Shares of European steel company Tenaris (TS) are up 17% as of 11:45 a.m. EST Thursday after the company reported third-quarter earnings last night. With sales down 43% compared to the year-ago period, and continued net losses, results didn't look good. But a closer look showed some promising trends.
The steelmaker reported some good sequential progress compared to the second quarter, with earnings before interest, taxes, depreciation, and amortization (EBITDA) jumping 83%, or 20% excluding severance charges.
As Tenaris supplies the struggling energy industry, investors were somewhat pleasantly surprised by earnings results, with both sales and earnings coming in ahead of estimates.
Though sales still decreased by 18% compared to the previous quarter, and 43% versus the previous year period, they came in almost $90 million ahead of expectations, at just over $1 billion.
Tenaris acknowledged the slowdown in the energy industry continues, as global drilling activity declined further in the quarter. A 9% decline in average selling prices for its tube division also hurt results. But the company said its "structural cost reduction plans" are proving effective, as evidenced in EBITDA results.
With shares down 60% year to date heading into the earnings report, it isn't surprising that any positive news could cause a reversal in the decline. Tenaris reported strong free cash flow, a reduction in working capital, and a net cash position of $1.1 billion.
This allowed its board to approve an interim dividend payment, equivalent to about 1.2% per American depositary share (ADS). Looking ahead, the company believes it will maintain a positive free cash flow as sales and margins gradually recover.