Morningstar | Tenaris Posts Mixed First Quarter; Our Fair Value Estimate Is Unchanged
Tenaris posted a mixed first quarter, with revenue down 11% sequentially, but adjusted operating margins increased slightly to 13.8% from 13.7% previously. Management issued a cautious outlook for 2019, with flat results in the first half owing to stalling North America activity but perhaps growth in the second half as international activity picks up. Our fair value estimate and no-moat rating are unchanged for now.In the company's largest segment, Tubes, revenue fell 11% due to a 13% decrease in volumes slightly offset by a 2% increase in average selling price. Geographically, the bulk of the revenue decrease was due to the Middle East region where the very large Zohr project winded down. However, North America sales also fell 8%. This is somewhat disappointing as North America drilling activity was essentially flat, and presumably Tenaris should be gaining market share as its new Bay City plant ramps up to full utilization (utilization was at 50% of target capacity in the second half of 2018).
Bottom-line results improved for Tenaris overall, and the Tubes segment operating income per ton sold increased to $289 per ton from $278 per ton in the fourth quarter. This was entirely due to about a $15 million ($19 per ton) benefit from a U.S. tariff exemption granted for the company's imports of steel inputs for use in its U.S. production.
Tenaris manufactures and supplies seamless steel pipe products for the global oil and gas industry, as well as other industrial applications. Co. operates an integrated worldwide network of steel pipe manufacturing, research, finishing, and service facilities with industrial operations in the Americas, Europe, Asia, and Africa. Co. produces pipes for boilers, heat exchangers, hydraulic cylinders, automotive, structural and other industrial applications and supplies welded steel pipes for oil and gas pipelines in the South American region. Its principal products include casing, tubing, line pipe, and mechanical and structural pipes. Co.'s organizes its business around one segment: Tubes.
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