Tenneco Reports First Quarter Earnings Of 13-Cents Per Diluted Share; Up 18% Year-Over-Year

Total revenue up 12% year-over-year to $1.56 billion
Europe segment EBIT improves 78% year-over-year
Cash flow from operations improves $26 million
North America profitability impacted by American Axle strike, general economic conditions

LAKE FOREST, ILLINOIS, APRIL 24, 2008 – Tenneco (NYSE: TEN) reported first quarter net income of $6 million, or 13-cents per diluted share, compared with $5 million, or 11-cents per diluted share, in first quarter 2007. Adjusted for the items below, net income was $10 million, or 20-cents per diluted share, even with a year ago. The tables in this press release reconcile GAAP results to non-GAAP results and the comparative 2007 results reflect adjustments made in Tenneco’s restated financial statements filed in August 2007.

EBIT (earnings before interest, taxes and minority interest) was $39 million, versus $49 million a year ago. Adjusted EBIT was $43 million, compared with $51 million in first quarter 2007. EBITDA (EBIT before depreciation and amortization) was $94 million versus $97 million the previous year. Adjusted EBITDA was slightly down at $98 million versus $99 million a year ago.

"We faced the most challenging North American industry conditions we have seen in a long time, marked by lower OE volumes including the impact of the American Axle strike on significant Tenneco-supplied GM platforms. We took immediate steps to flex down our operations in response to these volume declines," said Gregg Sherrill, chairman and CEO, Tenneco. "Our results also reflect our continued progress toward greater geographic balance – highlighted by significant profit improvement in our Europe segment and ongoing growth in Asia – and the benefit of our variable rate debt strategy that lowered interest expense."

Adjusted first quarter 2008 and 2007 results:

		Q1 2008								Q1 2007
		EBITDA		EBIT		Net Income		Per Share		EBITDA		EBIT		Net Income		Per Share
Earnings Measures		$	94	$	39	$	6	$	0.13	$	97	$	49	$	5	$	0.11
Adjustments (reflects non-GAAP measures):
	Restructuring/restructuring related expenses		4		4		3		0.06		2		2		1		0.02
	New Aftermarket customer changeover costs		-		-		-		-		-		-		4		0.07
	Tax Adjustments		-		-		1		0.01		-		-		-		-
Non-GAAP earnings measures		$	98	$	43	$	10	$	0.20	$	99	$	51	$	10	$	0.20
Download and print this summary table (PDF): Adjusted first quarter 2008 and 2007 results

First quarter 2008 adjustments:

Restructuring related expenses of $4 million pre-tax, or 6-cents per diluted share;
Non-cash tax adjustments of $1 million, or 1-cent per diluted share, mostly for changes in the company’s estimates for tax matters subject to audit.

First quarter 2007 adjustments:

Restructuring related expenses of $2 million pre-tax, or 2-cents per diluted share;
Charges of $5 million pre-tax, $4 million after-tax, or 7-cents per diluted share, associated with refinancing the senior credit facility.

First quarter revenue increased 12% to $1.56 billion, driven by favorable currency exchange rates and growth in the Asia Pacific and South America regions. Revenue in the quarter was negatively impacted by industry production volume declines in North America and the American Axle strike. The company estimates the strike resulted in lost revenue of approximately $50 million on key Tenneco-supplied GM platforms. The quarterly revenue growth included an increase in substrate sales to $421 million from $343 million in first quarter 2007. Excluding substrate sales and the benefit of $114 million in favorable currency -- primarily the strong Euro -- revenue decreased 1% from a year ago.

The company’s Europe segment continued to strengthen its EBIT margin performance with a 56% improvement year-over-year in the quarter. However, lower profitability in the North American operations as a result of lower OE volumes on light vehicle platforms and ride control commercial vehicle platforms as well as the American Axle strike drove consolidated EBIT margin down to 2.5% from 3.5% in first quarter 2007. Lower global aftermarket sales, which typically carry higher margins, also impacted EBIT margin.

In spite of the economic conditions in North America, cash from operations in the quarter improved $26 million to a use of $67 million versus $93 million a year ago, primarily on the strength of working capital improvements.

At quarter-end, debt net of cash balances was $1.302 billion, compared with $1.322 billion at the end of first quarter 2007. Cash balances were $161 million versus $136 million the prior year. Total debt was $1.463 billion versus $1.458 billion a year ago. At the end of the quarter, the ratio of debt net of cash balances to adjusted LTM (last twelve months) EBITDA improved to 2.7x, compared with 3.2x at the end of first quarter 2007.

Gross margin in the quarter was 15.0% compared with 15.8% in first quarter 2007. Industry production volume declines in North America, including the impact of the American Axle strike, higher substrate sales (27% of total revenue compared with 25% a year ago) and a lower percentage of revenue generated from aftermarket sales accounted for the decrease.

Steel costs in the quarter increased $10 million year-over-year. As successfully done in the past, Tenneco is working to offset these costs with low-cost country sourcing, material substitutions and cost reductions as well as recovery through aftermarket price increases and with OE customers. Steel recovery negotiations with some OE customers are already complete and the company anticipates having nearly all the agreements done by the end of the second quarter.

SGA&E (selling, general, administrative and engineering) expenses in the quarter increased to 9.0% of sales versus 8.7% a year ago. The increase was driven by higher planned spending on engineering in preparation for new emission control and ride control platform launches beginning in 2010. In addition, the overall volume decline in North America and the impact of the American Axle strike drove the SGA&E ratio higher than expected. Higher engineering costs were partially offset by the recovery in the quarter of $2 million in engineering expense from a customer, which was referenced in the company’s fourth quarter 2007 earnings release.

"Given the current environment, we continue to take steps to reduce costs, improve manufacturing efficiency and drive profitability while maintaining the investments required for our longer-term global growth initiatives," Sherrill said.

NORTH AMERICA

OE revenue was $550 million, up from $509 million a year ago. Excluding a 31% increase in substrate sales and $2 million in favorable currency, revenue was $331 million versus $343 million in first quarter 2007. The decrease was driven by a 7% year-over-year industry light vehicle production decline including the American Axle strike, which impacted production volumes on key GM platforms with Tenneco ride and emission control content including the Silverado and Sierra pick-ups, the Suburban, Yukon, Trailblazer and Envoy SUVs, the Hummer H2 and GM’s full-size vans.
Aftermarket revenue was $133 million, down from $134 million a year ago. Excluding currency, revenue was $131 million, driven by lower ride and emission control sales.
EBIT for North American operations was $9 million versus $30 million in first quarter 2007. First quarter 2008 and first quarter 2007 EBIT both include $1 million in restructuring costs. Adjusted for restructuring, EBIT was $10 million compared with $31 million a year ago.
The decrease in EBIT was primarily driven by OE industry volume declines and investments for new business.
- Earnings on new emission control platforms launched last year were more than offset by volume declines on other emission control platforms, resulting in a $2 million decrease in EBIT.
- Investments to grow the business also impacted EBIT including $4 million in higher engineering expenses to prepare for new ride and emission control 2010 platform launches and a $3 million increase in depreciation expense related to capital expenditures to support 2007 emission control platform launches.
- EBIT was also negatively impacted by $11 million due to a combination of OE ride control volume declines on both light vehicle platforms (particularly the volume effect of the American Axle strike) and higher-margin commercial vehicle programs, as well as lower aftermarket sales.

EUROPE, SOUTH AMERICA AND INDIA

Europe OE revenue was $555 million, up from $494 million in first quarter 2007. Excluding substrate sales and $72 million in favorable currency, revenue was $349 million versus $356 million. The decrease was largely the result of a decline in alloy surcharge recovery due to the positive impact of lower nickel prices.
Europe aftermarket revenue was $87 million compared with $80 million a year ago. Excluding favorable currency, revenue was $76 million. The decline was due to lower emission control product sales, which were partially offset by stronger ride control sales.
South America and India revenue increased to $94 million from $70 million a year ago. Excluding substrate sales and currency, revenue was $70 million versus $62 million, driven by strong OE and aftermarket volumes in South America.
EBIT for Europe, South America and India increased to $25 million from $13 million a year ago. Adjusted for restructuring in each quarter, EBIT was $28 million compared with $14 million in first quarter 2007. The strong EBIT improvement was driven by significant manufacturing efficiency improvements across all regions.

ASIA PACIFIC

Asia revenue increased 28% to $90 million, versus $70 million in first quarter 2007. Excluding substrate sales and currency, Asia revenue was $54 million, versus $44 million a year ago driven by higher OE emission control volumes in China.
Australia revenue rose 21% to $51 million, from $43 million in the same period one year ago. Excluding currency and substrate sales, revenue was $38 million, even with first quarter 2007.
Asia Pacific EBIT was $5 million, compared with $6 million a year ago. The benefit of higher OE volumes in China was more than offset by the combination of a $1 million charge related to the bankruptcy of a major aftermarket customer in Australia and manufacturing inefficiencies in Australia.

OUTLOOK
Tenneco expects little change in general industry conditions throughout the remainder of the year. In North America, Tenneco anticipates OE production volumes to remain down year-over-year; however, the company anticipates a mix improvement in North America as current labor issues within the industry are resolved. Current production schedules indicate that Europe will remain relatively stable in the second quarter, and that growth markets in South America and Asia should continue to expand. The company also expects some softness in the global aftermarket.

"Tenneco has a solid record of overcoming industry challenges by taking a disciplined approach to cost management and driving the organization to operate as efficiently as possible," said Sherrill. "We are better positioned today to weather these downturns and, as we did in the first quarter, we will take the necessary steps to bring down our costs and manage through market challenges."

"The good news is that the current industry challenges have not impacted the fundamentals driving our mid to long-term growth opportunities," Sherrill said. "Tightening vehicle emission regulations worldwide continue to generate new emission control business and broaden our market balance through further penetration of the commercial vehicle segment."

Tenneco’s higher engineering investment this quarter was, in part, directly related to new diesel aftertreatment business the company has won globally with medium and heavy-duty truck engine manufacturers for 2010 platforms, and with off-road engine manufacturers to meet the stricter off-road emission standards that begin in 2011. This new business is included in Tenneco’s projection earlier this year that the company will achieve an average compounded annual OE revenue growth rate of 11% to 13% between 2008 and 2012.

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CONFERENCE CALL
The company will host a conference call on Thursday, April 24, 2008 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 April 24, 2008. To access this recording, dial 888-662-6640 (domestic) or 402-220-6411 (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 $6.2 billion manufacturing company with headquarters in Lake Forest, Illinois and approximately 21,000 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 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;
(iii) 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;
(iv) 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;
(v) 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;
(vi) 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;
(vii) governmental actions, including the ability to receive regulatory approvals and the timing of such approvals;
(viii) 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;
(ix) the cost and outcome of existing and any future legal proceedings, and compliance with changes in regulations, including environmental regulations;
(x) workforce factors such as strikes or labor interruptions;
(xi) 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;
(xii) further changes in the distribution channels for the company's aftermarket products, further consolidations among automotive parts customers and suppliers, and product warranty costs;
(xiii) changes by the Financial Accounting Standards Board or other accounting regulatory bodies to authoritative generally accepted accounting principles or policies;
(xiv) 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
(xv) 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, 2007. Please see "Outlook" under "Management’s Discussion and Analysis of Financial Conditions and Results of Operations" included in the company’s form 10-K for the year ended December 31, 2007 for information regarding the company’s revenue projection. Further information can be found on the company's web site at www.tenneco.com.

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

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