- Cash flow from operations improves $73 million year-over-year
- European segment EBIT up 45%
- North American aftermarket improves; revenue up 8%
- Debt net of cash down $52 million year-over-year
LAKE FOREST, ILLINOIS, APRIL 27, 2006 - Tenneco Inc. (NYSE: TEN) reported first quarter 2006 net income of $7 million, or 14-cents per diluted share, versus $7 million, or 16-cents per diluted share in first quarter 2005. Adjusted for the items below, net income was $9 million, or 20-cents per diluted share, even with a year ago (see the tables attached to the press release, which reconcile GAAP results to non-GAAP results). This quarter's net income includes an expense of $1 million for adopting the new accounting standard for expensing stock-based compensation.
EBIT (earnings before interest, taxes and minority interest) was $42 million compared with $44 million in first quarter 2005. On an adjusted basis, EBIT was $49 million, up from $47 million a year ago. Currency had a $2 million negative impact on EBIT in the quarter, versus first quarter 2005. EBITDA (EBIT before depreciation and amortization) was $86 million, compared with $90 million the previous year. Adjusted EBITDA was $93 million, even with first quarter 2005. Currency had a $3 million negative impact on EBITDA in the quarter, versus first quarter 2005.
Cash used by operations in the quarter was an outflow of $23 million, reflecting the seasonality of the business, compared with an outflow of $96 million for the same period one year ago. The $73 million improvement was driven by working capital improvements and reflects year-over-year improvement of $19 million in inventory and $46 million in cash from accounts payable.
The strong cash performance resulted in debt net of cash of $1.288 billion, an improvement versus $1.340 billion a year ago. The ratio of debt net of cash balances to adjusted LTM (Last Twelve Months) EBITDA was 3.1, down from 3.3 for the same period last year. Total debt was $1.384 billion, down from $1.408 billion a year ago.
Adjusted first quarter 2006 and 2005 results:
|Q1 2006||Q1 2005|
|EBITDA||EBIT||Net Income||Per Share||EBITDA||EBIT||Net Income||Per Share|
(reflects non-GAAP measures):
|Restructuring/restructuring related expenses||6||6||4||0.09||3||3||2||0.04|
|Stock based compensation accounting change||1||1||1||0.03||-||-||-||-|
|Non-GAAP earnings measures||$||93||$||49||$||9||$||0.20||$||93||$||47||$||9||$||0.20|
Download and print this summary table (PDF): Adjusted first quarter 2006 and 2005 results
First quarter 2006 adjustments:
- Restructuring related expenses of $6 million pre-tax, or 9-cents per diluted share;
- Expense of $1 million, or 3-cents per diluted share, to adjust for new stock-based compensation accounting standard and the impact of a higher number of diluted shares outstanding due to the new accounting standard.
- ax benefit of $3 million, or 6-cents per diluted share, primarily related to resolution of tax issues with former affiliates.
First quarter 2005 adjustments:
- Restructuring related expenses of $3 million pre-tax, or 4-cents per diluted share.
Tenneco's first quarter revenue was $1.13 billion, up 3% year-over-year. Excluding the negative impact of currency and substrate sales, quarterly revenue increased 2%.
Tenneco's balanced global presence helped drive first quarter results with earnings gains in Europe; stronger North American aftermarket performance on higher ride control volumes; and increased OE revenues in China due to the ramp-up of new platform launches. The company's North American OE revenues and earnings were negatively impacted by the wind down on several emission control vehicle platforms. Also, an increase in substrate sales in the company's European OE emission control business had an impact on Europe's year-over-year earnings improvement. Tenneco's ongoing efforts to improve manufacturing efficiency and reduce costs partially offset the impact from these issues.
"Our earnings results reflect current North American market conditions including the earlier than anticipated wind down on a large platform. Additionally, unfavorable currency had a negative impact on our EBIT results and year-over-year comparison. However, our geographical balance helped offset North American OE market pressure as we continued to see improvement in our European operations, North American aftermarket and in China," said Mark P. Frissora, chairman, CEO and president, Tenneco. "We are also pleased with the momentum we maintained on key strategies - improving cash performance, reducing debt and controlling costs - as we prepare for significant new business launches scheduled for later this year."
The company's gross margin was 18.6%. The decrease from 19.3% in first quarter 2005 was driven by an increase in substrate sales, which, on average, carry lower margins; timing on recovering costs on some steel increases; $7 million in gross material cost increases; $3 million in restructuring costs; and $1 million in higher fuel surcharges, all of which offset improved manufacturing performance from Lean and Six Sigma efforts.
Sales, General, Administrative and Engineering (SGA&E) expense in the quarter improved to 10.9% of sales from 11.1% of sales for the prior year as the company benefited from spending controls and previously announced restructuring. SGA&E on an LTM basis was 10.5%, improved from 11.4% for the same period a year ago.
- North American OE revenue was $374 million, slightly down from revenue of $375 million a year ago. Excluding the impact of currency and substrate sales, revenue was $305 million, compared with $308 million in first quarter 2005. (Tables to the press release reconcile GAAP revenues to revenues adjusted for substrate sales and currency.) Higher ride control revenues were offset by lower exhaust volumes, primarily due to the wind down on several exhaust platforms.
- North American aftermarket revenue increased 8% to $141 million from $130 million the previous year, driven by stronger ride control unit sales and higher pricing in both product lines.
- EBIT for North American operations was $34 million, down from $37 million in first quarter 2005. Volume declines on key exhaust platforms more than offset improved manufacturing efficiencies and cost reduction efforts. EBIT results reflect a negative currency impact of $1 million and $1 million in costs associated with preparing for new business launches later in the year.
- EBIT for first quarter 2006 includes $3 million in restructuring and $1 million for adopting the new accounting standard for stock-based compensation. First quarter 2005 EBIT includes $2 million in restructuring.
EUROPE, SOUTH AMERICA, INDIA
- European OE revenue was $387 million up from $381 a year ago. Adjusted for currency, substrate sales and a change in reporting for a customer contract, revenue was up 5% from the previous year, driven by higher volumes in both exhaust and ride control product lines.
- European aftermarket revenue declined to $75 million, versus $82 million the previous year. Excluding the impact of currency, revenue was $81 million compared with $82 million in first quarter 2005. The decline was primarily due to slightly lower exhaust unit sales, which offset higher ride control sales and price increases in the exhaust business.
- South America and India revenue was $65 million, up from $51 million a year ago. South America drove the increase with higher OE volumes and a slight increase in aftermarket ride control sales. Adjusting for currency and substrate sales, revenue was $52 million, up from $47 million the prior year.
- EBIT for Europe, South America and India was $8 million, up from $5 million in first quarter 2005 as a result of improved manufacturing performance and continued benefits from restructuring and cost reduction efforts. EBIT results reflect a negative currency impact of $1 million.
- EBIT included $1 million in restructuring costs in both first quarter 2006 and 2005.
- Asia operations generated $50 million in revenue, a 45% increase from $35 million a year ago. Newly launched platforms and 69% higher OE volumes in China drove the improvement. Excluding substrate sales, revenue was $33 million compared with $22 million a year ago.
- Australian revenue was $40 million versus $47 million the prior year, largely the result of lower volumes due to the weakening Australian OE market and lower aftermarket sales. Excluding the impact of currency and substrate sales, revenue was down 11%.
- Asia Pacific EBIT was breakeven, versus $2 million a year ago. Adjusted for $2 million in restructuring in first quarter 2006, EBIT was flat year-over-year. Stronger OE volumes in China offset OE volume declines and lower aftermarket sales in Australia.
"Looking ahead, we are cautiously optimistic as we manage this year and prepare for significant growth in 2007," said Frissora. "We expect year-over-year profitability improvements to continue in our European operations as well as in the North American aftermarket. We will also begin to see early benefits in our North American OE businesses from significant new platforms scheduled to launch later this year, and our operations in China are expected to continue to grow."
- 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 Non-GAAP Measures - Ratio of Debt Net of Cash to Adjusted EBITDA- LTM
- Reconciliation of Non-GAAP Measures - SGA&E as Percent of Sales - LTM
The company will host a conference call on Thursday, April 27, 2006 at 10:30 a.m. EDT. The dial in number is 888-790-1408 (domestic) or 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 April 27, 2006. To access this recording, dial 866-422-8164 (domestic) or 203-369-0833 (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.
2006 ANNUAL MEETING
Tenneco's annual meeting of shareholders will be on 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 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 $4.4 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, 2005. Further information can be found on the company's web site at www.tenneco.com.
Tenneco Media Relations
(1) 847 482 5607
Tenneco Investor Relations
(1) 847 482 5042