Tenaris S.A. (TS) Q3 2025 Earnings Call Transcript
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Overview
The earnings call presents a mixed outlook. Financial performance shows strong sales and a positive cash position, but margins are expected to decline due to tariffs. The Q&A reveals concerns about future EBITDA impacts and uncertainties in guidance, yet there's optimism in market expansions and shareholder returns. The strategic plan indicates potential growth in 2026, but short-term challenges remain. Overall, the sentiment is balanced, leading to a neutral prediction for stock price movement.
Key Financial Performance
Third quarter sales $3 billion, up 2% year-on-year, but down 3% sequentially. The year-on-year increase was mainly due to resilient sales to rig direct customers in the U.S. and Canada, while the sequential decline was due to lower sales to the North Sea and lower shipments for offshore line pipe projects in the Middle East.
Average selling prices in Tubes operating segment Decreased 1% compared to the corresponding quarter of last year and 1% sequentially. The decline reflects market conditions.
EBITDA for the quarter $753 million, up 3% sequentially. The increase includes a $34 million gain from the return of U.S. antidumping deposits paid on OCTG imports from Argentina. Without this one-off gain, EBITDA would have been $719 million or 24% of sales.
EBITDA margin 25% for the quarter. Without the one-off gain, it would have been 24% of sales.
Operating cash flow $318 million for the quarter.
Capital expenditure $185 million for the quarter.
Free cash flow $133 million for the quarter, after accounting for operating cash flow and capital expenditure.
Net cash position $3.5 billion at the end of the quarter, a decline due to share buybacks amounting to $351 million.
Interim dividend per share $0.29 per share or $0.58 per ADR, up 7% compared to the interim dividend per share paid last year.
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Operating Highlights
Rig Direct services: Expanded scope in Canada with a new service yard in British Columbia. The mill in Sault Ste. Marie is ramping up production to support operations in the Montney shale and LNG export to Asia.
Offshore projects: Supplying coated seamless risers, flow lines, and welded line export line and casing for TPAO Sakarya deepwater development in the Black Sea. Building a strong offshore order backlog for deliveries starting mid-next year.
Energy production in Argentina: Started operations at a new 95-megawatt wind farm, complementing an existing 100-megawatt wind farm. These facilities now power the Campana steel shop and pipe facility entirely with renewable energy.
North America market: Maintained sales levels in the U.S. and Canada despite a slowdown in overall drill rig activity, supported by efficient operations and strong customer portfolio.
Canadian market expansion: Celebrated 25 years of operations in Canada. Expanded Rig Direct services and increased production to support the Montney shale and LNG export to Asia.
Offshore market: Gearing up for major offshore projects like GranMorgu in Suriname and TPAO Sakarya in the Black Sea, with a growing offshore order backlog.
Operational efficiency in North America: Mills in Bay City, Hickman, and Sault Ste. Marie operated at record production levels with high efficiency.
Sustainability in Argentina: Achieved 100% renewable energy usage for operations in Campana through wind farms and a thermal electric plant.
Global industrial flexibility: Leveraging a flexible global industrial system to produce locally in various regions while maintaining high quality standards.
Sustainability initiatives: Invested in renewable energy projects like wind farms in Argentina to reduce carbon emissions and improve operational sustainability.
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Risk or Challenges
Lower sales in North Sea and Middle East: Sales declined due to reduced shipments for offshore line pipe projects in the Middle East and lower sales to the North Sea, impacting revenue.
Decreasing average selling prices: Average selling prices in the Tubes segment decreased by 1% year-on-year and sequentially, potentially affecting profitability.
High tariff rates and trade restrictions: Tariff rates and trade restrictions necessitate increased local production in the U.S. and Canada, which could increase operational costs.
Slowing drill rig activity in U.S. and Canada: Overall drill rig activity has slowed, which could impact future sales and operational efficiency.
Dependence on offshore projects: The company relies on offshore projects, which are subject to delays and uncertainties in final investment decisions (FID).
Economic and political risks in Argentina: Operations in Argentina are influenced by political and economic conditions, which could affect financing and development of the Vaca Muerta shale play.
Volatile global steel market: China's increasing steel exports and Europe's safeguard measures create a volatile market environment, impacting operations and pricing.
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Guidance & Outlook
Offshore Projects: Tenaris is building a strong offshore order backlog for deliveries starting from the middle of next year, including contributions to the GranMorgu development in Suriname and the TPAO Sakarya deepwater development in the Black Sea. The company is also anticipating the confirmation of other major offshore project FIDs.
Canadian Operations: The company is ramping up production at its Sault Ste. Marie mill to support the development of the Montney shale and LNG exports to Asia. A new service yard has been opened in British Columbia to extend Rig Direct services in the region.
Argentina Operations: The Congressional midterm election results are improving financing conditions for the Vaca Muerta shale play. Additional rigs are being deployed, and local companies are raising fresh dollar financing. Tenaris has also started operations at a new 95-megawatt wind farm, aiming to power its Campana operations entirely with renewable energy.
European Operations: The production line for boiler and heat exchanger pipes in Europe is operating at full capacity. Strengthened steel safeguard measures in Europe are expected to benefit Tenaris' operations in the region.
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Shareholder Return Plan
Interim Dividend: The Board of Directors approved the payment of an interim dividend of $0.29 per share or $0.58 per ADR to be paid on the 26th of November. This represents a 7% increase compared to the interim dividend per share paid last year.
Share Buybacks: The company executed share buybacks amounting to $351 million during the quarter.
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Key Q&A
Q:What are the implications of the Argentinian elections for Tenaris, particularly in the energy sector?
A:The Argentinian elections marked a turning point with the victory of President Milei's party, which has improved investor perception and financial community confidence. This has led to a 30% increase in the stock exchange and a 400 basis point reduction in country risk. Oil companies now have enhanced access to foreign financing, stimulating investment in Vaca Muerta and long-term projects like the NEI LNG project. Tenaris anticipates increased rig activity in Argentina in 2026 and 2027.
Q:How are margins expected to trend in the fourth quarter, particularly in the U.S.?
A:Margins are expected to be slightly lower in the fourth quarter due to the impact of tariffs on steel imports. Inventory levels remain high, and the full effect of the 50% tariff has not yet been realized. Prices are expected to recover as inventory levels normalize, and the market becomes more balanced.
Q:What drove the strong sales in the third quarter, particularly in welded sales?
A:Strong sales in the third quarter were driven by OCTG in the U.S. and the delivery of pipes for the VMOS pipeline in Argentina. The VMOS pipeline is a major project enhancing the evacuation of Vaca Muerta oil. Welded sales are expected to normalize in the fourth quarter as pipeline deliveries decrease.
Q:What is the outlook for shareholder distributions and buybacks?
A:The company plans to execute the second tranche of its buyback program and maintain a dividend level similar to the previous year. The Board will decide on future buybacks after completing the current tranche. The company has delivered an 11% return to shareholders, reflecting strong performance.
Q:What is the expected impact of additional tariffs on EBITDA in the fourth quarter?
A:The additional tariffs are expected to increase costs by $40 million in the fourth quarter, leading to a single-digit percentage decline in adjusted EBITDA. The company is working to mitigate tariff impacts by increasing domestic production and negotiating tariff reductions with the U.S.
Q:What is the outlook for the Middle East and offshore markets in 2026?
A:The Middle East market is expected to remain stable, with potential rig activity increases in Saudi Arabia and ongoing pipeline projects like the CCS pipeline. Offshore markets are building a strong backlog for 2026, with projects like Sakarya Phase 3 and others in Brazil and Sub-Saharan Africa.
Q:What is the outlook for Mexico in 2026?
A:Mexico's outlook is improving with projects like Trion and new PEMEX contracts. PEMEX's financial situation has stabilized after a $12 billion refinancing, allowing for better payment to suppliers. Private company activity is also expected to increase, contributing to higher volumes in 2026.
Q:What is the impact of unconventional resource plays in Saudi Arabia and UAE on Tenaris?
A:Unconventional resource plays like Jafurah in Saudi Arabia and projects in the UAE are expected to drive growth. Tenaris is well-positioned in these markets, supplying seamless and welded pipes, and expects increased activity in these regions over the next few years.
Q:What is the profitability comparison between U.S. and international markets?
A:Profitability is more influenced by product mix rather than region. High-margin products include offshore line pipes with insulation, while lower-margin products include onshore welded line pipes. The U.S. market shows an average profitability level with variations based on product type.
Q:What caused the increase in working capital in the third quarter?
A:The increase in working capital was driven by delayed payments from PEMEX and higher inventory costs due to tariffs. The company expects PEMEX payments to improve in the fourth quarter, reducing working capital needs.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the sustainability of the current buyback level for 2026, stating that it would be up to the Board to decide after completing the current tranche. Additionally, they did not provide a clear forecast for Q1 2026, citing uncertainties around tariffs and negotiations with the U.S. on steel imports.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
ADR th
Argentina duty
Canada selling
Conference Instructions
Conference information
Directors payment
East Tenaris
North Sea
OCTG import
Officer Chief
Officer President
Officer opening
President level
Relations Officer
Sea shipment
Tenaris Conference
deposit OCTG
dividend share
duty rate
end Directors
flow share
gain return
gain sale
import Argentina
level sale
margin gain
payment dividend
project Middle
rate gain
return deposit
rig Canada
sale North
sale cash
sale rig
segment margin
share ADR
share dividend
share word
shipment line
th dividend
today Investor
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The earnings call presents a mixed outlook. Financial performance shows strong sales and a positive cash position, but margins are expected to decline due to tariffs. The Q&A reveals concerns about future EBITDA impacts and uncertainties in guidance, yet there's optimism in market expansions and shareholder returns. The strategic plan indicates potential growth in 2026, but short-term challenges remain. Overall, the sentiment is balanced, leading to a neutral prediction for stock price movement.
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