Volatile stock to watch: Tenaris SA (NYSE: TS)

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Tenaris SA (NYSE: TS) stock fell over 0.48% in the pre market session of 31st October, 2019 (as of  9:15 am GMT-4; Source: Google finance) after the company significantly posted lower than expected earnings for the third quarter of FY 19. The company reported 59% decline in the net profit due to the impact of currency devaluations on the income tax charge in Argentina and Mexico and also due to a lower contribution from the equity investment in Ternium. Despite the decline in net income, the company had generated a free cash flow of $287 million, or 16% of revenues, which included a further decline in working capital of $157 million, and the company ended the third quarter with a net cash position of $964 million.

TS in the third quarter of FY 19 has reported the adjusted earnings per share of 18 cents, beating the analysts’ estimates for the adjusted earnings per share of 32 cents. The company had reported 7 percent fall in the adjusted revenue growth to $2.48 billion in the third quarter of FY 19. This is despite the profit in the Middle East and Mexico, an ongoing activity reduction in the US and Argentine shales, had affected the prices throughout the Americas, and a downturn in the European industrial sales. The company’s EBITDA margin was affected on the back of a decline in average selling prices and the impact of major maintenance stoppages in the northern hemisphere, principally in Mexico

Moreover, the company do not expect a recovery in US shale drilling activity going into 2020, which is down in the quarter. In Canada, there is similar situation with drilling activity well down on last year and TS is expecting no recovery over last year in the upcoming winter drilling season. In Latin America, the drilling activity in Argentina is decreasing as operators put on hold their investment plans for Vaca Muerta as more clarity is required on the policy measures that will be adopted by the incoming government.

The company has declared an interim dividend of $0.13 per share ($0.26 per ADS), or approximately $153 million. The payment date will be November 20, 2019, with an ex-dividend date on November 18, 2019 and record date on November 19, 2019.

For the fourth quarter, the company expects the sales to be affected due to lower average selling prices and the activity slowdowns in the USA and Argentina. The company intends to mitigate much of the impact of lower average selling prices with lower costs and to maintain the EBITDA margin in line with that of this third quarter.

For the fiscal 2020, the company expects a recovery in sales, particularly for offshore and gas drilling activity, along with the margins and cash flow as the company work on reducing costs and working capital.

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