- EPS improves 40 percent; EBIT up 16 percent
- Record third quarter revenue of $998 million
- 11th consecutive quarter of year-over-year EBIT and EBITDA improvement
- European EBIT improves to $6 million versus a $3 million loss a year ago
LAKE FOREST, ILLINOIS, OCTOBER 20, 2004 - Tenneco Automotive (NYSE: TEN) reported third quarter net income of $6 million, or 14-cents per diluted share, versus net income of $4 million, or 10-cents per diluted share in third quarter 2003. EBIT (earnings before interest, taxes and minority interest) for the quarter was $44 million versus $38 million a year ago. EBITDA (EBIT before depreciation and amortization) was $86 million, compared with $78 million in third quarter 2003.
The company's strong position on top-selling vehicles worldwide and strengthening North American aftermarket ride control sales generated record third quarter revenue of $998 million, versus $914 million a year ago. Favorable currency exchange rates impacted revenue by $33 million.
Adjusted for the items described below, third quarter adjusted net income increased to $7 million, or 16-cents per diluted share compared with $1 million, or 1-cent per diluted share, in third quarter 2003. Adjusted EBIT was $46 million and EBITDA was $88 million, up 18 percent and 11 percent, respectively.
Adjusted third quarter 2004 and 2003 results:
|Q3 2004||Q3 2003|
|EBITDA||EBIT||Net Income||Per Share||EBITDA||EBIT||Net Income||Per Share|
(reflects non-GAAP measures):
|Restructuring/restructuring related expenses||2||2||2||0.04||1||1||1||0.02|
|Debt issuance cost write off||-||-||-||-||-||-||(1)||(0.02)|
|Non-GAAP earnings measures||$||88||$||46||$||7||$||0.16||$||79||$||39||$||1||$||0.01|
Additional information regarding Non-GAAP financial results, including a reconciliation of EBITDA and other Non-GAAP earnings measures, is included in the tables that appear in attachment 2 to this press release.
Third quarter 2004 adjustments:
- Restructuring related expenses of $2 million pre-tax, or 4-cents per diluted share;
- Tax benefit of $1 million, or 2-cents per diluted share.
Third quarter 2003 adjustments:
- Restructuring related expenses of $1 million pre-tax, or 2-cents per diluted share;
- Tax benefit of $3 million, or 9-cents per diluted share;
- Debt issuance write-off costs of $1 million, or 2-cents per diluted share.
"We delivered stronger year-over-year financial results this quarter despite challenging market conditions including escalating material costs, especially for carbon steel," said Mark P. Frissora, chairman and CEO, Tenneco Automotive. "While we have taken effective steps to help offset some of the price increases year-to-date, this remains our greatest challenge going forward. In addition to our focus on growth, we are working to lower our cost of doing business in order to maintain our momentum in spite of the materials cost burden."
The company's gross margin in the quarter was 20 percent compared with 20.5 percent in third quarter 2003. Gross margin was negatively impacted by .4 (four tenths) percent in the quarter due to a shifting business mix as the company's global OE growth outpaced higher margin aftermarket growth. The business mix coupled with the negative impact of approximately $10 million in steel price increases on materials not protected under contract offset strong OE volumes, aftermarket price increases, and the benefits from efficiency improvement and cost management activities. As it has in the past, the company anticipates achieving price recovery from its customers to help offset increased steel costs.
Restructuring activities in the quarter generated $4 million in savings and Six Sigma quality programs delivered $8 million in savings. The company's SGA&E (selling, general, administrative and engineering) expense in the quarter decreased to 11.3 percent of sales versus 11.9 percent a year earlier.
Tenneco Automotive reported its third consecutive quarter of record low net debt of $1.220 billion. Cash balances were $203 million at quarter-end and total debt was $1.423 billion.
The company outperformed the requirements of its bank debt covenants in the quarter. At September 30, the leverage ratio was 3.69, below the maximum limit of 4.75; the fixed charge coverage ratio was 1.78, exceeding the required ratio of 1.10; and the interest coverage ratio was 2.75, exceeding the minimum coverage ratio of 2.00.
- North American original equipment revenue was $338 million, including $71 million in catalytic converter pass-through sales, versus $329 million in third quarter 2003 with $67 million in pass-through sales. The company's strong position on top-selling vehicles and growing business with Japanese OEMs drove the increase, outpacing a 1 percent industry production decline.
- North American aftermarket revenue was $127 million, compared with $123 million a year earlier. The increase was the result of sales to new customers and higher ride control sales.
- EBIT for North American operations was $31 million, compared with $32 million the previous year. Higher material costs offset stronger OE and aftermarket ride control sales and manufacturing efficiencies.
- European original equipment revenue was $305 million, a 21 percent increase over $252 million a year earlier. New ride control platform launches and the company's position on better-selling vehicles drove the increase, which outpaced industry production by six percentage points. Results include $21 million in favorable currency and $74 million in catalytic converter pass-through sales. Third quarter 2003 results include $56 million in pass-through sales.
- European aftermarket revenue was $94 million, including $7 million in favorable currency, versus $92 million in third quarter 2003. Lower sales in both product lines more than offset market share gains and price increases in the exhaust segment.
- European EBIT was $6 million, including $1 million in favorable currency, compared with a loss of $3 million a year earlier. Higher OE volumes, successful cost management efforts and aftermarket price increases drove the improvement.
- Third quarter 2004 EBIT results include $2 million in restructuring related expenses. Third quarter 2003 EBIT results include $1 million in restructuring related expenses.
REST OF WORLD
- Revenue from Asian operations was $42 million, flat with the previous year. Weaker OE volumes in China impacted results with revenue from the company's new joint ventures offsetting sales declines from other China operations.
- Revenue from South American operations was $42 million, versus $31 million in third quarter 2003. The increase was driven by stronger OE volumes and aftermarket sales in all markets.
- Australian operations generated $50 million in revenue, compared with $45 million in third quarter 2003. Revenue includes $4 million in favorable currency and was driven by OE volumes.
- Reported combined EBIT for Asia, South America and Australia was $7 million versus $9 million in third quarter 2003. The decline was largely the result of lower OE volumes in China and manufacturing inefficiencies due to a customer start-up issue in Australia.
|YTD 2004||YTD 2003|
|EBITDA||EBIT||Net Income||Per Share||EBITDA||EBIT||Net Income||Per Share|
(reflects non-GAAP measures):
|Restructuring/restructuring related expenses||12||12||8||0.18||7||7||4||0.11|
|New Aftermarket customer changeover costs||8||8||5||0.13||-||-||-||-|
|Consulting fees indexed to stock price||4||4||3||0.06||-||-||-||-|
|Debt issuance cost write off||-||-||-||-||-||-||2||0.05|
|Non-GAAP earnings measures||$||308||$||177||$||44||$||1.01||$||263||$||143||$||21||$||0.50|
"We remain cautious about the fourth quarter and into 2005. We anticipate continued growth in our European operations with a significant number of new ride and emission control platform launches throughout 2005. In North America, we are winning new OE contracts in both business units and maintaining a strong position on top-selling platforms. We are also encouraged by this quarter's increase in North American aftermarket ride control sales," said Frissora. "However, despite these growth drivers, we are operating in a weaker OE environment in North America and China. In addition, we remain very concerned about the potential impact of rising steel prices on future results."
"We are currently negotiating 2005 steel contracts with our suppliers as well as negotiating with both our aftermarket and OE customers for steel price recovery," added Frissora. "In addition, we are actively pursuing material substitutions and other cost reduction opportunities to lessen our exposure to steel volatility and will initiate other actions, as necessary, to help offset the impact of price increases."
In addition to its actions on steel, the company is continuing to look at ways to lower its cost structure through consolidations, shared services and more aggressive discretionary spending targets.
Attachment 1 to this press release provides additional information on Tenneco Automotive's third quarter results:
- Statements of Income - 3 Months
- Statements of Income - 9 Months
- Balance Sheet
- Statements of Cash Flow
- Reconciliation of GAAP Net Income to EBITDA - 3 months
- Reconciliation of GAAP to Non-GAAP Earnings Measures - 3 months
- Reconciliation of GAAP Net Income to EBITDA - 9 months
- Reconciliation of GAAP to Non-GAAP Earnings Measures - 9 months
- Reconciliation of GAAP Revenues to Non-GAAP Revenue Measures - 3 months
- Reconciliation of GAAP Revenues to Non-GAAP Revenue Measures - 9 months
The company will host a conference call on October 20, 2004 at 10:30 a.m. EDT. The dial-in number is 888-399-8606 (domestic) or 517-308-9007 (international). The passcode is Tenneco Auto. The call will be available on the financial section of the Tenneco Automotive web site at www.tenneco-automotive.com. A copy of the press release is available on the financial and news sections of the Tenneco Automotive web site. A recording of this call will be available one hour following completion of the call on October 20, 2004 through October 27, 2004. To access this recording, dial 888-566-0635 (domestic) or 402-998-0730 (international).
Tenneco Automotive is a $3.8 billion manufacturing company with headquarters in Lake Forest, Illinois and approximately 19,200 employees worldwide. Tenneco Automotive 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 Automotive 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 "anticipate," "potential," "encouraged," "believe" 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, including the overall highly competitive nature of the automotive parts industry, and 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; (ii) 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 and other methods; (iii) 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; (iv) 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; (v) 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; (vi) governmental actions, including the ability to receive regulatory approvals and the timing of such approvals; (vii) 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; (viii) the cost and outcome of existing and any future legal proceedings, and compliance with changes in regulations, including environmental regulations; (ix) 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; (x) further changes in the distribution channels for the company's aftermarket products, further consolidations among automotive parts customers and suppliers, and product warranty costs; (xi) changes by the Financing Accounting Standards Board or other accounting regulatory bodies of authoritative generally accepted accounting principles or policies; (xii) 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 (xiii) 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, 2003. Further information can be found on the company's web site at www.tenneco-automotive.com.
Tenneco Automotive, Media Relations
(1) 847 482 5607
Tenneco Automotive, Investor Relations