Tenneco Reports Second Quarter Financial Results
- Global OE industry production declines negatively impact revenue and EBIT year-over-year
- Gross margin improves year-over-year and sequentially over first quarter 2009; strongest quarterly performance since 2006
- Working capital improvements deliver strongest second quarter operating cash flow performance since becoming a stand-alone company in November 1999
- Strong cash flow resulted in $65 million reduction in net debt in the quarter
LAKE FOREST, ILLINOIS, JULY 30, 2009 – Tenneco Inc. (NYSE: TEN) reported a second quarter net loss of $33 million, or 72-cents per diluted share, compared with net income of $13 million, or 26-cents per diluted share, in second quarter 2008. Adjusted for the items below, the net loss was $10 million, or 22-cents per diluted share, versus net income of $34 million, or 71-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 $17 million, compared with $75 million a year ago. Adjusted EBIT was $25 million, versus $88 million in second quarter 2008. The company’s cost reduction efforts and the benefits from restructuring actions helped offset a portion of the $89 million negative impact on EBIT from lower OE production volumes worldwide and related manufacturing fixed cost absorption. Unfavorable currency exchange rates compared with a year ago also negatively impacted EBIT by $9 million.
EBITDA including noncontrolling interests (EBIT before depreciation and amortization) was $72 million compared with $132 million a year ago. Adjusted EBITDA including noncontrolling interests was $79 million, versus $145 million in second quarter 2008.
"Our cost reduction, restructuring and cash generation actions continue to take hold and are delivering the results we need to manage through this very challenging production environment," said Gregg Sherrill, chairman and CEO, Tenneco. "Although our revenue and profitability continue to be negatively impacted by the global industry downturn, we are pleased with our strong cash flow performance this quarter as well as our gross margin improvement."
Adjusted second quarter 2009 and 2008 results:
|Q2 2009||Q2 2008|
|EBITDA||EBIT||Net Loss attributable to Tenneco Inc.||Per Share||EBITDA||EBIT||Net Income attributable to Tenneco Inc.||Per Share|
(reflects non-GAAP measures):
|Restructuring/restructuring related expenses||2||3||2||0.04||6||6||4||0.08|
|New aftermarket customer changeover costs||-||-||-||-||7||7||4||0.09|
|Net tax adjustments||-||-||18||0.39||-||-||13||0.28|
|Non-GAAP earnings measures||$||79||$||25||$||(10)||$||(0.22)||$||145||$||88||$||34||$||0.71|
Second quarter 2009 adjustments:
- Restructuring and related expenses of $3 million pre-tax, or 4-cents per diluted share;
- A reserve of $5 million pre-tax, or 7-cents per diluted share, related to environmental liabilities of a company Tenneco acquired in 1996 at locations never operated by Tenneco, and for which that acquired company had been indemnified by Mark IV Industries, which declared bankruptcy in the second quarter 2009;
- Non-cash tax charges of $18 million, or 39-cents per diluted share, primarily related to the impact of recording a valuation allowance against our tax benefit for losses in the U.S. and certain foreign jurisdictions.
Second quarter 2008 adjustments:
- Restructuring and related expenses of $6 million pre-tax, or 8-cents per diluted share;
- Aftermarket customer changeover costs of $7 million pre-tax, or 9-cents per diluted share, related to new aftermarket business (expenses incurred to replace competitors’ products with Tenneco products);
- Non-cash tax expense of $13 million, or 28-cents per diluted share, for tax liabilities related to changes in inter-company billing arrangements.
Second quarter revenue was $1.106 billion compared with $1.651 billion a year ago, down 24% excluding the impact of $148 million in unfavorable currency in the quarter. Excluding the currency impact and substrate sales, revenue was $1.028 billion, down 17% from $1.245 billion in second quarter 2008. Lower production volumes on OE vehicle platforms globally drove the decline.
GROSS MARGIN AND SGA&E
The company delivered its best gross margin performance since the third quarter of 2006. Gross margin was 17.5%, an improvement from 16.2% a year ago and up from 14.5% in first quarter 2009. The gross margin improved, despite lower year-over-year revenues, as the company executed on restructuring savings and cost reductions to successfully offset a portion of the negative impact from lower OE production volumes and related manufactured fixed cost absorption. Gross margin in second quarter 2009 includes $1 million in restructuring and related costs and second quarter 2008 includes $3 million in restructuring and related costs.
SGA&E (selling, general, administrative and engineering) expense decreased to $112 million from $136 million in second quarter 2008, primarily as a result of the company’s cost reduction initiatives. SGA&E as a percent of sales increased to 10.1% versus 8.2% due to lower year-over-year revenues. SGA&E in second quarter 2009 includes $1 million in restructuring and related costs and second quarter 2008 includes $3 million in restructuring and related costs and $7 million in aftermarket customer changeover costs.
CASH AND DEBT POSITION
Tenneco generated $112 million in cash from operations in the quarter, compared with cash from operations of $58 million in second quarter 2008, despite a $60 million year-over-year decline in EBITDA including noncontrolling interests. The cash performance was driven by working capital improvements, particularly inventory and accounts receivable reductions. Cash flow from accounts receivable improved $58 million year-over-year even though the company’s sale of receivables generated $21 million less in cash compared with a year ago. An intense focus on reducing inventories generated $33 million in cash versus a cash use of $4 million in second quarter 2008.
Tenneco continues to hold down capital spending without sacrificing the spending needed for technology development and new program launches. Capital spending in the quarter was $24 million, a 58% decrease from $57 million in second quarter 2008. The company now estimates that its capital spending will be approximately $140 million in 2009, down from the previous guidance of $160 million.
At June 30, 2009, Tenneco’s leverage ratio under its senior credit facility was 5.77, below the maximum level of 7.35. The interest coverage ratio was 2.21, above the minimum of 1.85. At the end of the quarter, Tenneco had an EBITDA cushion of $40 million and a debt cushion of $392 million against its tightest covenant.
The company’s strong cash flow performance in the quarter improved liquidity and reduced debt net of cash balances by $65 million in the quarter.
|($ millions)||Current Quarter
June 30, 2009
March 31, 2009
June 30, 2008
|Unused Borrowing Capacity||$||333||$||270||$||351|
"We delivered our strongest second quarter operating cash flow performance since becoming a stand-alone company, which shows outstanding execution on our plans for generating and preserving cash and is to the credit of all our employees worldwide," said Sherrill. "We remain intensely focused on cash flow, our liquidity position and supporting our customers’ requirements including new business launches and production ramp-ups as the industry begins to recover."
GM AND CHRYSLER
Tenneco collected substantially all of its pre-petition receivables from General Motors and Chrysler. Other than the impact from production shut-downs, the company incurred no economic loss from the bankruptcies of these two customers.
- OE revenue was $318 million, down 38% from $516 million a year ago. Excluding substrate sales and the negative impact of currency, revenue was $212 million, down 35% year-over-year. The decrease was driven by industry production volume declines. Industry light vehicle production was down 49% in the quarter versus a year ago. Industry commercial vehicle Class 8 production was down 57% and Class 5-7 fell 53%.
- Aftermarket revenue was $150 million, down 4% from $158 million in second quarter 2008. Excluding the negative impact of currency, revenue was $153 million. The decrease was due to lower ride control and emission control sales volumes.
- EBIT for North American operations was $6 million, versus $17 million in second quarter 2008. Manufacturing efficiencies, cost reductions and restructuring benefits offset a good portion of the negative impact on EBIT from significantly lower OE production volumes and related manufacturing fixed cost absorption. Second quarter 2009 EBIT includes $1 million in unfavorable currency.
- Adjusted for the following items, EBIT was $12 million, compared with $25 million a year ago. Second quarter 2009 EBIT includes $1 million in restructuring and related expenses and a $5 million charge related to environmental liabilities described above. Second quarter 2008 EBIT includes $1 million in restructuring and related expenses and $7 million in aftermarket changeover costs.
EUROPE, SOUTH AMERICA AND INDIA
- Europe OE revenue was $329 million, down 43% from $578 million a year ago. Excluding substrate sales and the negative impact of currency, revenue was $342 million, down 19% year-over-year, driven by industry production volume declines. Industry light vehicle production was down 27% year-over-year.
- Europe aftermarket revenue was $101 million, down 22% from $129 million in second quarter 2008. Excluding the negative impact of currency, revenue was $119 million, down 8% from the prior year. The decline was due to lower sales in both product lines.
- South America and India revenue was $90 million, down 16% from $108 million a year ago. Excluding substrate sales and the negative impact of currency, revenue increased 5% year-over-year to $94 million. New platform launches in Brazil and higher OE volumes in India were partially offset by the negative impact from currency exchange rates in South America.
- EBIT for Europe, South America and India was $6 million, compared with $48 million in second quarter 2008. The benefits to EBIT in the quarter from cost reductions and restructuring actions helped address the headwinds from significantly lower OE production volumes, manufacturing fixed cost absorption due to those declines and lower aftermarket sales. Second quarter 2009 EBIT includes $6 million in unfavorable currency.
- Excluding restructuring and related expenses of $2 million in second quarter 2009 and $3 million in second quarter 2008, EBIT was $8 million, compared with $51 million a year ago.
- Asia revenue was $88 million, down 16% from $105 million a year ago. Excluding substrate sales, revenue was relatively even year-over-year. Revenue was negatively impacted by lower substrate sales in China.
- Australia revenue was $30 million, down 47% from $57 million in second quarter 2008. Excluding substrate sales and the impact of negative currency, revenue was $39 million, down 26% from the prior year. The decline was driven by lower OE volume declines with customers taking significant plant shutdowns during the quarter. Industry light vehicle production was down 48% year-over-year.
- Asia Pacific EBIT was $5 million, compared with $10 million a year ago, driven by lower OE production volumes in Australia and related manufacturing cost absorption. Second quarter 2009 EBIT includes $2 million in unfavorable currency.
- Excluding $2 million in restructuring and related expenses in 2008, EBIT was $5 million in second quarter 2009 versus $12 million in second quarter 2008.
Although numerous governments have enacted incentive programs, which are positively impacting vehicle sales in certain regions, and the uncertainty over the GM and Chrysler bankruptcies has been alleviated, overall global automotive industry conditions remain weak.
While Tenneco is not anticipating a significant industry sales recovery over the remainder of 2009, it is important to note that the majority of vehicle inventory corrections were achieved in the first half and Tenneco expects strengthening in OE production volumes in the second half of the year as production begins to track more closely with sales.
"This crisis has been a catalyst for driving our operations to new performance levels and resulted in significant efficiency improvements across our businesses globally. Capturing and institutionalizing these improvements will help us take full advantage of an eventual industry recovery," said Sherrill. "I continue to be very confident in Tenneco’s long-term growth prospects. The fundamentals for that growth remain in place, and our people, at all levels, are dedicated and driven to fully realizing those opportunities."
- Statements of Income – 3 Months
- Statements of Income – 6 Months
- Balance Sheets
- Statements of Cash Flows – 3 Months
- Statements of Cash Flows – 6 Months
- 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 Revenue to Non-GAAP Revenue Measures – 3 Months
- Reconciliation of GAAP Revenue to Non-GAAP Revenue Measures – 6 Months
The company will host a conference call on Thursday, July 30, 2009 at 10:30 a.m. EDT. The dial-in number is 888-566-5907 (domestic) or 312-470-7131 (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 30, 2009 through August 30, 2009. To access this recording, dial 866-489-2844 (domestic) or 203-369-1658 (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 global 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 "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) changes in accounting estimates and assumptions, including changes based on additional information;
(xvi) 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
(xvii) 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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