Tenneco Reports First Quarter Financial Results
- Revenue increases 9% to $1.9 billion
- Net income of $30 million, or 49-cents per diluted share, including refinancing costs
- Record low first quarter net debt to adjusted LTM EBITDA ratio of 1.9x
Lake Forest, IL, April 30, 2012 – Tenneco Inc. (NYSE: TEN) reported first quarter net income of $30 million, or 49-cents per diluted share, versus net income of $47 million, or 75-cents per diluted share, in first quarter 2011. Net income includes $11 million after-tax, or 18-cents per diluted share, in costs related to successfully refinancing the company’s senior credit facility and retiring bonds due in 2015. The refinancing is expected to lower annual interest expense by about $20 million.
On an adjusted basis, net income rose to $41 million, or 66-cents per diluted share, compared with $39 million, or 63-cents per diluted share, a year ago. The tables in this press release reconcile GAAP results to non-GAAP results.
Revenue
Total revenue in the quarter increased 9% to $1.912 billion, from $1.760 billion in first quarter 2011. Revenue excluding substrate sales and currency rose to $1.499 billion, versus $1.337 billion. The revenue increase was driven by the company’s strong customer and platform position and higher OE light vehicle production volumes, incremental commercial vehicle revenue and higher North America aftermarket revenue. The year-over-year revenue comparison includes a negative currency impact of $50 million.
In the first quarter, total OE commercial and specialty vehicle revenue was $222 million, up from $147 million a year ago.
EBIT and EBIT Margin
EBIT (earnings before interest, taxes and noncontrolling interests) increased to $96 million from $94 million in first quarter 2011. Adjusted EBIT was $97 million, versus $95 million a year ago.
EBIT was driven by higher light vehicle production volumes, growing commercial vehicle revenue as these programs ramp up and higher North America aftermarket sales. The aftermarket negatively impacted EBIT by $11 million on product mix and new business changeover costs in North America and significant declines in Europe aftermarket sales as well as product mix. South America negatively impacted EBIT by $5 million on lower OE revenues driven by industry volumes and the company’s decision to relinquish a platform due to pricing and profitability. EBIT includes $4 million in unfavorable currency.
The company reported the following EBIT as a percent of revenue and EBIT as a percent of value-add revenue (revenue excluding substrate sales).
| Q1 2012 | Q1 2011 | |||
| EBIT as a percent of revenue | 5.0% | 5.3% | ||
| EBIT as a percent of value-add revenue | 6.6% | 7.0% | ||
| Adjusted EBIT as a percent of revenue | 5.1% | 5.4% | ||
| Adjusted EBIT as a percent of value-add revenue | 6.7% | 7.1% | ||
- In North America, EBIT margin improvement in the OE emission control business, driven by light vehicle production and commercial vehicle revenue; and strengthening margins in the OE ride control business were more than offset by the aftermarket product mix shift and changeover costs for new aftermarket business.
- In the Europe, South America and India segment, EBIT margin improvement in the OE emission control business, fueled by higher volumes on Tenneco-supplied platforms, and the positive contribution from the India operations were more than offset by a mix shift and significant sales declines in the Europe aftermarket, and lower OE revenues in South America.
- In the Asia Pacific segment, continuing OE volume strength in China was more than offset by costs to expand capacity.
“Our growth plans and new program launches are on track and delivering results with revenue driven by our strong global position on light vehicle platforms and the ongoing ramp-up of commercial vehicle programs, particularly in North America,” said Gregg Sherrill, chairman and CEO, Tenneco. “We’re pleased with our top-line growth, the strong performance of our OE emission control business and the continuing improvement of our North American OE ride control business. Specific business and market factors in the global aftermarket and South America did impact our EBIT and EBIT margin in the quarter.”
Adjusted first quarter 2012 and 2011 results
| Q1 2012 | Q1 2011 | |||||||||||||||||
| (millions except per share amounts) | EBITDA* | EBIT | Net income attributable to Tenneco Inc. | Per Share | EBITDA* | EBIT | Net income attributable to Tenneco Inc. | Per Share | ||||||||||
| Earnings Measures | $ | 145 | $ | 96 | $ | 30 | $ | 0.49 | $ | 145 | $ | 94 | $ | 47 | $ | 0.75 | ||
| Adjustments (reflects non-GAAP measures): | ||||||||||||||||||
| Restructuring and related expenses | 1 | 1 | 1 | 0.01 | 1 | 1 | 1 | 0.01 | ||||||||||
| Costs related to refinancing | - | - | 11 | 0.18 | - | - | 1 | 0.01 | ||||||||||
| Net tax adjustments | - | - | (1) | (0.02) | - | - | (10) | (0.14) | ||||||||||
| Non-GAAP earnings measures | $ | 146 | $ | 97 | $ | 41 | $ | 0.66 | $ | 146 | $ | 95 | $ | 39 | $ |
0.63
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* EBITDA including noncontrolling interests (EBIT before depreciation and amortization)
First quarter 2012 adjustments:
- Restructuring and related expenses of $1 million pre-tax, or 1-cent per diluted share;
- $17 million in pre-tax costs, or 18-cents per diluted share related to refinancing the company’s senior credit facility and retiring senior notes due in 2015;
- Net tax benefits of $1 million, or 2-cents per diluted share, related to the valuation allowance on U.S. tax benefits.
First quarter 2011 adjustments:
- Restructuring and related expenses of $1 million pre-tax, or 1-cent per diluted share;
- Costs of $1 million pre-tax, or 1-cent per diluted share, related to retiring the company’s remaining 8 5/8 percent notes from the December 2010 refinancing transaction, which replaced them with 6 7/8 percent notes;
- Net tax benefits of $10 million, or 14-cents per diluted share, primarily related to U.S. taxable income with no associated tax expense due to the company’s net operating loss position and income generated in lower tax rate jurisdictions, partially offset by the impact of recording a valuation allowance against the tax benefit for losses in certain foreign jurisdictions.
Cash
Cash from operations was a use of $85 million in the quarter, an $18 million improvement compared with cash use of $103 million a year ago. The cash performance was driven by working capital improvements and is in line with the normal seasonality of the company’s cash flow.
Tenneco continues to strategically invest in growth with capital expenditures in the quarter of $59 million, up from $41 million the prior year. The majority of spending was in the Europe and North America OE businesses to support new light and commercial vehicle customer program launches, and in China to accommodate new programs and new customers.
Debt
Tenneco’s net debt at March 31, 2012 was $1.165 billion, versus $1.132 billion the prior year. The leverage ratio (net debt to adjusted LTM EBITDA including noncontrolling interests) was 1.9x, its lowest first quarter level and down from 2.1x a year ago.
FIRST QUARTER REPORTING SEGMENTS
NORTH AMERICA
|
Q1 12
Revenues
|
% Change vs.
Q1 11
|
Q1 12 Revenues Excluding Currency & Substrate Sales |
% Change vs.
Q1 11
|
|||||||
| North America Original Equipment | ||||||||||
| Ride Control | $ | 171 | 12% | $ | 171 | 13% | ||||
| Emission Control | $ | 617 | 18% | $ | 340 | 23% | ||||
| Total North America Original Equipment | $ | 788 | 16% | $ | 511 | 19% | ||||
| North America Aftermarket | ||||||||||
| Ride Control | $ | 146 | 14% | $ | 146 | 14% | ||||
| Emission Control | $ | 52 | 14% | $ | 52 | 14% | ||||
| Total North America Aftermarket | $ | 198 | 14% | $ | 198 | 14% | ||||
| Total North America | $ | 986 | 16% | $ | 709 | 18% | ||||
- OE revenue was driven by content on strong-selling platforms including the Ford Focus, GM Silverado/Sierra and the Chevrolet Equinox, and a 50% year-over-year increase in commercial vehicle revenue.
- Aftermarket revenue increased on higher unit sales in both product lines including a product mix change with higher demand for an expanded value line of products.
- North America EBIT was $71 million, up 15% from $62 million in first quarter 2011. EBIT includes $1 million in negative currency.
- EBIT was driven by higher OE production volumes, incremental commercial vehicle revenue and higher aftermarket sales. The OE emission control business delivered a strong EBIT performance and the OE ride control business also contributed positively with sequential improvement. The aftermarket product mix had a $6 million negative impact on EBIT and customer changeover costs were $2 million higher year-over-year.
EUROPE, SOUTH AMERICA AND INDIA
|
Q1 12
Revenues
|
% Change vs.
Q1 11
|
Q1 12 Revenues Excluding Currency & Substrate Sales |
% Change vs.
Q1 11
|
|||||||
| Europe Original Equipment | ||||||||||
| Ride Control | $ | 139 | 0% | $ | 146 | 5% | ||||
| Emission Control | $ | 381 | 1% | $ | 262 | 4% | ||||
| Total Europe Original Equipment | $ | 520 | 1% | $ | 408 | 4% | ||||
| Europe Aftermarket | ||||||||||
| Ride Control | $ | 43 | (3%) | $ | 46 | 3% | ||||
| Emission Control | $ | 22 | (26%) | $ | 23 | (20%) | ||||
| Total Europe Aftermarket | $ | 65 | (12%) | $ | 69 | (7%) | ||||
| South America & India | $ | 147 | (3%) | $ | 137 | 9% | ||||
| Total Europe, South America & India | $ | 732 | (1%) | $ | 614 | 4% | ||||
- Europe OE revenue was primarily driven by volume strength and platform position on the Daimler Sprinter, VW Golf, and Daimler B-class, and incremental revenue on the VW Up and Amarok as well as from the initial ramp-up on commercial vehicle programs.
- Europe aftermarket revenue decreased, primarily driven by declining emission control sales due to weakening market conditions throughout the region. Unit sales of ride control products in Eastern Europe with a lower premium mix increased, and unit sales in Western Europe declined on a year-over-year comparison.
- Revenue for South America and India was impacted by lower revenues in South America due to volume declines and the company’s decision to relinquish a platform due to pricing and profitability. A double digit revenue increase in India helped offset the decrease in South America.
- EBIT for Europe, South America and India was $17 million, versus $24 million a year ago. EBIT includes $1 million in restructuring expense in both first quarter 2012 and 2011. EBIT includes $2 million in unfavorable currency.
- EBIT was driven by stronger performance in the OE emission control business and positive results in India, more than offset by a negative $3 million impact in the Europe aftermarket primarily due to volume declines and the mix shift, and a $5 million negative impact primarily from lower volumes and the relinquished platform in South America.
ASIA PACIFIC
|
Q1 12
Revenues
|
% Change vs.
Q1 11
|
Q1 12 Revenues Excluding Currency & Substrate Sales |
% Change vs.
Q1 11
|
|||||||
| Asia | $ | 155 | 18% | $ | 140 | 28% | ||||
| Australia | $ | 39 | 3% | $ | 36 | 2% | ||||
| Total Asia Pacific | $ | 194 | 15% | $ | 176 | 22% | ||||
- Asia revenue increased on volume strength in China and a strong platform mix on key programs with Audi, VW and Hyundai.
- In Australia, an increase in OE revenues was partially offset by lower aftermarket sales.
- Asia Pacific EBIT was $8 million, flat with a year ago. EBIT includes $1 million in unfavorable currency.
- Asia Pacific EBIT was driven by strong volumes in China, which were offset by higher planned costs associated with expanding capacity to accommodate new platforms and new customers in China.
OUTLOOK
In the second quarter, according to IHS Automotive forecasts*, global light vehicle production is expected to rise 7% year-over-year with North America increasing 21%, South America up 4% and China up 18%. While the production environment in most regions is expected to be strong, Europe light vehicle production is forecasted to decline 9% compared with last year.
“With the exception of Europe where we remain cautious about the economic and market conditions, the global production forecasts in our major markets are positive for the second quarter. We expect to benefit from leveraging these higher volumes and our strong execution on our commercial vehicle launches,” said Sherrill. “We also expect to improve margins with continued growth and the plans we’re executing for the remainder of the year.”
Tenneco has implemented price increases with its aftermarket customers in Europe and North America and expects to see the full effect of these increases in the second quarter.
In North America, the company expects continued margin improvement in the OE emission control business, driven by higher volumes and the benefit from commercial vehicle programs. The North America OE ride control business continues to improve sequentially and margins are expected to strengthen in the second quarter.
In Europe, the OE emission control business is expected to benefit from its strong customer and platform mix with positive contribution from the ramp up of new commercial vehicle business.
In South America, Tenneco has completed a restructuring action to address the volume decline from relinquishing business on a platform and anticipates positive volume contributions to margins as the production environment improves in the second quarter. In addition, having won significant commercial vehicle business in South America, Tenneco expects to benefit from these programs as they continue to ramp up in the second quarter.
Strong OE volumes in China will continue to drive EBIT for the Asia Pacific segment. Costs associated with preparing for new programs and new customers are not fully absorbed but will continue to improve as programs ramp up and added capacity becomes fully utilized at the new facilities.
*IHS Automotive production estimates April 2012
Attachment 1:
Attachment 2:
- Reconciliation of GAAP Net Income to EBITDA including noncontrolling interests – 3 Months
- Reconciliation of GAAP to Non-GAAP Earnings Measures – 3 Months
- Reconciliation of GAAP Revenue to Non-GAAP Revenue Measures – 3 Months
- Reconciliation of GAAP Revenue to Non-GAAP Revenue Measures – 3 Months
- Reconciliation of Non-GAAP Measures – Debt Net of Cash/Adjusted LTM EBITDA including noncontrolling interests
- Reconciliation of GAAP Revenue to Non-GAAP Revenue Measures – Original Equipment and Aftermarket Revenue - 3 Months
- Reconciliation of GAAP Revenue and Earnings to Non-GAAP Revenue and Earnings Measures – 3 Months
CONFERENCE CALL
The company will host a conference call on Monday, April 30, 2012 at 10:00 a.m. ET. The dial-in number is 888-603-9618 (domestic) or 517-308-9002 (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 30, 2012 through May 30, 2012. To access this recording, dial 800-877-2672 (domestic) or 203-369-3376 (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.
2012 ANNUAL MEETING
The Tenneco Board of Directors has scheduled the company’s annual meeting of shareholders for Wednesday, May 16, 2012 at 10:00 a.m. CT. The meeting will be held at the corporate headquarters, 500 North Field Drive, Lake Forest, Illinois.
Tenneco is a $7.2 billion global manufacturing company with headquarters in Lake Forest, Illinois and approximately 24,000 employees worldwide. Tenneco is one of the world’s largest designers, manufacturers and marketers of emission control and ride control products and systems for automotive and commercial vehicle original equipment markets and the aftermarket. Tenneco markets its products principally under the Monroe®, Walker® and Clevite®Elastomer brand names.
This press release contains forward-looking statements. Words such as “may,” “expects,” “anticipate,” ”projects,” “will,” and “outlook” 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) general economic, business and market conditions;
(ii) the company’s ability to source and procure needed materials, components and other products and services in accordance with customer demand and at competitive prices;
(iii) 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 at favorable rates, and the credit ratings of the company’s debt;
(iv) changes in consumer demand, prices and the company’s ability to have our products included on top selling vehicles, including any shifts in consumer preferences to lower margin vehicles, for which we may or may not have supply arrangements;
(v) changes in automotive and commercial vehicle manufacturers' production rates and their actual and forecasted requirements for the company's products such as the significant production cuts during recent years by automotive manufacturers in response to difficult economic conditions;
(vi) the overall highly competitive nature of the automobile and commercial vehicle parts industries, and any resultant inability to realize the sales represented by the company’s awarded book of business which is based on anticipated pricing and volumes over the life of the applicable program;
(vii) the loss of any of our large original equipment manufacturer (“OEM”) customers (on whom we depend for a substantial portion of our revenues), or the loss of market shares by these customers if we are unable to achieve increased sales to other OEMs or any change in customer demand due to delays in the adoption or enforcement of worldwide emissions regulations;
(viii) workforce factors such as strikes or labor interruptions;
(ix) 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;
(x) the negative impact of higher fuel prices on transportation and logistics costs, raw material costs and discretionary purchases of vehicles or aftermarket products;
(xi) the cyclical nature of the global vehicular industry, including the performance of the global aftermarket sector and longer product lives of automobile parts;
(xii) 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;
(xiii) product warranty costs;
(xiv) the cost and outcome of existing and any future legal proceedings;
(xv) economic, exchange rate and political conditions in the countries where we operate or sell our products;
(xvi) 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;
(xvii) changes by the Financial Accounting Standards Board or other accounting regulatory bodies to authoritative generally accepted accounting principles or policies;
(xviii) changes in accounting estimates and assumptions, including changes based on additional information;
(xix) governmental actions, including the ability to receive regulatory approvals and the timing of such approvals, as well as the impact of the enforcement of, changes to or compliance with laws and regulations, including those pertaining to environmental concerns, pensions or other regulated activities;
(xx) natural disasters, acts of war and/or terrorism and the impact of these occurrences or acts on economic, financial, industrial and social condition, including, without limitation, with respect to supply chains and customer demand in the countries where the company operates; and
(xxi) 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, 2011.
CONTACT:
Bill Dawson
Media Inquiries
(1) 847 482-5807
bdawson@tenneco.com
Linae Golla
Investor Inquiries
(1) 847 482-5162
lgolla@tenneco.com
Bill Dawson
Media Inquiries
(1) 847 482-5807
bdawson@tenneco.com
Linae Golla
Investor Inquiries
(1) 847 482-5162
lgolla@tenneco.com