Tenneco Reports Solid Second Quarter Results
- Global aftermarket revenue increases 7%
- European segment EBIT up 34%
- Gross margin improves to 20.5%
LAKE FOREST, ILLINOIS, JULY 27, 2006 - Tenneco Inc. (NYSE: TEN) reported second quarter 2006 net income of $24 million, or 53-cents per diluted share, versus $33 million, or 71-cents per diluted share one year ago. Adjusted for the items below, net income was $33 million, or 73-cents per diluted share, compared with $35 million, or 77-cents per diluted share in second quarter 2005 (see the attached tables, which reconcile GAAP results to non-GAAP results).
EBIT (earnings before interest, taxes and minority interest) was $73 million, versus $83 million in second quarter 2005. On an adjusted basis, EBIT was $87 million, versus $85 million a year ago. EBITDA (EBIT before depreciation and amortization) was $120 million, compared with $127 million the previous year. Adjusted EBITDA was $134 million, compared with second quarter 2005 adjusted EBITDA of $129 million.
Although adjusted EBIT and EBITDA were up year-over-year, adjusted net income declined with the impact of higher interest costs on the company's variable rate debt and increased minority interest expense due to growth in the company's China joint ventures.
Tenneco said its strong geographic and market balance, and diverse customer base helped the company produce solid results in light of challenging original equipment market conditions in North America and Australia. The company's European segment, the global aftermarket and China operations delivered improved revenue and earnings performance, partially offsetting the impact of lower OE volumes in North America and higher material costs globally. The company was also aided in the quarter by ongoing efforts to improve operational efficiency through Lean manufacturing and Six Sigma programs, and tight control of discretionary spending.
Adjusted second quarter 2006 and 2005 results:
|Q2 2006||Q2 2005|
|EBITDA||EBIT||Net Income||Per Share||EBITDA||EBIT||Net Income||Per Share|
(reflects non-GAAP measures):
|Restructuring/restructuring related expenses||8||8||5||0.12||2||2||1||0.03|
|New Aftermarket customer changeover costs||6||6||4||0.08||-||-||-||-|
|Non-GAAP earnings measures||$||134||$||87||$||33||$||0.73||$||129||$||85||$||35||$||0.77|
Download and print this summary table (PDF): Adjusted second quarter 2006 and 2005 results
Second quarter 2006 adjustments:
- Restructuring and restructuring related expenses of $8 million pre-tax, or 12-cents per diluted share;
- Aftermarket customer changeover costs of $6 million pre-tax, or 8-cents per diluted share.
Second quarter 2005 adjustments:
- Restructuring and 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.
Tenneco reported second quarter revenue of $1.22 billion, up from $1.18 billion a year ago. Favorable currency benefited revenue by $19 million. Excluding the impact of currency and substrate sales, revenue was down about 1%.
Cash flow generated from operations in the quarter was $80 million, compared with $32 million in second quarter 2005 when the discontinuation of the General Motors Advanced Payment Program negatively impacted cash performance. This improved cash performance has allowed the company to make additional capital investments for significant growth expected in 2007.
Debt net of cash was $1.246 billion, down from $1.346 billion a year ago. The ratio of debt net of cash balances to adjusted LTM (Last Twelve Months) EBITDA was 3.0, versus 3.3 for the same period last year. At quarter-end, total debt decreased to $1.369 billion from $1.412 billion a year ago.
Tenneco's gross margin in the quarter was 20.5%, an improvement over 20.3% a year ago. Operational improvements and the impact of higher margin North American aftermarket ride control sales more than offset higher restructuring costs; the impact of increased European substrate sales on high volume platforms; and $8 million related to higher gross material costs.
Sales, General, Administrative and Engineering (SGA&E) expense in the quarter was 10.6% of sales versus 9.4% in second quarter 2005. SGA&E expense for the quarter as a percentage of LTM sales was 10.8%, an improvement from 11.1% for the same period a year ago. SGA&E in the quarter was impacted by restructuring and aftermarket customer changeover costs.
- North America OE revenue was $367 million, down from revenue of $390 million a year ago. Excluding the impact of currency, revenue was $365 million (the attached tables reconcile GAAP revenues to revenues adjusted for substrate sales and currency.) The decrease was primarily the result of lower exhaust volumes due to OE production declines and the build out on several key exhaust platforms, which more than offset stronger heavy duty ride control volumes and the ramp-up of a major ride control platform.
- North America aftermarket revenue increased 8% to $157 million, versus $146 million a year ago. The increase was driven by higher ride control volumes and price increases in both the ride control and exhaust product lines. Business from previously announced new customers generated $3 million of the revenue increase.
- EBIT for North American operations was $37 million, compared with $52 million in second quarter 2005. Second quarter 2006 EBIT includes $4 million in restructuring costs and $6 million for aftermarket customer changeover costs.
- In addition to the negative impact of restructuring and aftermarket customer changeover costs, EBIT was impacted by lower OE exhaust volumes and higher material costs, which more than offset manufacturing efficiency improvements and cost reduction efforts.
EUROPE, SOUTH AMERICA AND INDIA
- Europe OE revenue was $412 million, up from $382 million a year ago. Excluding the impact of currency, revenue was up almost 5%. Substrate sales as a percentage of revenue increased to 37% of total Europe OE emission control revenue from 31% a year ago due to an increase in diesel aftertreatment and hot-end exhaust business.
- Europe aftermarket revenue was $118 million, up 9% from $109 million in second quarter 2005 and up 7% excluding the impact of currency. The increase was driven by stronger ride control volumes and price increases and market share gains in the exhaust business.
- South America and India revenue was $66 million, up from $59 million the previous year. Higher volumes in South America and India and a $4 million positive currency impact in South America drove the increase.
- EBIT for Europe, South America and India was $34 million, a 34% increase over $27 million a year ago. EBIT benefited from $1 million in currency.
- EBIT included $3 million in restructuring costs compared with $2 million in second quarter 2005.
- The significant EBIT improvement, despite a higher percentage of substrate sales, was primarily driven by better manufacturing performance, particularly in the European OE emission control business; higher aftermarket sales; and tight spending controls.
- Asia revenue was $58 million, a 60% increase over $35 million a year ago, mainly driven by higher OE exhaust sales in China including new platform launches. Excluding substrate sales, revenue was up 51% year-over-year.
- Australia revenue was $44 million, down 26% from $59 million in second quarter 2005, primarily driven by a sharp decline in OE volumes with domestic industry production down almost 25% compared with the previous year. Lower aftermarket sales also negatively impacted revenue.
- Asia Pacific EBIT was $2 million, versus $4 million a year ago. Second quarter 2006 EBIT included $1 million in restructuring costs.
- The EBIT decline was the result of lower OE volumes in Australia and higher workers compensation costs in Australia, which more than offset operational improvements in Asia OE operations and the benefit from new business launches in China.
Like other auto suppliers, Tenneco has faced a difficult environment through the first half of 2006. The company's strong global manufacturing and distribution footprint; presence in a variety of markets; and diverse customer base have helped mitigate market pressures, particularly in North America and Australia. In addition, the company has benefited from its focus on consistent strategies for improving cash performance, optimizing operations, and controlling costs, while preparing for a significant growth year in 2007.
Through the first half of 2006, Tenneco reported net income of $31 million, or 67-cents per diluted share, versus net income of $40 million, or 88-cents per diluted share for the first six months of 2005. On an adjusted basis, year-to-date net income was $42 million, or 94-cents per diluted share, compared with $44 million, or 97-cents per diluted share a year ago.
Year-to-date EBIT was $115 million compared with EBIT of $127 million for the first half of 2005. Adjusted year-to-date EBIT was $136 million compared with $132 million the previous year. EBITDA was $206 million, versus $217 million a year ago. Adjusted EBITDA was $227 million for the first half of 2006, versus $222 million for the same period a year ago.
Tenneco anticipates that the North American and Australian OE markets will continue to be challenging with revenue and earnings pressure from lower OE production rates through the remainder of the year. The company hopes to counter the impact of market downturns with its European segment and China operations. The company also intends to stay focused on factors within its control - intensely managing costs; continuously improving manufacturing efficiency; and leveraging global supply chain spending.
Tenneco remains committed to its goal of de-leveraging by reducing net debt to adjusted EBITDA to 2.8X by the end of the year.
- Statements of Income - 3 Months
- Statements of Income - 6 Months
- Balance Sheets
- Statements of Cash Flows
- 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 - 6 months
- Reconciliation of GAAP to Non-GAAP Earnings Measures - 6 months
- Reconciliation of GAAP Revenues to Non-GAAP Revenues - 3 months
- Reconciliation of GAAP Revenues to Non-GAAP Revenues - 6 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
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The company will host a conference call on Thursday, July 27, 2006 at 10:30 a.m. EDT. The dial-in number is 888-790-1408 (domestic) or 773-756-0157(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 July 27, 2006. To access this recording, dial 800-262-5125 (domestic) or 402-220-9716 (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.
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 "hopes," "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.
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