Tenaris (TS) 3Q16 Earnings Takeaways – Volume and Pricing Very Weak

Tenaris (TS) is $16.2 billion maker of steel pipes for energy and industrial applications. Company posted earnings today after the close which on the surface beat with EPS coming in at $0.03 profit vs. ($0.02) loss estimate on revenues of $1.05B vs. $1.03B consensus. But underneath the surface quite a few troubling trends. Excluding extraordinary items that accounted for $71 million gain, net income was down -80% YoY. Q3 volumes fell by -20% YoY though flat sequentially. Pipe prices fell by -17% YoY and -7% vs. Q2. EBITDA was down -46% YoY and -10% vs. Q2.

Management believes North America remains strong but only in terms of volume, sees significant price pressure building in coming quarters given substantial excess capacity. Additionally, order book outside of the US points to further slowdown in both volume and pricing specially in the Middle East region with cut backs expected by oil and gas industry well into 2017. Company is pre-dominantly expecting US to carry the weight while leaving no room for error for macro weakness. Compare this management commentary in terms of “the lowest street estimates” which is looking for return to growth in FY2017 with revenues rising by +13.5% YoY.

We believe consensus (as shown in table below) is too high and needs to come down over coming months.