Tenaris S.A. Q2 FY2025 earnings call

• Quarterly results showed solid industrial and commercial position with sales, EBITDA, and net income rising sequentially despite slowing drilling activity in some areas.
• Tariffs: U.S. Section 232 tariff on steel imports increased to 50%, creating market uncertainty, but Tenaris is well-positioned with strong U.S. domestic production base.
• Project highlights: Successful deliveries to complex line pipe projects globally (e.g., Equinor Raia in Brazil, ConocoPhillips Willow in Alaska). In Suriname, awarded casing and tubing supply for GranMorgu project. In Vaca Muerta, supplying casing, tubing, fracking, and coil tubing services, with pipeline deliveries ongoing. In Mexico, Pemex's $12 billion financing facility is a positive step for increased operations.
• Market dynamics: Offshore market has positive outlook with resilient deepwater drilling rigs and ongoing new project discussions; U.S. and Canada sales resilient due to solid customer portfolio.

Second quarter sales reached $3.1 billion, down 7% year-on-year but up 6% sequentially. The Tubes operating segment had average selling prices that decreased 2% compared to the corresponding quarter of last year but increased 6% sequentially. EBITDA for the quarter was $733 million, with an EBITDA margin close to 24%. Operating cash flow was $673 million, capital expenditure was $135 million, resulting in free cash flow of $538 million. Net cash position at the end of the quarter was $3.7 billion.

• Second half 2025: Third quarter sales expected to be lower due to factors like lower invoicing in fracking operation and lower line pipe shipments; fourth quarter visibility less clear. Margin expected to be slightly below current quarter but between 20%-25% in Q3. Pipeline offshore deliveries in second half lower but confident of strong contribution in 2026. - Third quarter sales expected to have high single-digit decline in invoicing. - Margin in Q3 expected to be slightly below current quarter but between 20%-25%. - Pipeline projects in Suriname, Vaca Muerta, etc., with timelines for deliveries.

• Tariff negotiations: Uncertainty due to ongoing reciprocal tariff negotiations, which may change the competitive environment and impact prices once excess inventories are drawn down.
• Inventory levels: High imports in first half 2025 led to increased inventories, putting pressure on prices and delaying expected price increases related to tariffs.

Q: Comment on thoughts and outlook for the second half of 2025, volume and margin trends?

A: Paolo Rocca said third quarter sales expected lower due to factors like lower fracking invoicing and lower line pipe shipments; margin expected slightly below current quarter but between 20%-25% in Q3, fourth quarter harder to predict.

Q: Highlight project pipeline for 2026 relative to 2025?

A: Gabriel Podskubka said offshore market positive with resilient deepwater rigs and ongoing new projects; Suriname awarded OCTG supply, Brazil and Nigeria pipeline awards, building backlog into 2026.

Q: Outlook for margins in Q3 and Q4, impact of tariffs?

A: Paolo Rocca said 50% tariff could impact around $140-150 million per quarter, margin in Q3 slightly below current quarter but 20%-25%, Q4 harder to estimate.

Q: Outlook for sales in Argentina, rig count flat?

A: Paolo Rocca said rig count in Argentina reduced due to divestitures and cautious investment, but Vaca Muerta will continue to expand, with country risk and currency devaluation factors.

Q: Share gain from imports offsetting weaker volumes in U.S. land?

A: Paolo Rocca said import represents 40% of U.S. demand, domestic industry can increase production but utilization varies, prices expected to go up over time.

Q: Front-loading of share buyback?

A: Paolo Rocca said second tranche of buyback considered in Oct 29 Board meeting.

Q: Third quarter outlook on sales or volume?

A: Paolo Rocca said it was a comment on sales.

Q: Supply chain and tariff exceptions?

A: Paolo Rocca said can expand local steel production, use welded product, and negotiations may modify tariff impact.

Q: Mix impact on third quarter, second half?

A: Gabriel Podskubka said fracking business has impact in third quarter, offshore pipelines have higher margins, onshore pipelines in Vaca Muerta have lower margins.

Q: Middle East trend into 2026, Saudi market?

A: Gabriel Podskubka said Saudi rig count down, inventory in line with consumption, MENA region other markets resilient.

Q: Mexico CapEx, opportunity next year?

A: Paolo Rocca said Pemex's $12 billion financing is positive, rigs starting to operate, positive trend expected.

Q: U.S. land gas markets exposure?

A: Guillermo Moreno said exposure in Haynesville and Appalachia, seeing growth in private operators' activity.

Q: Pipe on the ground in U.S.?

A: Guillermo Moreno said imports in first half 2025 increased, inventories rose, expecting reduction and impact in fourth quarter.

Q: Mexico revenue sensitivity, U.S. capacity?

A: Paolo Rocca said past Pemex rig count, Woodside project in Mexico, main import of steel bars for copper production and some special products from Europe.

Q: M&A environment, buyback program?

A: Paolo Rocca said monitoring M&A opportunities, happy with current buyback program run rate.

Q: Net working capital expectations?

A: Carlos Gomez Alzaga said generated cash from working capital in first half, expect to build inventories in Q3 and release in Q4.