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Tenaris SA Earnings - Analysis & Highlights for Q4 2024
Overview
PositivesNegativesOutlook
- EBITDA for Q4 was up 6% sequentially to $726 million, and the EBITDA margin increased to 25.5%, reflecting the partial reversal of a provision for ongoing litigation relating to the acquisition of a participation in Usiminas.
- The company delivered a solid financial result accompanied by higher returns for shareholders and completed a number of investments which are improving industrial efficiency and reducing environmental footprint.
- The company is proposing to increase the annual dividend per share by 38% over that for the previous year.
- The company has consolidated its leading position in the Guyana-Suriname Deepwater Basin, with an award to supply line pipe and insulation coating for Total GranMorgu development.
- The company has strengthened its service differentiation with major shale operators in North America, who pride the operational efficiency, reliability, and quality that the company provides through its Rig Direct service.
- Average selling prices in the Tubes operating segment decreased by 7% YoY and 1% sequentially.
- The company is heading into uncharted territories when it comes to geopolitics and the global trading system with the change in the administration in the United States.
- The company is facing a major setback due to an accident in the heavy equipment maintenance shop of its main plant in Argentina.
- The company is producing a large part of its steel but not all of it, and may be paying tariff on some of the steel it imports.
- The company expects to make progress towards its target to reduce the carbon emission of its operation.
- The company expects an increase in its margin in the first half and the second semester.
- The company expects the administration to monitor carefully the volume coming from different sources with the aim of defending the interest of the domestic industry.
- The company expects the first quarter to have a margin more or less in line with the margin of the 4Q.
Q&A Highlights from Tenaris SA Earnings Call Q4 2024
- Analyst asked about the impact of 25% tariffs on imported steel tubulars on Section 232 quotas and OCTG pricing.
- Paolo Rocca, CEO of Tenaris, explained that the implementation of 25% tariffs on imported steel tubulars under Section 232 is expected to have an impact on different aspects, including an increase in prices in the US market due to the relevant share of imported OCTG products. He also mentioned that the 232 quota is intended to support the domestic industry and defend its interest, and Tenaris is well-positioned to manage the situation as they produce most of their pipes in the US.
- Paolo Rocca, CEO of Tenaris, explained that the implementation of 25% tariffs on imported steel tubulars under Section 232 is expected to have an impact on different aspects, including an increase in prices in the US market due to the relevant share of imported OCTG products. He also mentioned that the 232 quota is intended to support the domestic industry and defend its interest, and Tenaris is well-positioned to manage the situation as they produce most of their pipes in the US.
- Analyst asked about the possibility of a marginal improvement in margins in Q2 and the potential for margins to recover to 25% at some point during 2025.
- Paolo Rocca replied that they expect margins to increase from their current levels, but gave no specific targets for Q2 or 2025.
- Paolo Rocca replied that they expect margins to increase from their current levels, but gave no specific targets for Q2 or 2025.
- Analyst asked about the pace of activity recovery in Mexico and the company's outlook for the first half of 2025.
- Paolo Rocca, CEO of Tenaris SA, explained that the activity in oil and gas in Mexico has been reduced due to Pemex's decision to reduce investment and production. He mentioned that Pemex has lost production at a rate of around 50,000 barrels a day per month and has reduced the number of rigs from 65 to 23. Rocca believes that this reduction in activity is unsustainable and that the new administration's policy will eventually lead to a recovery. He expects a new policy to be implemented in the second half of 2025, which will take time to recover, but will inevitably happen considering the financial constraints.
- Paolo Rocca, CEO of Tenaris SA, explained that the activity in oil and gas in Mexico has been reduced due to Pemex's decision to reduce investment and production. He mentioned that Pemex has lost production at a rate of around 50,000 barrels a day per month and has reduced the number of rigs from 65 to 23. Rocca believes that this reduction in activity is unsustainable and that the new administration's policy will eventually lead to a recovery. He expects a new policy to be implemented in the second half of 2025, which will take time to recover, but will inevitably happen considering the financial constraints.
- Analyst asked about the company's expectation for demand in the US rig count recovery and the outlook for the rest of the year.
- Luca Zanotti, CFO of Tenaris SA, explained that the company sees a different behavior in the major and large independent, who are still very disciplined and rationalizing their operations. However, he noted that smaller independent and private operators are showing more interest in gas-linked LNG approvals, and the company sees this as a positive development. Zanotti believes that this trend will continue and consolidate even further in 2025.
- Luca Zanotti, CFO of Tenaris SA, explained that the company sees a different behavior in the major and large independent, who are still very disciplined and rationalizing their operations. However, he noted that smaller independent and private operators are showing more interest in gas-linked LNG approvals, and the company sees this as a positive development. Zanotti believes that this trend will continue and consolidate even further in 2025.
- Analyst asked about the pockets of strength and activity softness in Saudi Arabia and the Middle East.
- The company sees a drilling activity that is fairly stable at a very strong level in the Middle East, with a focus on gas. Gas is a very resilient and growing area, with expansion of LNG in Qatar, UAE, and targets of self-sufficiency in GCC countries. On the oil side, there is idle capacity of crude production in the Middle East, with different countries and companies taking different decisions. UAE is expanding capacity of crude production, while Saudi Arabia is softening some of the drilling associated with oil, especially in offshore oil. The company sees the Middle East as a point of strength for Tenaris, with a rebound expected in early 2025.
- The company sees a drilling activity that is fairly stable at a very strong level in the Middle East, with a focus on gas. Gas is a very resilient and growing area, with expansion of LNG in Qatar, UAE, and targets of self-sufficiency in GCC countries. On the oil side, there is idle capacity of crude production in the Middle East, with different countries and companies taking different decisions. UAE is expanding capacity of crude production, while Saudi Arabia is softening some of the drilling associated with oil, especially in offshore oil. The company sees the Middle East as a point of strength for Tenaris, with a rebound expected in early 2025.
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