Tenaris S.A. Q3 2011 Financial Summary
Business Context and Reporting Period
This Form 6-K filing, dated November 4, 2011, reports the unaudited consolidated results for Tenaris S.A. for the quarter and nine months ended September 30, 2011. 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 (US$ Million) | Q3 2011 | Q3 2010 | 9M 2011 | 9M 2010 |
|---|---|---|---|---|
| Net Sales | 2,494.8 | 2,027.2 | 7,221.9 | 5,647.7 |
| Operating Income | 485.3 | 405.1 | 1,339.1 | 1,119.7 |
| Net Income | 365.5 | 302.7 | 994.4 | 819.9 |
| Shareholders' Net Income | 325.0 | 304.8 | 931.6 | 806.5 |
| EBITDA | 620.3 | 531.1 | 1,739.5 | 1,497.6 |
| EBITDA Margin | 25% | 26% | 24% | 27% |
| Cash Flow from Operations | 336.3 | 122.1 | 827.1 | 617.0 |
| Net Cash Position | 227.6 | N/A | 227.6 | N/A |
Dividend: The board approved an interim dividend of US$0.13 per share (US$0.26 per ADS), totaling approximately US$153 million, payable November 24, 2011.
Material Changes vs. Prior Period
- Revenue Growth: Q3 2011 net sales increased 23% year-over-year (YoY) and 4% sequentially. The nine-month period saw a 28% YoY increase.
- Profitability: Operating income rose 20% YoY in Q3, driven by an 18% sequential increase. This was primarily due to higher sales volumes and margin recovery in the Tubes segment, which offset a decline in the Projects segment.
- Segment Performance:
- Tubes: Net sales increased 20% YoY to US$2,150.3 million. Operating income rose 17% YoY to US$429.2 million, with margins recovering to 20%.
- Projects: Net sales decreased 29% sequentially to US$150.8 million due to delivery timing, though they were up 58% YoY. Operating income fell 47% sequentially.
- Others: Sales were flat sequentially but up 32% YoY.
- Financial Items: Other financial results swung from a loss of US$12.4 million in Q2 2011 to a gain of US$28.0 million in Q3 2011, largely due to foreign exchange gains from the revaluation of the U.S. dollar against the Brazilian real.
Guidance, Outlook, and Risks
Outlook: Management expects sales and operating income to continue improving in coming quarters, barring a substantial deterioration in the global economic situation. Drilling activity remains strong in North America and the Middle East, supported by high oil and gas prices. The new plant in Veracruz is ramping up operations.
Risks and Contingencies:
- Market Volatility: Concerns regarding the European financial crisis and a potential slowdown in China are creating economic uncertainty and commodity price volatility.
- Oil and Gas Prices: Future investment programs by oil and gas companies depend heavily on oil and gas prices.
- Project Timing: The Projects segment is subject to fluctuations based on the timing of project deliveries.
Investor Verification Checklist
- Verify the sustainability of the margin recovery in the Tubes segment given rising raw material costs.
- Monitor the impact of the European financial crisis and Chinese economic slowdown on future demand.
- Assess the volatility of foreign exchange gains/losses, particularly regarding the Brazilian real, which significantly impacted Q3 financial results.
- Confirm the ramp-up progress and utilization rates of the new Veracruz plant.
- Review the timing of project deliveries in the Projects segment to understand sequential revenue fluctuations.