Why Tenaris’s Free Cash Flow Declined in 2017



Tenaris’s operating cash flows and capex

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Tenaris’s free cash flow

TS’s capital expenditure (or capex) decreased 29% in 2017 from 2016. Despite lower capex, a negative CFO resulted in free cash flow (or FCF) turning negative in 2017. TS’s FCF was -$580 million in 2017, compared to $76.7 million FCF a year ago. TS’s FCF was positive in five of the past six years. Tenaris accounts for 4.3% of the VanEck Vectors Oil Services ETF (OIH). OIH tracks an index of 25 oilfield equipment and services companies. OIH decreased 19% in the past year versus a 5% rise in TS’s stock price.

Tenaris’s oilfield services peer McDermott International’s (MDR) FCF was $16.9 million in 2017. In 2016, MDR’s FCF was -$49.9 million. Although MDR’s CFO decreased in 2017 compared to 2016, its capex fell even more steeply, which resulted in FCF improving in 2017 over the previous year.

Tenaris’s free cash flow and capex outlook

In 2018, TS’s management expects to generate a free cash flow of $400 million to $500 million. However, in 1Q18, TS expects to see higher account receivables, which could reduce its cash flow from operations and negatively affect its free cash flow.

Next in this series, we’ll discuss Nabors Industries’ cash flow and capex.


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