Tenaris Posts Record Sales and Profits in Fourth Quarter as High Tubes Demand Fosters Pricing Power

Tenaris had an exceptional fourth quarter, posting quarterly records for sales, EBITDA, and net income. At $3.6 billion, revenue increased 76% year over year and 22% sequentially while the fourth-quarter EBITDA margin topped 35% (more than double the firm’s historical average). We’ll incorporate the firm’s full financial and operating results shortly, but after our first look we maintain our $29 (EUR 15) per share fair value estimate and no-moat rating.

Tenaris’ strong performance was driven by the very favorable supply-demand balance in the oil country tubular goods (OCTG) industry, which pushed prices 50% higher year over year. The pricing gains realized throughout 2022 were more than sufficient to offset significant input cost inflation. Improved fixed-cost absorption from increased production volumes further supported the firm’s impressive margin expansion this year. We expect the prevailing market dynamic will persist throughout 2023 as drilling activity remains robust in North America and continues expanding in international markets. Global tubes demand was around 15 million tons in 2022, and management indicated this could rise to 16 million tons in 2023, close to 2014 levels.

Over the next few quarters, a higher proportion of welded tubes sales could put some slight downward pressure on margins. These lower-end products are fairly commoditized and typically fetch lower prices on the market. Welded tubes constitute about 20% of Tenaris’ annual sales on average but dropped to about 10% in 2021 and 2022. Several projects in South America—a region comprising roughly one quarter of Tenaris’ business—will require welded tubes. In Argentina alone, pipeline capacity expansion projects will likely require delivery of at least 200,000 tons of tubing products in 2023, boosting welded sales volumes more than 50% year over year. We nevertheless expect the tight supply-demand balance will support pricing power sufficient to sustain elevated margins throughout 2023.