.6% | 25.9% | 26.5% |
| Earnings per ADS ($) | 0.51 | 0.71 | 0.73 | 1.94 | 2.25 |
| Cash Flow from Operations ($ million) | 753 | 611 | 491 | 1,928 | 1,514 |
| Net Cash Position ($ million) | 785 | 214 | N/A | 785 | (271) |
Material Changes vs. Prior Periods
- Revenue Decline: Q3 net sales decreased 15% sequentially and 9% year-over-year. The decline was driven by project delays affecting line pipe shipments in Brazil, a less favorable mix of OCTG products, and lower sales in the Middle East and Africa.
- Profitability Pressure: Operating income fell 20% sequentially and 21% year-over-year. Net income dropped 27% sequentially and 28% year-over-year.
- Tax Impact: Net income was negatively affected by a $45 million deferred income tax provision resulting from a new 10% withholding tax on dividend distributions enacted in Argentina in September 2013.
- Working Capital: Cash flow from operations improved significantly to $753 million in Q3, aided by a $239 million reduction in working capital, primarily due to lower trade receivables.
- Liquidity Improvement: The company moved from net debt of $271 million at the start of the year to a net cash position of $785 million by September 30, 2013.
Guidance, Outlook, and Risks
- Market Outlook: Management expects strong sales levels in the Middle East and Africa and rising sales in North America for Q4 2013 and 2014, supported by stable oil and gas prices. South American line pipe sales remain constrained by project delays in Brazil, though OCTG sales are expected to increase due to shale activity in Argentina.
- Margin Expectations: EBITDA margins are expected to remain stable, with overall EBITDA levels increasing in line with sales.
- Dividend: The board approved an interim dividend of $0.13 per share ($0.26 per ADS), totaling approximately $153 million, payable November 21, 2013.
- Risks: Forward-looking statements are subject to risks including uncertainties in future oil and gas prices and their impact on operator investment programs. Specific operational risks include continued project delays in Brazil and competitive pressures in North America.
Investor Verification Checklist
- Verify the impact of the new Argentine 10% withholding tax on future dividend repatriation and deferred tax liabilities.
- Monitor the status of delayed line pipe projects in Brazil and their effect on Q4 and 2014 shipment volumes.
- Assess the sustainability of the $785 million net cash position given capital expenditure plans and dividend commitments.
- Review the competitive landscape in North America for line pipe products, which contributed to sequential sales declines.
- Confirm the timeline for the alliance with YPF in Argentina and its effect on OCTG inventory management and sales.