Tenneco Automotive Reports Strong Second Quarter Operating Results
- 13th consecutive quarter of year-over-year revenue growth
- 14th consecutive quarter of year-over-year adjusted EBITDA improvement
- Strong cash performance offsets loss of customer advance payment program
- EBIT and EPS improve year-over-year
- Europe and South America EBIT up 43% on 13% revenue gain
LAKE FOREST, ILLINOIS, JULY 21, 2005 - Tenneco Automotive (NYSE: TEN) reported second quarter net income of $33 million, or 71-cents per diluted share, up from net income of $30 million, or 69-cents per diluted share a year ago. Adjusted for the items below, second quarter net income rose to $35 million, or 77-cents per diluted share, compared with $31 million, or 70-cents per diluted share in second quarter 2004.
EBIT (earnings before interest, taxes and minority interest) was $83 million compared with $76 million a year ago. EBITDA (EBIT before depreciation and amortization) was $127 million, versus $120 million in second quarter 2004. On an adjusted basis, EBIT was $85 million, up from $84 million a year ago, and the company reported its 14th consecutive quarter of year-over-year improved adjusted EBITDA at $129 million, up from $128 million in second quarter 2004. See the tables attached to the press release, which reconcile GAAP results to non-GAAP results.
Adjusted second quarter 2004 and 2005 results:
|Q2 2005||Q2 2004|
|EBITDA||EBIT||Net Income||Per Share||EBITDA||EBIT||Net Income||Per Share|
(reflects non-GAAP measures):
|Restructuring/restructuring related expenses||2||2||1||0.03||5||5||3||0.07|
|New Aftermarket customer changeover costs||-||-||-||-||2||2||1||0.02|
|Consulting fees indexed to stock price||-||-||-||-||1||1||1||0.01|
|Non-GAAP earnings measures||$||129||$||85||$||35||$||0.77||$||128||$||84||$||31||$||0.70|
Download and print this summary table (PDF): Adjusted second quarter 2005 and 2004 results
Second quarter 2005 adjustments:
- Restructuring related expenses of $2 million pre-tax, or 3-cents per diluted share;
- Tax expense of $1 million, or 3-cents per diluted share, primarily related to adjusting state tax net operating loss carry forwards.
Second quarter 2004 adjustments:
- Restructuring related expenses of $5 million pre-tax, or 7-cents per diluted share;
- Expenses of $2 million pre-tax, or 2-cents per diluted share, associated with changeover costs for a new aftermarket customer;
- Expenses of $1 million pre-tax, or 1-cent per diluted share, for stock price indexed consulting fees;
- Tax benefit of $4 million, or 9-cents per diluted share.
Despite a $65 million impact in the quarter from the discontinuation of General Motor's advance payment program, operating cash inflow in the quarter was $28 million, versus a $46 million inflow in the second quarter of 2004. The strong cash performance was driven by inventory reductions and improved accounts payable. At quarter-end, total debt was $1.412 billion, down from $1.419 billion a year ago. Debt net of cash was $1.346 billion versus $1.253 billion a year ago, primarily due to the discontinuation of advance payment programs by General Motors, Ford and DaimlerChrysler, which had a $94 million impact on debt over the last 12 months.
Tenneco Automotive generated its 13th consecutive quarter of year-over-year revenue growth with revenue of $1.180 billion, compared with $1.113 billion a year ago. Favorable currency benefited revenue by $33 million. Total OE revenues were up 7% year-over-year, outpacing a 2% increase in global industry production. Revenue was driven by the company's strong position on top-selling vehicles, continued gains from new OE business in Europe and stronger Japanese OE business in North America.
"Our strategies for generating top-line growth and cash continue to be effective despite difficult and volatile market conditions," said Mark P. Frissora, chairman and CEO, Tenneco Automotive. "We are also benefiting from our intense focus on managing costs and improving operational efficiency through Lean and Six Sigma. In addition, our balance in terms of products, markets, customers and vehicle platform mix gives us a competitive edge and continues to drive our progress."
The company's gross margin in the quarter was 20.3%, down 1.3 percentage points from a year ago. Higher steel costs, restructuring charges and business mix offset savings and improved efficiencies from Lean manufacturing, Six Sigma programs and other cost reduction initiatives.
Total steel cost increases in the second quarter were $35 million, which were largely offset by the company's cost reduction efforts, including SGA&E restructuring savings, material cost savings, Six Sigma program savings of $9 million and Lean manufacturing efficiencies as well as steel cost recovery from OE and aftermarket customers. Based on the company's efforts to offset increased steel costs and trends in the steel market, the company doesn't currently anticipate a significant year-over-year impact on operating results through the remainder of 2005.
Sales, General, Administrative and Engineering (SGA&E) expense in the quarter was 9.4% of sales versus 10.7% one year ago. SGA&E improvement was driven by restructuring and tight controls on discretionary spending.
The company outperformed its bank debt covenants in the quarter. At June 30, the leverage ratio was 3.41, below the maximum limit of 4.75; the fixed charge ratio was 2.03, exceeding the minimum ratio of 1.10; and the interest coverage ratio was 3.06, exceeding the minimum coverage ratio of 2.0.
- North American original equipment revenue was up 3% to $390 million, versus $379 million a year ago. Excluding the impact of currency and catalytic converter pass-through sales, revenue was up 8%, outpacing a 2% industry production decline (Tables to this press release reconcile GAAP revenues to revenues adjusted for catalytic converter pass-through sales and currency). The increase was driven by exhaust business on better selling passenger vehicle and medium truck platforms, stronger commercial vehicle volumes, volume growth on key Japanese OE platforms and specialty market revenue from acquiring the Harley Davidson exhaust business.
- North American aftermarket revenue was $146 million, versus $144 million in second quarter 2004. Ride control price increases, driven by higher steel costs, offset lower ride control volumes and exhaust sales.
- EBIT for North American operations was $52 million, versus $50 million a year ago. Adjusted second quarter 2005 EBIT was $52 million compared with adjusted EBIT of $54 million in second quarter 2004. The impact of higher steel costs in the quarter more than offset benefits from restructuring and stronger value-added volumes.
- Second quarter 2004 EBIT results include $4 million in costs related to the adjustments described above.
EUROPE AND SOUTH AMERICA
- European original equipment revenue was $382 million, up 12% versus $343 million a year ago. Adjusted for favorable currency, catalytic converter pass-through sales and a change in reporting for a customer contract, revenue was up 13%. Strong ride control volumes and the company's exhaust business on top-selling platforms drove the increase.
- European aftermarket revenue was $109 million, up from $103 million in second quarter 2004. Excluding currency, revenue was still up 3%, driven by higher exhaust revenues due to market share gains and price increases. A 10% year-over-year increase in exhaust sales helped offset a decrease in ride control revenue due to lower sales in Southern Europe and the Middle East.
- South America operations generated $50 million in revenue versus $35 million a year ago. Excluding the benefit of currency, revenue was up 25%, driven by stronger OE ride and exhaust volumes.
- EBIT for European and South American operations was $27 million, up 43% from $17 million in second quarter 2004. Adjusted EBIT in the quarter was $29 million, up from adjusted EBIT of $21 million a year ago. The strong EBIT performance was driven by higher OE and AM exhaust volumes, restructuring savings and manufacturing efficiencies, which more than offset the negative impact of higher steel costs.
- Second quarter 2005 EBIT results include $2 million in restructuring related expenses and second quarter 2004 EBIT includes $4 million in restructuring related expenses.
- Revenue from Asia operations was $44 million, versus $58 million a year ago. The decline was due to lower OE volumes in China as a result of government actions to control consumer lending and soft consumer sales at the company's largest customer in China.
- Australian revenue was $59 million, compared with $51 million in second quarter 2004. Excluding the impact of currency and pass-through sales, revenue was up 7%, driven by higher volumes on existing OE platforms.
- Lower OE volumes in China had a significant impact on Asia Pacific EBIT, which was $4 million, down from $9 million a year ago.
Through the first half of the year, Tenneco Automotive reported net income of $40 million, or 88-cents per diluted share, versus net income of $28 million, or 65-cents per diluted share reported for the first six months of 2004. On an adjusted basis, year-to-date 2005 net income was $44 million, or 97-cents per diluted share, versus adjusted net income of $37 million, or 85-cents per diluted share for the same period one year ago.
Year-to-date EBIT was $127 million compared with EBIT of $109 million in the first six months of 2004. EBITDA was $217 million versus $198 million a year ago. Adjusted year-to-date 2005 EBIT was $132 million, compared with $131 million a year ago, and adjusted EBITDA was $222 million, versus adjusted EBITDA of $220 million for the same period a year ago.
- Statements of Income - 3 Months
- Statements of Income - 6 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 Revenues to Non-GAAP Revenue Measures - 3 months
- Reconciliation of GAAP Net Income to EBITDA - 6 months
- Reconciliation of GAAP to Non-GAAP Earnings Measures - 6 months
- Reconciliation of GAAP Revenues to Non-GAAP Revenue Measures - 6 months
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The company will host a conference call on Thursday, July 21, 2005 at 10:30 am EDT. The dial-in number is 800 857-4151 domestic or 210 839-8501 international. The passcode is Tenneco Auto. The call and accompanying slides will be available on the financial section of the Tenneco Automotive web site at www.tenneco-automotive.com. A recording of the call will be available one hour following completion of the call on July 21, 2005. To access this recording, dial 866 457-5512 domestic or 203 369-1285 international. The purpose of the call is to discuss the company's operations for the second 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 Automotive web site.
Tenneco Automotive is a $4.2 billion manufacturing company with headquarters in Lake Forest, Illinois and approximately 18,400 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 "continue," "will," "expects," "believe," "plans," 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) workforce factors such as strikes or labor interruptions; (x) 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; (xi) further changes in the distribution channels for the company's aftermarket products, further consolidations among automotive parts customers and suppliers, and product warranty costs; (xii) changes by the Financial Accounting Standards Board or other accounting regulatory bodies to authoritative generally accepted accounting principles or policies; (xiii) 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 (xiv) 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, 2004. Further information can be found on the company's web site at www.tenneco-automotive.com.
Tenneco Automotive, Media Relations
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