Tenaris Earnings: Strong End-Market Demand and Favorable OCTG Pricing Drive Strong Fiscal First Half

Tenaris’ TEN second-quarter results rounded out an overall robust first half for the firm. Revenue expanded 45% year over year but contracted slightly compared with last quarter, reflecting decelerating drilling and completions activity in North America that will likely persist through year-end. Lower sales volumes contributed to a slightly contracted EBITDA margin, which dropped about 100 basis points to 35%. Continued activity declines in North America—composing more than 50% of overall sales—will likely elicit further weakness from Tenaris in the second half, though we expect heightened international and offshore activity will slightly offset these headwinds. We maintain our $37 per share fair value estimate (EUR 16, down from EUR 20 due to foreign-exchange movements) and no-moat rating following results.

The prevailing pricing environment for oil country tubular goods, or OCTG, remains favorable and well above prepandemic levels for both welded and seamless tubing. Data from Rystad Energy indicates premium seamless tubing currently commands around $5,000 per metric ton, compared with $2,000 per metric ton in January 2020. High pricing has helped to offset Tenaris’ normalized sales volumes mix, which returned to prepandemic averages of roughly 25% welded, 75% seamless tubing in the first half of 2023. Generally, seamless pipes command nearly $1,000 more per metric ton compared with welded products, and seamless products contributed 90% of Tenaris’ sales volumes in 2021 and 2022 due to widespread supply chain constraints, since resolved.