Tenaris S.A. 2018 Fourth Quarter and Annual Results Summary
Business Context and Reporting Period
Tenaris S.A., a global manufacturer of tubular products and services for the oil and gas industry, reported its audited consolidated financial results for the fourth quarter and full year ended December 31, 2018. The filing, submitted on February 21, 2019, includes a press release detailing performance under International Financial Reporting Standards (IFRS) and non-IFRS measures such as EBITDA and Free Cash Flow.
Key Financial Metrics
| Metric | 4Q 2018 | 4Q 2017 | 12M 2018 | 12M 2017 |
|---|---|---|---|---|
| Net Sales ($ million) | 2,105 | 1,589 | 7,659 | 5,289 |
| Operating Income ($ million) | 179 | 168 | 872 | 335 |
| Net Income ($ million) | 225 | 162 | 874 | 536 |
| EBITDA ($ million) | 426 | 319 | 1,536 | 943 |
| EBITDA Margin | 20.2% | 20.1% | 20.1% | 17.8% |
| Cash Flow from Operations ($ million) | 239 | (13) | 611 | (22) |
| Free Cash Flow ($ million) | 163 | (134) | 261 | (580) |
| Net Cash Position ($ million) | 485 | 647 | 485 | 647 |
Material Changes vs. Prior Period
- Revenue Growth: Full-year 2018 net sales increased 45% year-over-year, driven by a 36% volume increase and 7% price increase. Fourth-quarter sales rose 32% year-over-year, fueled by North American demand and the completion of the second Zohr pipeline in the Eastern Mediterranean.
- Profitability: Full-year operating income surged 161% to $872 million. However, fourth-quarter operating income was impacted by a one-time $109 million amortization charge related to customer relationships from the 2006 Maverick acquisition. Excluding this charge, operating income would have increased 13% sequentially.
- Equity Earnings: Equity in earnings of non-consolidated companies (primarily Ternium) contributed $194 million in 2018, a 67% increase from 2017.
- Liquidity: Despite strong operating cash flow, the net cash position declined from $647 million in 2017 to $485 million in 2018 due to dividend payments of $484 million and capital expenditures of $349 million.
Guidance, Outlook, and Risks
Outlook: Management expects to consolidate sales and margins in 2019, aiming for levels consistent with the second half of 2018. While US drilling activity is expected to remain stable, Canadian activity is projected to be lower due to oil price resets. Growth is anticipated from premium offshore products and a new Saudi Arabia operation, offset by lower Canadian sales and the absence of exceptional Eastern Mediterranean line pipe shipments.
Dividends: The Board proposed an annual dividend of $0.41 per share ($0.82 per ADS), totaling approximately $484 million. This includes an interim dividend paid in November 2018, with the remaining balance payable in May 2019.
Risks: Forward-looking statements are subject to risks including uncertainties in future oil and gas prices, which directly impact investment programs by oil and gas companies. Currency fluctuations, particularly in Argentina, Mexico, and Canada, also present financial risks.
Investor Verification Checklist
- Verify the impact of the $109 million one-time amortization charge on operating income and SG&A expenses.
- Confirm the sustainability of the 45% sales growth given the expected decline in Canadian drilling activity and the one-time nature of the Zohr pipeline deliveries.
- Review the $194 million contribution from the equity investment in Ternium to assess reliance on non-operating income.
- Monitor the net cash position of $485 million against the proposed $484 million annual dividend payout to ensure liquidity adequacy.
- Assess the exposure to currency devaluation in Argentina, which resulted in a $29 million FX gain in 2018 but poses a risk for future periods.