Company Forecasts $1 Billion in OE Business Growth in 2007
- EPS of 18-cents versus a loss of 45-cents a year ago
- EBIT up 75%
- Year-over-year fourth quarter cash flow from operations improved $93 million to $158 million
- 16th consecutive quarter of year-over-year adjusted EBITDA improvement
- Company anticipates OE business growth of $1 billion in 2007
LAKE FOREST, ILLINOIS, JANUARY 26, 2006 - Tenneco Inc. (NYSE: TEN) reported fourth quarter net income of $8 million, or 18-cents per diluted share, up from a loss of $19 million, or 45-cents per diluted share, in fourth quarter 2004. Adjusted for the items below, net income rose to $13 million, or 28-cents per diluted share, compared with $10 million, or 21-cents per diluted share, a year ago (see the tables attached to the press release, which reconcile GAAP results to non-GAAP results). Cash generated by operations in the quarter was $158 million, compared with $65 million for the same period one year ago. Working capital improvements drove the strong cash performance including $115 million in cash from accounts receivable and $29 million from inventory reductions.
The company's fourth quarter revenue was $1.1 billion, even with last year. Excluding the negative impact of currency and lower margin substrate sales (previously referred to as pass-through catalytic converter sales), quarterly revenue increased 4% compared with the prior year.
EBIT (earnings before interest, taxes and minority interest) was $38 million compared with $21 million in fourth quarter 2004. EBITDA (EBIT before depreciation and amortization) was $81 million, up from $67 million the previous year. On an adjusted basis, EBIT was $53 million, up from $49 million a year ago and EBITDA was $96 million, up $1 million from fourth quarter 2004. For the first time in more than three years, currency, particularly the weakening euro, negatively impacted earnings; EBITDA was reduced by $4 million and EBIT by $2 million, compared to last year.
Adjusted fourth quarter 2004 and 2005 results:
|Q4 2005||Q4 2004|
|EBITDA||EBIT||Net Income||Per Share||EBITDA||EBIT||Net Income||Per Share|
(reflects non-GAAP measures):
|Restructuring/restructuring related expenses||5||5||3||0.06||28||28||17||0.40|
|New Aftermarket customer changeover costs||10||10||7||0.15||-||-||-||-|
|Debt issuance cost write off||-||-||-||-||-||-||27||0.60|
|Non-GAAP earnings measures||$||96||$||53||$||13||$||0.28||$||95||$||49||$||10||$||0.21|
Download and print this summary table (PDF): Adjusted fourth quarter 2005 and 2004 results
Fourth quarter 2005 adjustments:
- Restructuring related expenses of $5 million pre-tax, or 6-cents per diluted share;
- New aftermarket customer changeover costs of $10 million pre-tax, or 15-cents per diluted share;
- Tax benefit of $5 million, or 11-cents per diluted share, related to the favorable resolution of foreign tax contingencies.
Fourth quarter 2004 adjustments:
- Restructuring related expenses of $28 million pre-tax, or 40-cents per diluted share;
- Tax benefits of $15 million, or 34-cents per diluted share, primarily to recognize benefits related to previous tax losses in foreign operations;
- Expenses of $42 million pre-tax, or 60-cents per diluted share, for refinancing the company's 11.625% subordinated debt to 8.625%.
Tenneco's fourth quarter results were driven by the company having a good mix of OE business with products on stronger selling vehicles globally, new aftermarket customers in North America and improved aftermarket ride control and emission control volumes in Europe. The company also continues to benefit from its ongoing manufacturing efficiency improvements and successful cost reduction programs including restructuring and discretionary spending controls. These efforts helped offset the negative impact of higher material costs and higher transportation costs due to fuel surcharges.
"Our solid fourth quarter performance reflects our ongoing ability to execute consistent strategies for generating top-line growth, controlling costs and improving operational efficiency," said Mark P. Frissora, chairman, CEO and President, Tenneco. "We were successful in delivering a strong cash quarter as a result of our sharp focus on working capital improvements, particularly in accounts receivables and inventory reduction."
At quarter-end, total debt was $1.378 billion, compared with $1.420 billion the previous year. Debt net of cash was $1.237 billion, a modest increase versus $1.206 billion a year ago, primarily due to OEMs terminating $88 million in advance payment programs earlier in 2005.
The company's gross margin was 18.7%, relatively flat quarter-over quarter, despite the negative impact from higher steel costs and fuel surcharges on transportation costs. These factors offset savings and improved efficiencies from Lean manufacturing, Six Sigma and other cost reduction initiatives.
Total steel cost increases in the fourth 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 and Lean manufacturing efficiencies as well as partial 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 in 2006.
Tenneco significantly improved its SGA&E (sales, general, administrative and engineering) expense in the quarter to 11.0% of sales including 1.0% related to aftermarket changeover costs. This was an improvement over fourth quarter 2004 SGA&E of 12.6%, which included 1.7% in restructuring costs. The improvement was driven by cutbacks on discretionary spending and benefits from previously announced restructuring programs.
Tenneco continued to outperform its bank debt covenants in the quarter. At December 31, the leverage ratio was 3.30, lower than the maximum limit of 4.50; the fixed charge ratio was 2.22, exceeding the minimum ratio of 1.10; and the interest coverage ratio was 3.41, exceeding the minimum ratio of 2.00.
- North American OE revenue was up 4% to $372 million, versus $358 million a year ago. Excluding the impact of currency and lower margin substrate sales, revenue was up 8%, doubling a 4% market increase in light vehicle production. The increase was driven by the company's platform mix with products on strong selling vehicles and $10 million in motorcycle exhaust sales to Harley Davidson as a result of the company's earlier acquisition of Gabilan.
- North American aftermarket revenue was $113 million, up 3% year-over-year. Stronger ride control volumes and price increases in both product lines more than offset lower emission control volumes. During the quarter, the company aggressively leveraged its strong market position in North America to win new business from competitors with 12 customers, representing $15 million in annualized revenue. The changeover cost for these new customers was $10 million.
- EBIT for North American operations was $19 million, versus $22 million in fourth quarter 2004. The decline was primarily due to $10 million in aftermarket changeover costs. Adjusting for these changeover costs and restructuring expenses, EBIT was $31 million, versus $30 million in fourth quarter 2004.
EUROPE, SOUTH AMERICA, INDIA
- European OE revenue was $352 million, versus $385 million a year ago. Adjusted for currency, lower margin substrate sales and a change in reporting for a customer contract, revenue was up 6%. The increase was driven by the company's position on better selling ride control platforms as well as the production ramp-up of a new commercial vehicle exhaust platform.
- European aftermarket revenue was $76 million, versus $82 million the previous year. Excluding the impact of currency, revenues increased 3%. This improvement was largely due to stronger ride control volumes and price increases in both product lines.
- South America and India revenue was $61 million, including $7 million in favorable currency, compared with $50 million a year ago. Stronger OE volumes in both regions and increased South American aftermarket sales drove the increase.
- EBIT for Europe, South America and India was $13 million, versus a loss of $5 million in 2004 fourth quarter. Excluding fourth quarter restructuring related costs of $3 million in 2005 and $17 million in 2004, EBIT was $16 million versus $12 million a year ago, up 33%. Currency negatively impacted fourth quarter 2005 EBIT by $2 million.
- Asia operations generated $41 million in revenue, versus $31 million a year ago. Revenue growth of 31% was driven by stronger OE volumes in China due to stronger exhaust sales and the launch of a new exhaust and ride control platform.
- Australian revenue was $49 million, compared with $55 million the previous year. The decline was largely driven by lower market production volumes and a negative currency impact of $2 million.
- Asia Pacific EBIT was $6 million, up 50% from $4 million a year ago, driven by manufacturing improvements in China. 2004 EBIT included $3 million in restructuring costs.
FULL YEAR 2005 RESULTS
Adjusted for the items below, including lower interest expense and a change in the reported tax rate, full year net income was $69 million, or $1.52 per diluted share, versus $54 million, or $1.22 per diluted share, in 2004. Adjusted EBIT was $237 million, an increase from $226 million the prior year. Adjusted EBITDA was $414 million, versus $403 million in 2004.
Adjusted full year 2005 and 2004 results:
|YTD 2005||YTD 2004|
|EBITDA||EBIT||Net Income||Per Share||EBITDA||EBIT||Net Income||Per Share|
(reflects non-GAAP measures):
|Restructuring/restructuring related expenses||12||12||8||0.17||40||40||25||0.56|
|New Aftermarket customer changeover costs||10||10||7||0.15||8||8||5||0.12|
|Consulting fees indexed to stock price||-||-||-||-||4||4||3||0.06|
|Debt issuance cost write off||-||-||-||-||-||-||27||0.60|
|Non-GAAP earnings measures||$||414||$||237||$||69||$||1.52||$||403||$||226||$||54||$||1.22|
Download and print this summary table (PDF): Adjusted full year 2005 and 2004 results
Full-year 2005 adjustments:
- Restructuring and related expenses of $12 million pre-tax, or 17-cents per diluted share;
- Aftermarket changeover costs of $10 million, or 15-cents per diluted share;
- Tax benefits of $4 million, or 9-cents per diluted share.
Full-year 2004 adjustments:
- Restructuring and related expenses of $40 million pre-tax, or 56-cents per share, to improve manufacturing efficiency and reduce costs;
- Expenses of $8 million, or 12-cents per diluted share, associated with changeover costs for a new aftermarket customer;
- Expenses of $4 million pre-tax, or 6-cents per diluted share, for consulting fees indexed to the stock price based on a 1999 agreement for implementing EVA®;
- Tax benefits of $21 million or 47-cents per diluted share;
- Expenses of $42 million pre-tax, or 60-cents per diluted share for refinancing the company's subordinated debt.
Gross margin for the year was 19.3% versus 20.1% a year ago, largely impacted by higher material costs. The company reported SGA&E for the year of 10.5% of sales, including 0.2% in aftermarket changeover costs, compared with 11.7% in 2004, which included 0.6% primarily related to restructuring costs. In 2005, Tenneco realized $32 million in savings from Six Sigma programs and $35 million in incremental savings from restructuring actions.
"We had a very successful year in 2005 and were able to maintain positive momentum with solid year-over-year earnings and operational improvements in the face of difficult conditions including material price increases, the cancellation of our advance payment programs and an uncertain operating environment," said Frissora. "We also strengthened our growth prospects by winning significant new business including contracts in our targeted growth areas of diesel aftertreatment and electronic suspension systems."
In 2006, Tenneco plans to continue growing its businesses with advanced technologies and by expanding in new markets and with fast-growing customers. At the same time, the company will continue its intense focus on controlling costs, improving operational efficiency and leveraging its global supply chain spending. The company's goals include maintaining SGA&E as a percent of sales below 10.3%; achieving a net debt/EBITDA ratio of 2.8x; and generating at least $300 million in new annual business.
Tenneco estimates that its global original equipment revenues will be approximately $3.5 billion in 2006 and $4.5 billion in 2007. Adjusted for lower margin substrate sales, the company's global original equipment revenues are estimated to be approximately $2.7 billion in 2006 and $3.1 billion in 2007. These revenue estimates are based on original equipment manufacturers' programs that have been formally awarded to the company; programs where the company is highly confident that it will be awarded business based on informal customer indications consistent with past practices; Tenneco's status as supplier for the existing program and its relationship with the customer; and the actual original equipment revenues achieved by the company for each of the last several years compared to the amount of those revenues that the company estimated it would generate at the beginning of each year. These revenue estimates are also based on anticipated vehicle production levels and pricing, including precious metals pricing and the implementation of certain actions to recover a portion of material cost increases. The revenue estimates assume that foreign currency exchange rates will remain constant over the entire period.
"The operating environment for automotive supply companies remains as challenging as ever with a lot of uncertainty in the North American markets," said Frissora. "Our formula for success remains unchanged. We will continue focusing on those areas within our control, executing with discipline on the fundamentals and maintaining a relentless focus on controlling costs. We should also continue to benefit from our balance and diversification in terms of products, markets served and our customer base as well as from a strong new product and technology pipeline designed to help Tenneco win incremental OE and aftermarket business."
- Statements of Income - 3 Months
- Statements of Income - 12 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 - 12 months
- Reconciliation of GAAP to Non-GAAP Earnings Measures - 12 months
- Reconciliation of GAAP Revenues to Non-GAAP Revenue Measures - 12 months
The company will host a conference call on Thursday, January 26, 2006 at 2:00 p.m. EST. The dial in number is 888-790-1408 (domestic) or 1-773-756-0157 (international). The pass code 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 January 26, 2006. To access this recording, dial 866-365-3371 domestic or 203-369-0098 international. The purpose of the call is to discuss the company's operations for the fourth 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.
2006 ANNUAL MEETING
The Tenneco board of directors has scheduled the corporation's annual meeting of shareholders for Tuesday, May 9, 2006 at 10:00 a.m. CDT. The meeting will be held at the corporate headquarters, 500 North Field Drive, Lake Forest, Illinois. The record date for shareholders to vote at the meeting is March 14, 2006.
Tenneco is a $4.4 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 "estimates," "continue," "will," "plans," "outlook" 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 12% of its 2005 net sales, recently announced 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, 2004. Further information can be found on the company's web site at www.tenneco.com.
Tenneco Media Relations
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