Tenaris SA (NYSE:TS) Q2 2020 Earnings Conference Call - Final Transcript

Aug 06, 2020 • 10:00 am ET

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Tenaris SA (NYSE:TS) Q2 2020 Earnings Conference Call - Final Transcript

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Q & A
Operator
Operator

[Operator Instructions] And our first question comes from the line of Sean Meakim from JPMorgan. Your line is now open.

Analyst
Sean Christopher Meakim

Thank you. Good morning.

Executive
Paolo Rocca

Thank you.

Analyst
Sean Christopher Meakim

So Paolo, just to start, the challenges in 3Q and the guide on margins make sense. But I'm a little surprised that the optimism for 4Q that was in the press release, how much of that would you say is driven by seasonality helping activity versus the impact of achieving more of your cost reduction plans or other factors? Can you maybe just walk us through the thought process for the fourth quarter?

Executive
Paolo Rocca

Thank you, Sean. Well, what we are saying in the outlook is that we will see that the third Q is really the bottom of this operation and we should start to pick up very slowly. But we anticipate some recovery in area like, for instance, Argentina. Argentina, we expect that after negotiation -- renegotiation of the debt, something will start to move. Remember, we had 60 rigs at the beginning of the year. We went down to zero. Today, we are probably around 15 rigs operational.

There will be some pickup in the activity also for assuring the supply of gas needed for the domestic market in the next winter in 2021. This is one area in which we expect some recovery. We may imagine that also gradually, there will be some level of activity in the United States that may be also coming from this. And on our -- in the rest of our region, we expect there could be some slight recovery during the fourth quarter. That's the reasons that are supporting our statement in the outlook.

Analyst
Sean Christopher Meakim

Got it. Thank you for that. And then -- so considering the decline in activity that we've seen in the forward outlook for the next couple of years. Have you given more thought internally to taking out additional costs? Is that on the table for 2021? Just curious how you think about the efficacy of the cost-out program so far and potential plans or thoughts around increasing or upsizing that amount of cost you could take out of the business.

Executive
Paolo Rocca

Well, I think there is a high uncertainty in the evolution of the economy and the demand when the pandemic crisis will, to some extent, recede. So, not easy to forecast the level of activity that we may expect in 2021. Our cost containment is basically focused on reduction of our fixed cost that, as we anticipated, is underway. And we plan to complete this part of our reduction within in the coming two quarters before the end of the year.

Then there is also the containment of the cost of the operation of the plant. Today, we have a suspension agreement in place, different instrument in different countries. We wish we are absorbing the cost of idle crews in different mills. This is a component of our cost that depending on our forecast maybe -- may change. There are areas of