Tenaris S.A. Q1 2013 Financial Summary
Business Context and Reporting Period
This Form 6-K filing, dated May 3, 2013, reports the unaudited consolidated financial results for Tenaris S.A. for the quarter ended March 31, 2013. 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 | Q1 2013 | Q4 2012 | Q1 2012 |
|---|---|---|---|
| Net Sales ($ million) | 2,678 | 2,758 | 2,617 |
| Operating Income ($ million) | 554 | 586 | 566 |
| Net Income ($ million) | 423 | 350 | 448 |
| Shareholders' Net Income ($ million) | 425 | 358 | 439 |
| EBITDA ($ million) | 699 | 733 | 704 |
| EBITDA Margin | 26.1% | 26.6% | 26.9% |
| Earnings per ADS ($) | 0.72 | 0.61 | 0.74 |
| Cash from Operations ($ million) | 563 | 347 | 608 |
| Capital Expenditures ($ million) | 184 | 202 | 196 |
| Net Cash Position ($ million) | 121 | N/A | N/A |
Material Changes vs. Prior Periods
- Revenue: Net sales decreased 3% sequentially to $2,678 million but increased 2% year-over-year. The sequential decline was driven by lower sales in South America and lower market prices in North America, partially offset by higher premium OCTG sales in Saudi Arabia and Sub-Saharan Africa.
- Profitability: Operating income fell 5% sequentially to $554 million. However, Net Income rose 21% sequentially to $423 million, primarily due to a significant improvement in equity earnings from associated companies (Ternium and Usiminas), which swung from a $108 million loss in Q4 2012 to a $12 million gain in Q1 2013.
- Regional Performance: North American sales dropped 10% year-over-year due to lower prices and mix, while Middle East & Africa sales surged 42% year-over-year. South American sales grew 29% year-over-year but declined 14% sequentially.
- Liquidity: The company maintained a net cash position of $121 million at quarter-end. Total borrowings decreased slightly compared to the prior quarter.
Outlook, Risks, and Management Commentary
- Market Outlook: Management expects drilling activity in North America to slow further in Q2 due to the Canadian break-up but to recover by year-end. Global activity outside North America is expected to increase slowly.
- Regional Risks: Sales of line pipe in Brazil are expected to be impacted by project execution delays in the second half. European industrial customers face continued weak economic activity.
- Guidance: Sales and margins for the remainder of 2013 are expected to remain close to current levels. Management anticipates product mix improvements will help offset lower prices in less differentiated segments.
- Risks: Forward-looking statements are subject to risks including uncertainties in future oil and gas prices and their impact on investment programs by oil and gas companies.
Investor Verification Checklist
- Verify the sustainability of the $12 million gain from equity in associated companies, given the $108 million impairment loss recorded in the prior quarter.
- Monitor the impact of the Canadian break-up on North American sales volumes in Q2 2013.
- Assess the timeline and financial impact of project execution delays in Brazil's line pipe sector.
- Confirm the trajectory of oil and gas prices to validate the assumption that global drilling activity will continue to increase slowly.
- Review the composition of the "Net Cash Position" to ensure liquidity remains sufficient given the $184 million quarterly capital expenditure run rate.