Tenneco Inc. (ticker: TEN, exchange: New York Stock Exchange) News Release

April 26, 2007

 
TENNECO REPORTS FIRST QUARTER RESULTS
 
Geographic/Customer Balance and Cost Control Drive Performance

  • New platform launches drive 24% revenue growth
  • EBIT improves 19%; EBITDA up 14%
  • Europe segment EBIT up 91%
  • SGA&E as a percent of sales decreases to 8.7%

LAKE FOREST, ILLINOIS, APRIL 26, 2007 – Tenneco Inc. (NYSE: TEN) reported first quarter 2007 net income of $3 million, or 7-cents per diluted share, compared with $7 million, or 14-cents per diluted share, in first quarter 2006. Adjusted for the items below, net income was $8 million, or 17-cents per diluted share, versus $8 million, or 17-cents per diluted share, a year ago (the tables attached to the press release reconcile GAAP results to non-GAAP results).

EBIT (earnings before interest, taxes and minority interest) increased to $50 million, from $42 million a year ago. On an adjusted basis, EBIT was $52 million, up from $48 million in first quarter 2006. EBITDA (EBIT before depreciation and amortization) was $98 million, versus $86 million a year ago. Adjusted EBITDA was $100 million, compared with $92 million in first quarter 2006.

First quarter revenue increased 24% to $1.4 billion from $1.1 billion a year ago. Substrate sales were up 73% to $339 million from $196 million in first quarter 2006. Excluding substrate sales and favorable currency of $49 million, revenue was up 9% to $1.0 billion from $936 million a year ago. The company benefited from its balanced operations as revenue growth in Europe and China as well as the launch of incremental new emission control business in North America helped offset an 8% industry OE production decline in North America.

Adjusted first quarter 2007 and 2006 results:

    Q1 2007   Q1 2006
    EBITDA EBIT Net Income Per Share EBITDA EBIT Net Income Per Share
Earnings Measures $ 98 $ 50 $ 3 $ 0.07   $ 86 $ 42 $ 7 $ 0.14
Adjustments
(reflects non-GAAP measures):
     
  Restructuring/restructuring related expenses   2   2   1   0.03     6   6   4   0.09
  Charges related to refinancing   -   -   4   0.07     -   -   -   -
  Tax Adjustments   -   -   -   -     -   -   (3)   (0.06)
Non-GAAP earnings measures $ 100 $ 52 $ 8 $ 0.17   $ 92 $ 48 $ 8 $ 0.17

Download and print this summary table (PDF): Adjusted first quarter 2008 and 2007 results


First quarter 2007 adjustments:

  • Restructuring related expenses of $2 million pre-tax, or 3-cents per diluted share;
  • Charges of $5 million pre-tax, $4 million after-tax, or 7-cents per diluted share, associated with refinancing the senior credit facility.

First quarter 2006 adjustments:

  • Restructuring related expenses of $6 million pre-tax, or 9-cents per diluted share;
  • Tax benefit of $3 million, or 6-cents per diluted share, primarily related to resolution of tax issues with former affiliates.

"We’re pleased with how Tenneco is positioned with a well-balanced global footprint, a good mix of OE and aftermarket customers, technology-driven growth on new platforms and a relentless focus on controlling costs, all which helped counter North American OE industry production declines this quarter," said Gregg Sherrill, chairman and CEO, Tenneco. "We remain intensely focused on generating growth with our advanced technology capabilities, particularly as emission control opportunities expand with tighter emissions regulations. Equally important is our focus on launching new OE platforms flawlessly, improving our operating efficiency and offsetting higher material costs."

Gross margin in the quarter was 15.7% versus 18.6% a year ago. The significant diesel platform launches in North America resulted in a higher mix of substrate sales. Substrates, an integral part of the emission control system, typically carry lower margins. These large OE launches also shifted the revenue balance between OE and aftermarket. Other items including higher material costs, lower restructuring and benefits from Lean manufacturing and Six Sigma programs impacted gross margin to a lesser degree.

Total steel costs in the quarter increased $14 million year-over-year. Tenneco is working aggressively to minimize these higher costs through cost reductions, material substitutions and low-cost country sourcing. The company is also recovering some of these costs with aftermarket price increases and with OE customers, having already completed negotiations on some OE platforms. The company is still negotiating with other OE customers and anticipates completing nearly all the agreements by the end of the second quarter.

SGA&E (selling, general, administrative and engineering) expenses as a percent of sales decreased to 8.7% versus 10.9% a year ago. Tenneco successfully leveraged its revenue growth in the quarter while reducing SGA costs and continuing to invest in engineering for new platform launches and to meet changes in future emissions regulations.

EBIT margin in the quarter was relatively even year-over-year. The SGA&E percentage improvement helped offset the impact of the gross margin percentage decline.

Interest expense in the quarter increased to $42 million, versus $34 million in first quarter 2006, mostly due to the $5 million expense for successfully refinancing the company’s senior credit facility in March. The transaction enhances Tenneco’s financial flexibility by extending the expiration of its revolving line of credit; extending the maturities of its term loan facility; and enhancing debt covenant flexibility.

As expected, significant business growth in North America drove up cash use in the quarter to an outflow of $95 million versus an outflow of $25 million a year ago. The company’s 24% revenue increase resulted in higher accounts receivable and also impacted inventory as two of the new platforms use converters sourced from the company’s South Africa operations. Seasonal build-up in the aftermarket also increased inventory.

At quarter-end, debt net of cash balances was $1.317 billion, compared with $1.288 billion a year ago and total debt was $1.453 billion, versus $1.384 billion at the end of first quarter 2006. At quarter-end, the ratio of debt net of cash balances to adjusted LTM (last twelve months) EBITDA was 3.1x, equal to a year ago.

NORTH AMERICA

  • North America OE revenue was $509 million, a 36% increase over $374 million a year ago. Excluding substrate sales, revenue was $343 million, up 12% year-over-year from $308 million. Incremental volume from new emissions control platform launches, like the Toyota Tundra and Ford Super Duty, drove the increase and more than offset an 8% decline in industry OE production.
  • North America aftermarket revenue was $134 million, down from $141 million a year ago. Lower ride and exhaust unit sales were only partially offset by price increases to recover higher material costs.
  • EBIT for North American operations was $29 million, down $5 million from a year ago. The positive benefits from new platform launches were more than offset by start-up costs, higher material costs and added engineering expense. Adjusted for the items below, EBIT was $30 million, versus $37 million in first quarter 2006.
  • First quarter 2007 EBIT includes $1 million in restructuring expense and first quarter 2006 EBIT includes $3 million in restructuring expense.

EUROPE, SOUTH AMERICA, INDIA

  • Europe OE revenue increased 28% to $494 million from $387 million in first quarter 2006. New launches on key platforms with BMW, Ford and PSA drove the increase. Excluding $39 million in favorable currency and higher substrate sales, revenue was $333 million compared with $285 million a year ago, a 17% increase versus an industry production increase of 4% in the quarter.
  • Europe aftermarket revenue increased to $79 million from $75 million a year ago. Excluding the benefit of currency, revenue was $73 million. Improved ride control sales and price increases to recover steel cost increases partially offset lower exhaust unit sales.
  • South America and India revenue increased year-over-year to $70 million from $65 million, driven by stronger OE volumes and improved aftermarket sales. Adjusting for currency and substrate sales, revenue was $61 million, versus $58 million a year ago.
  • EBIT for Europe, South America and India increased 91% to $15 million, versus $8 million in first quarter 2006. The significant improvement was driven by OE volumes and manufacturing efficiencies gained through Lean manufacturing and Six Sigma programs, which improved profitability on existing business and generated more profit on new platform launches. EBIT included $2 million in favorable currency.
  • EBIT in both first quarter 2007 and 2006 included $1 million in restructuring expenses.

ASIA PACIFIC

  • Asia revenue increased 39% to $70 million, versus $50 million in first quarter 2006. Excluding substrate sales, Asia revenue was $44 million, versus $33 million a year ago. Higher OE volumes and new platform launches in China drove the increase.
  • Australia revenue rose 6% to $43 million, from $40 million a year ago. Excluding currency and substrate sales, revenue was $35 million compared with $36 million in first quarter 2006.
  • Asia Pacific EBIT increased to $6 million, compared with breakeven a year ago. The EBIT improvement was driven by higher OE volumes in China combined with benefits from restructuring charges taken in the first quarter of 2006.
  • First quarter 2006 EBIT includes $2 million in restructuring expenses for Australia.

OUTLOOK
"We’re optimistic as we look ahead to the second quarter based on today’s production schedules. We expect continued revenue growth from our emission control truck business as the ramp-up on these major platforms accelerates," said Sherrill. "We also expect the European segment and China operations will continue to perform well, which will help balance anticipated industry-wide OE production declines in North America. In addition, we will continue to benefit from our intense focus on all aspects of cost improvement and manufacturing efficiencies and anticipate finalizing nearly all of our negotiations with OE customers on steel cost recovery by the end of the quarter."

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CONFERENCE CALL
The company will host a conference call on Thursday, April 26, 2007 at 10:30 a.m. EDT. The dial-in number is 888-790-1408 (domestic) or 773-756-0157(international). The passcode is TENNECO. The call and accompanying slides will be available on the financial section of the Tenneco web site at www.tenneco.com. A recording of the call will be available one hour following completion of the call on April 26, 2007. To access this recording, dial 866-509-3863 (domestic) or 203-369-1914 (international). The purpose of the call is to discuss the company’s operations for the quarter, as well as other matters that may impact the company’s outlook. A copy of the press release is available on the financial and news sections of the Tenneco web site.

2007 ANNUAL MEETING
Tenneco will hold its annual meeting of shareholders on Tuesday, May 8, 2007 at 10:00 a.m. CDT. The meeting will be held at the corporate headquarters, 500 North Field Drive, Lake Forest, Illinois. The meeting will also be available by webcast. To access the listen-only annual meeting webcast, go to the financial section of the company’s website at least 15 minutes prior to the meeting to register and download any necessary software. The webcast will include an audio transmission of the proceedings and slides used in the speaker presentation. Voting will not be available electronically through the webcast.

Tenneco is a $4.7 billion manufacturing company with headquarters in Lake Forest, Illinois and approximately 19,000 employees worldwide. Tenneco is one of the world’s largest designers, manufacturers and marketers of emission control and ride control products and systems for the automotive original equipment market and the aftermarket. Tenneco markets its products principally under the Monroe®, Walker®, Gillet™ and Clevite®Elastomer brand names. Among its products are Sensa-Trac® and Monroe Reflex® shocks and struts, Rancho® shock absorbers, Walker® Quiet-Flow® mufflers, Dynomax® performance exhaust products, and Clevite®Elastomer noise, vibration and harshness control components.

This press release contains forward-looking statements. Words such as "hopes," "estimates," "continue," "will," "plans," "outlook" "scheduled" and "goal" and similar expressions identify forward-looking statements. These forward-looking statements are based on the current expectations of the company (including its subsidiaries). Because these forward-looking statements involve risks and uncertainties, the company's plans, actions and actual results could differ materially. Among the factors that could cause these plans, actions and results to differ materially from current expectations are:
(i) changes in automotive manufacturers' production rates and their actual and forecasted requirements for the company's products;
(ii) the overall highly competitive nature of the automotive parts industry, including pricing pressure from the company’s OE customers and the loss of any awards of business, or the failure to obtain new awards of business, from our large customers, on which we are dependent for a substantial portion of our revenues; for example, Ford, from whom the company derived more than 10% of its 2006 net sales, announced in 2006 a plan to significantly reduce the number of its global suppliers. While the company currently believes that its relationship with Ford will not be impacted by this plan, any significant reduction in sales to Ford could have a material adverse effect on the company;
(iii) the company's resultant inability to realize the sales represented by its awarded book of business which is based on anticipated pricing for the applicable program over its life, and is subject to increases or decreases due to changes in customer requirements, customer and consumer preferences, and the number of vehicles actually produced by customers;
(iv) increases in the costs of raw materials, including the company’s ability to successfully reduce the impact of any such cost increases through materials substitutions, cost reduction initiatives, customer recovery and other methods;
(v) the cyclical nature of the global vehicular industry, including the performance of the global aftermarket sector, and changes in consumer demand and prices, including longer product lives of automobile parts and the cyclicality of automotive production and sales of automobiles which include the company's products, and the potential negative impact on the company's revenues and margins from such products;
(vi) the company's continued success in cost reduction and cash management programs and its ability to execute restructuring and other cost reduction plans and to realize anticipated benefits from these plans;
(vii) the general political, economic and competitive conditions in markets and countries where the company and its subsidiaries operate, including the strength of other currencies relative to the U.S. dollar and currency fluctuations and other risks associated with operating in foreign countries;
(viii) governmental actions, including the ability to receive regulatory approvals and the timing of such approvals;
(ix) changes in capital availability or costs, including increases in the company's costs of borrowing (i.e., interest rate increases), the amount of the company's debt, the ability of the company to access capital markets and the credit ratings of the company's debt;
(x) the cost and outcome of existing and any future legal proceedings, and compliance with changes in regulations, including environmental regulations;
(xi) workforce factors such as strikes or labor interruptions;
(xii) the company's ability to develop and profitably commercialize new products and technologies, and the acceptance of such new products and technologies by the company's customers and the market;
(xiii) further changes in the distribution channels for the company's aftermarket products, further consolidations among automotive parts customers and suppliers, and product warranty costs;
(xiv) changes by the Financial Accounting Standards Board or other accounting regulatory bodies to authoritative generally accepted accounting principles or policies;
(xv) acts of war, riots or terrorism, including, but not limited to the events taking place in the Middle East, the current military action in Iraq and the continuing war on terrorism, as well as actions taken or to be taken by the United States or other governments as a result of further acts or threats of terrorism, and the impact of these acts on economic, financial and social conditions in the countries where the company operates; and
(xvi) the timing and occurrence (or non-occurrence) of transactions and events which may be subject to circumstances beyond the control of the company and its subsidiaries. The company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date of this press release.
Additional information regarding these risk factors and uncertainties is detailed from time to time in the company's SEC filings, including but not limited to its report on Form 10-K for the year ended December 31, 2006. Further information can be found on the company's web site at www.tenneco.com.


CONTACT:
Tenneco Media Relations
Jane Ostrander
(1) 847 482 5607
jostrander@tenneco.com

Tenneco Investor Relations
Leslie Hunziker
(1) 847 482 5042
lhunziker@tenneco.com
 

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