Tenaris SA Earnings - Q1 2025 Analysis
Positives
- EBITDA margin increased to 24% due to good operating performance and better absorption of fixed and semi-fixed costs.
- Net cash position increased to $4 billion due to share buybacks of $237 million during Q1.
- EBITDA rose by 6% on a comparable basis, and net income remained in line with the results of the previous quarter.
- The company began 2025 with a good performance in Q1.
Q&A Highlights - Q1 2025
Analyst asked about the visibility for Q3 and whether lower oil prices could impact Q3.
Paolo Rocca, CEO of Tenaris, stated that if oil prices remain at the current level, around or below $60, the company may see a reduction in CapEx from oil companies, which could impact Q3. However, he noted that there is still high uncertainty in the evolution of the main variables, and everything is on the move.
Analyst asked about the offshore component of Tenaris's volumes and whether it is expected to grow later this year or in 2026.
Gabriel Podskubka, Chief Commercial Officer of Tenaris, stated that the offshore market is very important for the company and has a high degree of resiliency in an environment of high uncertainty. He mentioned that Tenaris is an absolute leader in this space and has been selected to be the supplier of choice for one of the recent FIDs, the Shell Bonga project in Nigeria. The company will deliver a full supply of subsea pipeline and risers, as well as insulation coating services, and will also be the leading supplier of OCTG for the 25 wells required for this development. This is just one example of the contracts or backlog that Tenaris has for offshore, which is quite high and will continue to be a strong segment for the company in the near future. He also noted that the short-term volatility in oil prices is not expected to affect the development of the projects that are already sanctioned, as these projects have been sanctioned with a long-term horizon.
Analyst asked about the situation with Pemex and the company's exposure to the company.
The company has been able to reduce its exposure to Pemex through operations that allow for a substantial reduction in working capital and cash flow. However, the situation with Pemex continues to deteriorate, and the company maintains the position that it is unsustainable. The government has presented a plan for refinancing and developing resources, but the company has not yet seen any action from Pemex to implement this plan.
Analyst asked about the timing of a reversal in price due to low activity, specifically if it would be in the third quarter.
The company's Rig Direct model has some inertia, and it is not easy to project the dynamic in the second half due to factors such as tariffs and quota. The company has seen a 10% increase in prices in the market, and the Pipe Logix has been growing slowly but moving on, even this month. The company does not expect any impact on pricing in the third quarter, but it could start to affect the P&L in the fourth quarter. However, it is too early to say, and the company is expecting to hear from clients about their decisions regarding the second half in May.
Analyst asked about the possibility of frontloading of budgets by E&P operators to order steel OCTG ahead of tariff impact and other potential impacts.
Paolo Rocca, CEO of Tenaris, explained that the company's business model, Rig Direct, invoices directly when the pipe is used, and the majority of their clients operate in this way. Therefore, the company does not anticipate orders and copies the exact level of operation. While there may be some anticipation of orders in line pipe, Rocca stated that the company does not have the space for anticipating orders. Rocca also mentioned that the company's Rig Direct model in Canada is expanding, and they are copying the level of operation in Canada without seeing any anticipation of sales. Rocca explained that the company is making a positive forecast for the second quarter due to their portfolio stability and the ability to predict the combination of volume and price in that region. However, Rocca acknowledged that predicting the second half of the year is more difficult, as the company may need to recalculate and reorganize their development plans. Rocca also mentioned that the company will better understand the perspective at the end of the second quarter and if the administration will limit imports and the economy and oil expectations remain pessimistic.
