Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Tenaris SA (TS, Financial) reported strong free cash flow of $774 million for the second quarter.
- The company maintained a robust net cash position of $3.8 billion at the end of the quarter.
- Tenaris SA (TS) renewed its long-term contract for shale operations in the Gulf of Mexico and secured new contracts with ExxonMobil and Woodside.
- The company is making significant investments in technology and infrastructure, including a new electric arc furnace in Argentina and a second wind farm.
- Despite market challenges, Tenaris SA (TS) has a positive outlook on future demand, particularly in offshore projects and the Middle East.
Negative Points
- Second-quarter sales were down 18% year-on-year and 3% sequentially, primarily due to lower volumes and average selling prices.
- EBITDA for the quarter decreased by 34% sequentially to $650 million, impacted by lower selling prices and an extraordinary provision for ongoing litigation.
- The company expects sales volumes to be 10% to 15% lower in the second half of the year compared to the first half.
- High levels of OCTG imports, particularly from Asian countries, are affecting pipe prices and causing damage to the domestic industry in the United States.
- Uncertainties in Mexico's energy policy and Argentina's macroeconomic environment are limiting drilling investments, affecting sales in these regions.
Q & A Highlights
Q: Could you talk more about the progression of margin in the back half of the year?
A: We expect pipe logic to stabilize, although imports remain higher than anticipated. We foresee margins stabilizing around the lower end of the 20%-25% range in the second half. (Paolo Rocca, Chairman & CEO; Luca Zanotti, President - United States)
Q: Are we seeing a paradigm shift in the US market with fewer drilling operations but higher production?
A: We don't see structural reasons discouraging investment. High interest rates and consolidation are temporary factors. The main issue is the high level of imports, which we expect to decrease. (Paolo Rocca, Chairman & CEO; Luca Zanotti, President - United States)
Q: Will there be a new share buyback announcement with the November results?
A: We are completing the current buyback program. The Board will decide in November whether to continue or expand the program based on the current environment and circumstances. (Paolo Rocca, Chairman & CEO)
Q: Can you elaborate on the destocking trends in the Middle East and the impact on second-half volumes?
A: Drilling activity remains strong, but NOCs are rebalancing inventories, leading to a destocking trend. This will affect our shipments in the second half. (Paolo Rocca, Chairman & CEO; Gabriel Podskubka, Chief Operating Officer)
Q: What are your thoughts on capital allocation given the $3.8 billion net cash position?
A: We are open to share buybacks and dividends while looking for high-return investment opportunities within our sector. If no opportunities arise, the Board will decide the best course of action. (Paolo Rocca, Chairman & CEO)
Q: What can we expect from the Investor Day in September?
A: We will present our current position, market outlook, industrial changes, and capital allocation strategy. This will provide a comprehensive overview of our future direction. (Paolo Rocca, Chairman & CEO)
Q: What is the timeline for the litigation provision related to Usiminas?
A: The litigation will take time to resolve. We plan to defend our position through all available motions and appeals. The final payout, if any, will be determined by a lower court in a separate proceeding. (Paolo Rocca, Chairman & CEO)
Q: Can you elaborate on the cost reduction measures and their expected impact?
A: We aim to achieve savings of around $200 million per year by June 2025 through automation, process renewal, and restructuring. This will help us maintain efficiency and productivity. (Paolo Rocca, Chairman & CEO)
Q: How do you expect working capital to evolve in the second half of the year?
A: Working capital will continue to support our cash flow, although not at the same volume as in the second quarter. We are reducing inventory and improving collections. (Paolo Rocca, Chairman & CEO)
Q: What is your outlook for sales and profitability entering 2025?
A: We have partial visibility into 2025. The fundamentals in international markets, including the Middle East and offshore, are positive. However, the exact impact will depend on various factors, including election outcomes and interest rates. (Paolo Rocca, Chairman & CEO; Luca Zanotti, President - United States; Gabriel Podskubka, Chief Operating Officer)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
