Tenneco Reports First Quarter Financial Results
- Global OE production declines and stronger U.S. dollar impacted revenue and EBIT results
- Focus on working capital improvements reflected in solid cash flow performance
- Cost reduction and cash generation actions helped offset negative production environment
- Gross margin sequential improvement over 4Q 2008; strongest gross margin performance since 2Q 2008
LAKE FOREST, ILLINOIS, APRIL 30, 2009 – Tenneco Inc. (NYSE: TEN) reported a first quarter net loss of $49 million, or $1.05 per diluted share, compared with net income of $6 million, or 13-cents per diluted share in first quarter 2008. Adjusted for the items below, the net loss was $29 million, or 61-cents per diluted share, compared with adjusted net income of $10 million, or 20-cents per diluted share a year ago. The tables in this press release reconcile GAAP results to non-GAAP results.
EBIT (earnings before interest, taxes and noncontrolling interests) was a loss of $13 million, versus EBIT of $39 million the previous year. Adjusted EBIT was a loss of $10 million, versus adjusted EBIT of $43 million a year ago. EBIT was negatively impacted by significantly lower OE production volumes worldwide and manufacturing fixed cost absorption related to those volume declines, which together reduced EBIT by $100 million in the quarter. EBIT was also negatively impacted by $13 million related to unfavorable currency exchange rates compared to a year ago.
The company partially offset the negative EBIT drivers with lower SGA&E spending, execution on restructuring actions, manufacturing efficiency improvements and customer recoveries.
EBITDA including noncontrolling interests (EBIT before depreciation and amortization) was $39 million compared with EBITDA of $94 million in first quarter 2008. Adjusted EBITDA including noncontrolling interests was $41 million, versus $98 million the prior year.
"This was a very challenging quarter as production volumes continued to decline to extremely low levels with no region of the world unaffected," said Gregg Sherrill, chairman and CEO, Tenneco. "However, restructuring actions and our employees’ concerted efforts to aggressively reduce costs and generate cash were instrumental in helping to offset the impact of this severe industry downturn."
Adjusted first quarter 2009 and 2008 results:
|Q1 2009||Q1 2008|
|EBITDA||EBIT||Net Loss attributable to Tenneco Inc.||Per Share||EBITDA||EBIT||Net Income attributable to Tenneco Inc.||Per Share|
(reflects non-GAAP measures):
|Restructuring/restructuring related expenses||2||3||2||0.05||4||4||3||0.06|
|Net tax adjustments||-||-||18||0.39||-||-||1||0.01|
|Non-GAAP earnings measures||$||41||$||(10)||$||(29)||$||(0.61)||$||98||$||43||$||10||$||0.20|
First quarter 2009 adjustments:
- Restructuring and restructuring related expenses of $3 million pre-tax, or 5-cents per diluted share;
- Non-cash tax charges of $18 million, or 39-cents per diluted share, primarily related to the impact of not benefiting tax losses in the U.S. and certain foreign jurisdictions.
First quarter 2008 adjustments:
- Restructuring and 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 revenue was $967 million, down 38% from $1.560 billion a year ago. The impact of unfavorable currency in the quarter was $175 million. Excluding the currency impact and substrate sales, revenue was $928 million, down 18% from $1.139 billion in first quarter 2008. The decline was due to lower year-over-year OE production volumes in every region.
Tenneco’s cash performance was solid in spite of a production climate that reduced EBITDA including noncontrolling interests by $55 million compared to a year ago, and despite a $45 million year-over-year reduction in cash flow from the sale of receivables. The company used $81 million in cash from operations in the quarter, compared with a use of $64 million in first quarter 2008. Inventory reductions and accounts receivable were the strongest drivers. Cash flow from accounts receivable improved year-over-year by $33 million. Additionally, a tight focus on controlling inventories generated a $77 million year-over-year improvement in cash flow this quarter. Cash flow from inventories was $34 million versus a use of $43 million in cash a year ago.
Tenneco’s efforts to conserve cash while continuing to invest in technology, capabilities and assets for future growth resulted in capital spending in the quarter of $25 million, a 52% decrease from $52 million in first quarter 2008.
"We are very pleased with our cash performance given the headwinds we faced this quarter," said Sherrill. "We are executing on our cost reduction and cash management plans and managing liquidity through working capital improvements, significantly reducing capital expenditures and eliminating discretionary spending."
At March 31, 2009, the company’s leverage ratio under its senior credit facility was 4.72, below the maximum level of 5.50. The interest coverage ratio was 2.91, above the minimum of 2.25. Tenneco amended its senior secured credit facility in the quarter in response to difficult industry conditions globally. The amended facility adjusts the debt covenant ratios through 2011. At the end of the quarter, Tenneco had an EBITDA cushion of $45 million and a debt cushion of $248 million against its tightest covenant.
At quarter-end, total debt was $1.587 billion, versus $1.463 billion the prior year. Cash balances were $113 million versus $161 million a year ago. Debt net of cash balances was $1.474 billion, compared with $1.302 billion at the end of first quarter 2008. Tenneco completed the quarter with $270 million in unused borrowing capacity under its $680 million revolving credit facility. At December 31, 2008, total debt was $1.451 billion; cash balances were $126 million and debt net of cash balances was $1.325 billion.
Gross margin as a percent of sales in the quarter was 14.5%, compared with 15.0% a year ago. The company minimized the negative impact from lower production volumes, manufacturing fixed cost absorption and unfavorable currency with cost reduction actions, customer recoveries and manufacturing efficiencies. Gross margin in the quarter included $2 million in restructuring costs and first quarter 2008 gross margin included $3 million in restructuring costs. In addition, this quarter’s gross margin performance was a sequential improvement over fourth quarter 2008 – despite 20% lower sales - and represents the strongest gross margin performance since second quarter 2008, reflecting the effectiveness of the company’s restructuring and operational cost reduction actions globally.
Tenneco’s aggressive cost reduction efforts – including restructuring, employee furloughs and customer engineering cost recoveries - lowered SGA&E (sales, general, administrative and engineering) expense in the quarter to $99 million from $141 million a year ago. SGA&E as a percent of sales increased to 10.2% from 9.0% due to lower year-over-year revenues.
- OE revenue was $333 million, down 39% year-over-year from $550 million, driven by lower OE production volumes. Excluding currency and substrate sales, revenue declined 32% to $225 million from $333 million. Industry light vehicle production was down 51%. Industry Class 8 commercial vehicle production was down 42% and industry Class 5-7 commercial vehicle production was down 47% from a year ago.
- Aftermarket revenue was $136 million, an increase from $133 million a year ago. Excluding the impact of negative currency, revenue was $139 million.
- EBIT for North America operations was $4 million, versus $9 million a year ago.
- First quarter 2009 EBIT included $2 million in restructuring and restructuring related expenses and first quarter 2008 included $1 million in restructuring and restructuring related expenses.
- The benefits to EBIT from lower SGA&E spending, restructuring savings, improved aftermarket pricing, new platform launches and customer recoveries partially offset lower OE production volumes and related manufacturing fixed cost absorption, which together had the most significant negative impact on EBIT. To a lesser extent, EBIT was also impacted by unfavorable currency.
EUROPE, SOUTH AMERICA AND INDIA
- Europe OE revenue was $278 million, a 50% decline from $555 million a year ago, due to significantly lower OE production volumes. Excluding the impact of currency and substrate sales, revenue was down 19% to $323 million from $400 million. Industry light vehicle production fell 48% year-over-year.
- Europe aftermarket revenue was $60 million, a 31% decline from $87 million a year ago, driven by sales declines in both product lines and the negative impact of currency. Excluding currency, revenue declined 13% to $75 million from $87 million a year ago.
- South America and India revenue was $68 million, a 29% decrease from $94 million in first quarter 2008, primarily driven by the impact of currency and substrate sales. Excluding currency and substrate sales, revenue was $80 million, even with a year ago. Lower production volumes in Brazil and Argentina were offset by improved pricing.
- EBIT for Europe, South America and India was a loss of $17 million, compared with earnings of $25 million in first quarter 2008. Adjusted for the items below, EBIT was a loss of $16 million, versus earnings of $28 million a year ago.
- First quarter 2009 EBIT included $1 million in restructuring and restructuring related expenses. First quarter 2008 EBIT included $3 million in restructuring and restructuring related expenses.
- The benefits to EBIT from reduced SGA&E spending, restructuring savings, improved aftermarket pricing and new OE platform launches were more than offset by significantly lower OE production volumes and related manufacturing fixed cost absorption, which together had the greatest negative impact on EBIT. EBIT was also negatively impacted by unfavorable currency in the quarter.
- Asia revenue was $67 million, a 25% decline from $90 million a year ago, driven by a decline in China OE production volumes on key platforms. Excluding substrates sales and currency, revenue was $48 million, down 22% from $62 million in first quarter 2008.
- Australia revenue was $25 million, a 52% decline from $51 million the prior year. Excluding unfavorable currency and substrate sales, revenue was $38 million, down 15% from $44 million. The decline was driven by sharply falling industry production volumes in the quarter, which were down 38% year-over-year as customers adjusted production to declining sales.
- Asia Pacific EBIT was breakeven, compared with earnings of $5 million a year ago, driven by lower production volumes in China and Australia and related manufacturing fixed cost absorption, partially offset by cost reductions and improved efficiency.
Tenneco reiterated that cash generation and strict cost management remain its top near-term priorities in response to the global economic crisis. In addition to the cash and cost containment actions announced during the second half of 2008 and earlier this year, Tenneco also initiated plans globally to temporarily lower its salary costs for salaried employees by at least 10%, beginning April 1, 2009 to help counter the ongoing impact of low production volumes. These plans are being tailored to each of its markets and include salary cuts and work hour reduction programs. Executives at the most senior levels have taken larger salary reductions.
"As an organization, we are committed to taking the actions necessary to withstand this crisis and keep the company positioned and prepared to capitalize on an eventual recovery," Sherrill said. "Despite current conditions, we continue to make targeted investments in technologies and the capabilities required to support upcoming customer launches, including regulatory driven emission control business for light and commercial vehicles that begin production as early as the end of 2009."
- Reconciliation of GAAP Net Income to EBITDA – 3 Months
- Reconciliation of GAAP to Non-GAAP Earnings Measures – 3 Months
- Reconciliation of GAAP Revenue to Non-GAAP Revenue Measures – 3 Months
The company will host a conference call on Thursday, April 30, 2009 at 10:30 a.m. EDT. The dial-in number is 800-369-3341 (domestic) or 517-308-9211 (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 30, 2009 through May 30, 2009. To access this recording, dial 866-501-7040 (domestic) or 203-369-1843 (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 $5.9 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 such as recent and significant production cuts by automotive manufacturers in response to difficult economic conditions;
(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 particularly in light of the current global financial and liquidity crisis, and the credit ratings of the company’s debt;
(ix the recent volatility in the credit markets, the losses which may be sustained by our lenders due to their lending and other financial relationships and the general instability of financial institutions due to a weakening economy;
(x) the cost and outcome of existing and any future legal proceedings, and the impact of changes in and compliance with laws and regulations, including environmental laws and regulations and the adoption of the current mandated timelines for worldwide emissions 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, 2008.
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