Tenaris S.A. Q1 2009 Financial Summary
Business Context and Reporting Period
This Form 6-K filing, dated May 8, 2009, reports the unaudited consolidated results for Tenaris S.A. for the quarter ended March 31, 2009. Tenaris is a global manufacturer of steel pipes and tubes for the oil and gas industry. The results are presented in U.S. dollars in accordance with IFRS.
Key Financial Metrics
| Metric | Q1 2009 | Q1 2008 | Change |
|---|---|---|---|
| Net Sales | $2,449.5 million | $2,626.2 million | (7%) |
| Operating Income | $678.1 million | $710.9 million | (5%) |
| Net Income | $393.1 million | $500.0 million | (21%) |
| Shareholders' Net Income | $366.0 million | $473.0 million | (23%) |
| Earnings per ADS | $0.62 | $0.80 | (23%) |
| EBITDA | $799.8 million | $845.4 million | (5%) |
| EBITDA Margin | 33% | 32% | +100 bps |
| Net Financial Debt | $781.7 million | $1,392.4 million* | Decreased $610.7M |
| Cash from Operations | $763.4 million | $568.9 million | +34% |
*Q1 2008 net debt calculated as Total Debt ($2,977.0M) less Cash ($1,584.6M approx based on Q1 2008 cash flow start/end logic, though filing explicitly states Q1 2009 net debt decreased by $610.7M to $781.7M from Q4 2008 levels. The filing does not explicitly state Q1 2008 net debt, only the Q1 2009 reduction from Q4 2008.
Material Changes vs. Prior Period
- Revenue Decline: Net sales fell 7% year-over-year due to a 30% drop in total sales volume (777,000 tons vs. 1,105,000 tons), partially offset by higher average selling prices.
- Volume Drivers: Seamless tube volumes dropped 16%, while welded tube volumes plummeted 61%. Project pipe sales decreased 36%.
- Profitability: Operating income declined 5% year-over-year. However, operating income increased 21% sequentially from Q4 2008 ($559.3M) due to price realizations.
- Equity Investment Impact: Net income was significantly impacted by a loss of $8.5 million in equity earnings from associated companies (primarily Ternium), compared to a gain of $50.0 million in Q1 2008.
- Regional Performance: North American sales rose 22% due to price increases despite volume declines. European sales fell 41% due to Chinese imports and reduced industrial activity.
- Debt Reduction: Net financial debt decreased by $610.7 million to $781.7 million, driven by a $527.7 million reduction in inventories.
Outlook, Risks, and Management Commentary
- Market Conditions: Global oil prices stabilized around $50/barrel, but North American gas prices fell to ~$3.50/MMBTU. The U.S. rig count dropped 53% from its September 2008 peak.
- Demand Risks: Demand is suppressed by drilling declines, customer procurement delays, and high inventory levels caused by Chinese OCTG imports in the U.S. and Canada.
- Cost Outlook: Raw material costs for seamless pipes are expected to decline slightly. However, North American welded product costs remain high due to low production levels and previously procured steel.
- Guidance: Management expects lower sales and EBITDA levels in coming quarters due to decreased apparent demand and declining prices.
- Unusual Items: The "Others" segment reported a loss of $10.7 million (vs. $22.2M profit in Q1 2008) due to losses in U.S. electric conduits and Venezuelan HBI operations. Foreign exchange fluctuations contributed to a $37.2 million loss in other financial results.
Investor Verification Checklist
- Verify the sustainability of the 33% EBITDA margin given the expected decline in selling prices and volume.
- Monitor the U.S. and Canadian rig counts and inventory levels of Chinese OCTG imports as leading indicators for North American demand.
- Assess the impact of the $527.7 million inventory reduction on future working capital needs and potential write-downs.
- Review the performance of the equity investment in Ternium, which caused a significant swing in net income compared to the prior year.
- Track the progress of the new rolling mill in Mexico, which drove a 35% increase in capital expenditures to $119.8 million.