LAKE FOREST, ILLINOIS, JULY 26, 2007 – Tenneco (NYSE: TEN) reported second quarter 2007 net income of $40 million, or 84-cents per diluted share, a significant increase from $24 million, or 51-cents per diluted share in second quarter 2006. Adjusted for the items below, net income was $41 million, or 87-cents per diluted share, versus $33 million, or 71-cents per diluted share one year ago (the tables attached to the press release reconcile GAAP results to non-GAAP results). The comparative 2006 financial results reflect the preliminary results of the restatement discussed in the company’s July 23, 2007 press release. Final 2006 results will be reflected in Tenneco’s restated financial statements that it expects to file in August 2007.

EBIT (earnings before interest, taxes and minority interest) increased to $102 million, from $74 million a year ago. Adjusted EBIT was $104 million, compared with $88 million in second quarter 2006. Growth in global sales on OE platforms featuring advanced technology content and operational efficiencies drove the year-over-year profit improvement.

EBITDA (EBIT before depreciation and amortization) was $152 million, up from $121 million and adjusted EBITDA rose to $154 million from $135 million for the same period last year.

Second quarter revenue increased 36% to $1.7 billion versus $1.2 billion a year ago. Substrate sales were $460 million, up from $213 million in second quarter 2006. Excluding substrate sales and favorable currency of $49 million, revenue was up 16% to $1.16 billion from $1.0 billion. The revenue growth was driven by volume increases on large North American OE emission control platforms as well as continued revenue growth in the European OE businesses and in expanding markets like China.

Adjusted second quarter 2007 and 2006 results:

 

		Q2 2007									Q2 2006
		EBITDA		EBIT		Net Income		Per Share			EBITDA		EBIT		Net Income		Per Share
Earnings Measures		$	152	$	102	$	40	$	0.84		$	121	$	74	$	24	$	0.51
Adjustments (reflects non-GAAP measures):
	Restructuring/restructuring related expenses		2		2		1		0.03			8		8		5		0.12
	New Aftermarket customer changeover costs		-		-		-		-			6		6		4		0.08
Non-GAAP earnings measures		$	154	$	104	$	41	$	0.87		$	135	$	88	$	33	$	0.71
Download and print this summary table (PDF): Adjusted second quarter 2007 and 2006 results

Second quarter 2007 adjustments:

 

Second quarter 2006 adjustments:

 

"We are very pleased with our results this quarter. In North America, the ramp-up and execution on our large diesel aftertreatment truck business is reaching the production levels we had anticipated," said Gregg Sherrill, chairman and CEO, Tenneco. "In addition, we saw robust performance in Europe and China, which reflects Tenneco’s strong geographic position."

Gross margin in the quarter was 17.2% versus 20.5% in second quarter 2006. The decline was driven by substantially higher substrate sales, primarily from volume increases on diesel truck platforms in North America, lower OE ride control sales for commercial vehicles due to the significant production decline in that industry, and a shift toward a lower percentage of total revenue generated by higher margin aftermarket business.

Total steel costs in the quarter increased $18 million year-over-year. The company offset these increases with cost reductions, material substitutions, low cost country sourcing and steel price recovery efforts with aftermarket and OE customers. The company has completed nearly all its customer steel recovery negotiations.

SGA&E (selling, general, administrative & engineering) expenses as a percent of sales decreased to 8.1% from 10.5% at the end of second quarter 2006. The company held overhead costs flat while increasing revenues and continuing to invest in engineering and technology development for its OE emission control and ride control businesses globally.

EBIT as a percent of revenue in the quarter was up year-over-year. The margin benefit from advanced technology content on new large-volume OE platform launches, cost reduction efforts and an improvement in SGA&E as a percent of sales offset the unfavorable margin impact of higher substrate sales and the shift to a higher percentage of OE revenues.

Interest expense in the quarter was $40 million, up from $35 million a year ago. The requirement to mark Tenneco fixed to floating interest rate swaps to market increased interest expense by $3 million in second quarter 2007, versus an increased expense of $2 million in the second quarter 2006. A higher level of borrowings in the quarter drove the remainder of the interest expense increase.

Cash provided by operating activities was an inflow of $67 million, versus $73 million in second quarter 2006. Cash used for working capital was $14 million versus $10 million a year ago despite higher revenues in second quarter 2007.

At quarter-end, debt net of cash balances was $1.282 billion, compared with $1.256 billion a year ago. Total debt was $1.450 billion versus $1.379 billion at the end of second quarter 2006, driven by working capital investments to service a higher level of revenues. At quarter-end, the ratio of debt net of cash balances to adjusted LTM (last twelve months) EBITDA was 2.9x, improved from 3.0x a year ago.

NORTH AMERICA

 

EUROPE, SOUTH AMERICA AND INDIA

 

ASIA PACIFIC

OUTLOOK

 

Attachment 1:
 

Attachment 2:
 

CONFERENCE CALL

The company will host a conference call on Thursday, July 26, 2007 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 26, 2007. To access this recording, dial 866-395-4188 (domestic) or 203-369-0476 (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 $4.7 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.

This press release contains forward-looking statements. Words such as "hopes," "may," "expects," "anticipate," "will," and "outlook" 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 more than 10% of its 2006 net sales, announced in 2006 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, 2006. Further information can be found on the company's web site at www.tenneco.com.

 

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CONTACT:
Tenneco Media Relations
Jane Ostrander
(1) 847 482 5607
jostrander@tenneco.com

Tenneco Investor Relations
Leslie Hunziker
(1) 847 482 5042
lhunziker@tenneco.com