Tenaris Earnings: Subdued Oil & Gas Activity Across the Americas Weighs on Third-Quarter Earnings

Tenaris’ TEN third-quarter results were weaker compared with a very strong first half, as subdued North American markets contributed to declining firm performance that commenced near the end of the second quarter. Total revenue dropped 21% quarter over quarter while the firmwide EBITDA margin contracted over 350 basis points to 31%. Reduced volumes and unfavorable pricing dynamics both contributed to the sequential decline, mainly due to subdued drilling and completion activity throughout North America. We expect these dynamics will persist through year-end but remain optimistic regarding Tenaris’ longer-term prospects, especially as international and offshore markets continue to deliver robust activity. We therefore maintain our $37 fair value estimate and no-moat rating following the results. Our euro-denominated fair value estimate increased slightly to EUR 17 from EUR 16 due to currency movements.

Tenaris’ product portfolio comprises more premium products that are generally less affected by pricing volatility. Reduced tube volumes were the major driver behind Tenaris’ weaker third-quarter performance, dropping 17% quarter over quarter compared with a 5% decline in average selling prices. Further price contractions are possible through year-end, but management indicated the market will likely stabilize over the next few months as customers work through inventories purchased earlier in the year. We expect heightened drilling and completion activity will improve volumes over the next few quarters, as well.