Tenaris S.A. Q2 FY2026 earnings call

Geographic & Macro Operational Impact

• Q2 2026 results were heavily impacted by Middle East conflict: the effective closure of the Strait of Hormuz for most of the quarter forced shipment postponements to Iraq, Kuwait, and Qatar, as customers reduced operations and ships could not enter the Gulf.
• Drilling and supply operations remained largely intact in Saudi Arabia and the United Arab Emirates, and Tenaris continued OCTG deliveries to Aramco and Adnoc.
• Global energy security and supply diversification goals are driving increased customer investment across most other regions.

North America Operations & Investments

• Unconventional drilling activity is growing in the U.S., Canada, and Argentina. U.S. facilities are ramping up: the Bay City mill is producing at record levels, and investments are ongoing to expand production capabilities at the Coppel steel shop and Ambridge seamless pipe mill.
• A new high torque wedge connection for longer laterals is being broadly deployed in the U.S.
• A $230 million investment program has been launched to expand production capacity at the Sault Ste. Marie mill in Canada, to strengthen domestic supply for Canadian customers.

Global Project Progress

• In Argentina's Vaca Muerta, 9 high-spec rigs have been added year-to-date, bringing the total active rig count to 42. The $30 billion YPF/ENI/XRG Argentina LNG project is advancing, with a final investment decision (FID) expected by the end of 2026.
• Multiple long-cycle deepwater energy projects have received FIDs in the last three months, including the ENI/TotalEnergies Kronos project, which Tenaris supports with pipeline and OCTG supply.
• A new service center in Suriname, operated with TotalEnergies, was inaugurated to support the Grand Morgue project's OCTG supply chain. Deliveries of linepipe and coating have begun for the Black Sea Zacaria project.
• Offshore project backlog has grown, with revenue contribution expected starting in Q4 2026 and continuing into 2027.

Cost & Pricing Dynamics

• Raw material costs have increased in 2026 and are progressively impacting margins. Tenaris has implemented price increases, with positive margin and sales impacts expected to materialize in Q4 2026.
• The company notes it is uniquely positioned to handle global volatility and supply chain disruption thanks to its global footprint, differentiated technology and service, and ongoing industrial investments.

Only aggregate corporate financial results were provided in the call, with no segmented breakdowns of financial performance by individual product or geographic segment disclosed in the transcript. Aggregate results for Q2 2026 are: total sales of $3 billion, a 4% decrease year-over-year and sequentially; EBITDA of $649 million, a 12% decrease sequentially; net income of $492 million, a 13% decrease sequentially; operating cash flow of $518 million; capital expenditure of $121 million; free cash flow of $397 million. Net cash position at quarter-end was $3.6 billion after a $606 million dividend payment.

• The base case guidance premise for the second half of 2026 has been revised to remove the assumed near-term reopening of the Strait of Hormuz; $100-$130 million in postponed shipments to northern Gulf countries will be an upside if the strait reopens, with a 70-90 day lag for shipment and invoicing after reopening.
• Aggregate second half 2026 revenues and EBITDA are expected to be in line with first half 2026 levels. Q3 2026 results will be similar to Q2 2026, with comparable revenues and EBITDA margins, as lower volume, additional logistics costs, and fixed cost under-absorption seen in Q2 will persist into Q3.
• A meaningful uptick in volume and pricing is expected in Q4 2026, driven by growing drilling activity in North America and Argentina, strong offshore market momentum, and the lagged impact of recent price increases; Q4 volume is projected to exceed 1 million tons, which will improve fixed cost absorption and EBITDA margins.
• If the Strait of Hormuz reopens in the next few weeks, the $130 million in postponed premium-grade shipments would be realized in Q4 2026, adding incremental upside to results, as this product carries above-average margins.
• U.S. OCTG shipments are expected to grow in line with expanding rig activity, with at least 5% additional seamless price increases expected by the end of 2026, reflected in Tenaris' prices with a standard one-quarter lag.
• Drilling activity is expected to gradually grow across Mexico and Canada, driving gradual revenue growth in both markets in coming quarters.

• Ongoing conflict in the Middle East has closed the Strait of Hormuz, causing shipment postponements, higher logistics and energy costs, and reduced fixed cost absorption that has pressured Q2 and projected Q3 results.
• Raw material costs have increased year-to-date, negatively pressuring margins until price increases fully flow through in Q4 2026.
• Uncertainty around the timing of Strait of Hormuz reopening creates unpredictability for second half 2026 results, with all deferred shipments contingent on the resolution of regional conflict.
• Seasonal operational shutdowns in Europe and the lower-margin mix of the large Zacaria pipeline project will pressure Q3 margins.

Q: The board approved a doubled interim dividend, shifting to a larger dividend component instead of the prior mix of dividends and buybacks. What is the reasoning behind this change, and could this higher level be sustained?

A: The increase to a $600 million interim dividend was approved due to the company's strong balance sheet and consistent sustained cash generation. The board favored direct dividend distribution for this period. Future levels will be decided by the board and require shareholder annual meeting approval, but based on past practice and the company's strong balance sheet, this higher level could continue for the full annual dividend.

Q: What is the base case assumption for Strait of Hormuz disruption in the second half of 2026, and how is underlying business performance outside this disruption?

A: The prior base case assumption of a near-term reopening has been removed; deferred shipments to northern Gulf countries are now treated as upside rather than included in the baseline. Underlying business is expected to see a clear uptick in Q4 2026, driven by higher oil prices, growing rig activity in North America and Argentina, and strong offshore demand, leading to higher volumes and pricing that will show through once mills finish ramping up.

Q: If the Strait of Hormuz reopens soon, what upside would that add to projected Q4 2026 EBITDA?

A: The baseline projection for Q4 2026 EBITDA (excluding deferred shipments) is already in line with the first quarter 2026 level of $730 million. If the strait reopens in the coming weeks, $130 million in premium, above-average margin deferred shipments would be invoiced in Q4, adding clear upside to that baseline, with a 90-day timeline for realization after reopening.

Q: How is U.S. pricing evolving, and when will import competition become a threat again?

A: U.S. rig activity has increased by 10% since the start of the Middle East conflict, with 10-15 additional rigs expected by year end. Seamless raw material prices have risen 9% year-to-date, with at least 5% more increases expected, and Tenaris' prices reflect these increases with a one-quarter lag. Imports have been contained this year by Section 232 tariffs and ongoing trade cases against unfairly traded imports, and this containment is expected to continue in coming quarters.