Tenneco Reports Second Quarter Financial Results
- OE revenue up 44%, global aftermarket revenue up 12% year-over-year
- Gross margin improves to 18.6% versus 17.5% a year ago
- Net income up at $40 million, or 66-cents per diluted share
- Total debt net of cash balances improved $301 million year-over-year
Lake Forest, Illinois, July 29, 2010 – Tenneco Inc. (NYSE: TEN) reported second quarter net income of $40 million, or 66-cents per diluted share, up from a net loss of $33 million, or 72-cents per diluted share in second quarter 2009. Adjusted for the items below, net income was $38 million, or 62-cents per diluted share, compared with a net loss of $10 million, or 22-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 $93 million, an increase from $17 million a year ago. Adjusted EBIT was $97 million, versus $25 million in second quarter 2009. The EBIT increase was driven by a significant improvement in production volumes in all regions, related manufacturing efficiencies and higher aftermarket sales globally, partially offset by higher SGA&E costs.
EBITDA including noncontrolling interests (EBIT before depreciation and amortization) was $146 million, up from $72 million in second quarter 2009. Adjusted EBITDA including noncontrolling interests was $149 million, compared with $79 million a year ago.
"I am pleased with how we are capitalizing on a much improved production environment with strong year-over-year revenue and earnings growth, and solid cash performance," said Gregg Sherrill, chairman and CEO, Tenneco. "We are on track in executing on our growth plans and, equally important, converting that growth to profit with the cost structure we now have in place and actions to continuously improve our operational performance."
EBIT (earnings before interest, taxes and noncontrolling interests) was $93 million, an increase from $17 million a year ago. Adjusted EBIT was $97 million, versus $25 million in second quarter 2009. The EBIT increase was driven by a significant improvement in production volumes in all regions, related manufacturing efficiencies and higher aftermarket sales globally, partially offset by higher SGA&E costs.
EBITDA including noncontrolling interests (EBIT before depreciation and amortization) was $146 million, up from $72 million in second quarter 2009. Adjusted EBITDA including noncontrolling interests was $149 million, compared with $79 million a year ago.
"I am pleased with how we are capitalizing on a much improved production environment with strong year-over-year revenue and earnings growth, and solid cash performance," said Gregg Sherrill, chairman and CEO, Tenneco. "We are on track in executing on our growth plans and, equally important, converting that growth to profit with the cost structure we now have in place and actions to continuously improve our operational performance."
Adjusted second quarter 2010 and 2009 results:
| Q2 2010 | Q2 2009 | |||||||||||||||||
| EBITDA | EBIT | Net income attributable to Tenneco Inc. | Per Share | EBITDA | EBIT | Net loss attributable to Tenneco Inc. | Per Share | |||||||||||
| Earnings Measures | $ | 146 | $ | 93 | $ | 40 | $ | 0.66 | $ | 72 | $ | 17 | $ | (33) | $ | (0.72) | ||
| Adjustments (reflects non-GAAP measures): |
||||||||||||||||||
| Restructuring and related expenses | 3 | 4 | 3 | 0.04 | 2 | 3 | 2 | 0.04 | ||||||||||
| Environmental reserve | - | - | - | - | 5 | 5 | 3 | 0.07 | ||||||||||
| Changes related to refinancing | - | - | 1 | 0.02 | - | - | - | - | ||||||||||
| Net tax adjustments | - | - | (6) | (0.10) | - | - | 18 | 0.39 | ||||||||||
| Non-GAAP earnings measures | $ | 149 | $ | 97 | $ | 38 | $ | 0.62 | $ | 79 | $ | 25 | $ | (10) | $ | (0.22) | ||
Second quarter 2010 adjustments:
- Restructuring and related expenses of $4 million pre-tax, or 4-cents per diluted share;
- Charges of $1 million pre-tax, or 2-cents per diluted share, related to debt refinancing;
- Tax benefits of $6 million, or 10-cents per diluted share, related to income generated in lower tax rate jurisdictions as well as adjustments to tax estimates.
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.
REVENUE
Second quarter revenue was $1.502 billion, up 36% from $1.106 billion a year ago. Excluding substrate sales and the impact of $16 million in negative currency, revenue was $1.209 billion, versus $892 million in second quarter 2009. Revenue rose primarily as a result of stronger OE production volumes across all regions including new platform launches. Stronger year-over-year aftermarket sales globally, particularly in North America and South America, also contributed to the increase.
GROSS MARGIN AND SGA&E
Second quarter gross margin was 18.6% up from 17.5% a year ago and 18.5% in first quarter 2010. The year-over-year gross margin improvement was driven by higher OE production volumes and related manufacturing efficiencies, and an increase in higher-margin aftermarket sales. Compared to first quarter 2010, operating improvements were offset by $9 million in unfavorable currency, or a 0.6 percentage point negative impact on gross margin this quarter.
SGA&E (selling, general, administrative and engineering) expense as a percent of sales was 8.7% versus 10.1% a year ago as the company continues to leverage higher year-over-year revenues. SGA&E expense in the quarter was $131 million, compared with $112 million in second quarter 2009. The year-over-year increase reflects restoration of salary and benefit cuts made in the second quarter 2009 and higher performance-based compensation costs; lower customer engineering cost recoveries; higher engineering expenses related to customer programs and diesel aftertreatment technology development; and changeover costs associated with new aftermarket business in North America.
CASH FLOW AND DEBT
Tenneco generated $104 million in cash flow from operations, versus $112 million in second quarter 2009. This strong performance was the result of higher earnings and efficiently managing working capital. The company generated cash from working capital in the quarter despite an increased demand for working capital, driven by the industry recovery with significantly higher year-over-year OE production and higher aftermarket sales.
Tenneco ended the second quarter with net debt at $1.108 billion, down from $1.409 billion at the end of second quarter 2009. The year-over-year debt reduction was generated by positive cash flow as well as $188 million in proceeds from the company’s common stock offering in fourth quarter 2009.
The company’s leverage ratio – net debt to adjusted EBITDA including noncontrolling interests – was 2.3x, down significantly from 5.5x at June 30, 2009.
"Our stronger earnings, combined with working capital efficiencies, helped generate solid cash flow in the quarter," Sherrill said. "We also continue to reduce our debt, which remains one of our top priorities as reflected in the fact that our leverage ratio is at an all-time low."
Capital expenditures incurred in the quarter were $30 million, versus $24 million a year ago. The expenditures reflect Tenneco’s ongoing investments to support customer programs, expansion activities in emerging markets and future growth opportunities.
Second quarter revenue was $1.502 billion, up 36% from $1.106 billion a year ago. Excluding substrate sales and the impact of $16 million in negative currency, revenue was $1.209 billion, versus $892 million in second quarter 2009. Revenue rose primarily as a result of stronger OE production volumes across all regions including new platform launches. Stronger year-over-year aftermarket sales globally, particularly in North America and South America, also contributed to the increase.
GROSS MARGIN AND SGA&E
Second quarter gross margin was 18.6% up from 17.5% a year ago and 18.5% in first quarter 2010. The year-over-year gross margin improvement was driven by higher OE production volumes and related manufacturing efficiencies, and an increase in higher-margin aftermarket sales. Compared to first quarter 2010, operating improvements were offset by $9 million in unfavorable currency, or a 0.6 percentage point negative impact on gross margin this quarter.
SGA&E (selling, general, administrative and engineering) expense as a percent of sales was 8.7% versus 10.1% a year ago as the company continues to leverage higher year-over-year revenues. SGA&E expense in the quarter was $131 million, compared with $112 million in second quarter 2009. The year-over-year increase reflects restoration of salary and benefit cuts made in the second quarter 2009 and higher performance-based compensation costs; lower customer engineering cost recoveries; higher engineering expenses related to customer programs and diesel aftertreatment technology development; and changeover costs associated with new aftermarket business in North America.
CASH FLOW AND DEBT
Tenneco generated $104 million in cash flow from operations, versus $112 million in second quarter 2009. This strong performance was the result of higher earnings and efficiently managing working capital. The company generated cash from working capital in the quarter despite an increased demand for working capital, driven by the industry recovery with significantly higher year-over-year OE production and higher aftermarket sales.
Tenneco ended the second quarter with net debt at $1.108 billion, down from $1.409 billion at the end of second quarter 2009. The year-over-year debt reduction was generated by positive cash flow as well as $188 million in proceeds from the company’s common stock offering in fourth quarter 2009.
The company’s leverage ratio – net debt to adjusted EBITDA including noncontrolling interests – was 2.3x, down significantly from 5.5x at June 30, 2009.
"Our stronger earnings, combined with working capital efficiencies, helped generate solid cash flow in the quarter," Sherrill said. "We also continue to reduce our debt, which remains one of our top priorities as reflected in the fact that our leverage ratio is at an all-time low."
Capital expenditures incurred in the quarter were $30 million, versus $24 million a year ago. The expenditures reflect Tenneco’s ongoing investments to support customer programs, expansion activities in emerging markets and future growth opportunities.
NORTH AMERICA
- North America OE revenue was $557 million, up from $318 million in second quarter 2009. Excluding substrate sales and the impact of currency, revenue increased to $369 million, from $209 million. Stronger volumes on Tenneco-supplied vehicles such as the Ford Super Duty pick-up truck, GM Epsilon models, the GMT900 and Dodge Ram pick-ups drove the 78% increase.
- North America aftermarket revenue rose to $181 million from $150 million in second quarter 2009. Excluding the impact of currency, revenue increased 19% to $179 million. Higher volumes in both product lines drove the increase.
- EBIT for North America operations increased to $50 million, versus $6 million a year ago. Second quarter 2010 EBIT includes an increase of $5 million in changeover costs related to new aftermarket business, primarily for new emission control business with NAPA Canada. Adjusted for the following items, EBIT was $53 million, versus $12 million a year ago.
- Second quarter 2010 EBIT includes $3 million in restructuring and related expenses. Second quarter 2009 EBIT includes $1 million in restructuring and related expenses, and a $5 million charge related to environmental liabilities.
- EBIT improvement was driven by significantly higher OE production volumes, related manufacturing efficiencies and strong aftermarket sales. Second quarter 2010 EBIT included $3 million in negative currency.
EUROPE, SOUTH AMERICA, INDIA
- Europe OE revenue was $380 million, up from $329 million in second quarter 2009. Excluding substrate sales and the impact of currency, revenue increased 27% to $326 million, from $258 million. The increase was driven by Tenneco’s content on strong selling vehicles such as the Ford Focus, Mazda 3, VW Golf, Audi 3, Volvo Truck, BMW 5-Series and the Daimler Sprinter.
- Europe aftermarket revenue was $97 million, compared with $101 million a year ago. Excluding the impact of currency, revenue rose 3% to $105 million, primarily driven by higher ride control sales.
- South America and India revenue was $129 million, up from $90 million in second quarter 2009. Excluding substrate sales and the impact of currency, revenue rose 33% to $107 million, versus $78 million. The increase was driven by higher aftermarket sales in South America and stronger OE volumes in both regions.
- EBIT for Europe, South America and India increased to $30 million, compared with $6 million in second quarter 2009. Adjusted for the following items, EBIT was $31 million, versus $8 million a year ago.
- Second quarter 2010 EBIT includes $1 million in restructuring and related expenses and second quarter 2009 EBIT includes $2 million in restructuring and related expenses.
- Stronger OE production volumes across all regions, manufacturing efficiencies and materials cost management drove the improvement. Second quarter 2010 EBIT includes $5 million in negative currency.
ASIA PACIFIC
- Asia revenue was $121 million, up from $88 million in second quarter 2009. Excluding substrate sales and the impact of currency, revenue rose 37% to $94 million, versus $69 million a year ago. Strong OE volumes in China drove the increase, particularly on Tenneco-supplied GM and VW platforms.
- Australia revenue was $37 million, an increase from $30 million in second quarter 2009. Excluding substrate sales and the impact of currency, revenue was up 12% to $29 million, versus $27 million a year ago, driven by OE production volume increases.
- Asia Pacific EBIT rose to $13 million from $5 million a year ago, driven by stronger volumes and related manufacturing efficiencies. Second quarter 2010 EBIT includes $1 million in positive currency.
OUTLOOK
According to IHS Automotive, light vehicle production in the second half of 2010, versus a year ago, is projected to be up 11% in North America, 5% in China and 5% in South America, whereas Europe light vehicle production is expected to be down 7%.
Tenneco’s revenue growth continues to be driven by production volume recovery, the company’s strong position on many top-selling vehicle platforms, increased light vehicle content in both ride and emission control, as well as the launch and ramp-up of new commercial vehicle business. Tenneco has announced that the company is launching programs with 11 different commercial vehicle customers through 2011. Most of the 2010 programs will be launching in the fourth quarter and ramping up next year.
"Our performance year-to-date shows that we took advantage of stronger-than-expected first half industry conditions. While the pace of the economic and industry recovery will vary by region in the second half, we’re well-positioned for continued growth given our revenue drivers," Sherrill said. "In terms of the bottom-line, we expect to continue benefiting from the cost structure changes and operational improvements we’ve made as we work to improve profitability."
According to IHS Automotive, light vehicle production in the second half of 2010, versus a year ago, is projected to be up 11% in North America, 5% in China and 5% in South America, whereas Europe light vehicle production is expected to be down 7%.
Tenneco’s revenue growth continues to be driven by production volume recovery, the company’s strong position on many top-selling vehicle platforms, increased light vehicle content in both ride and emission control, as well as the launch and ramp-up of new commercial vehicle business. Tenneco has announced that the company is launching programs with 11 different commercial vehicle customers through 2011. Most of the 2010 programs will be launching in the fourth quarter and ramping up next year.
"Our performance year-to-date shows that we took advantage of stronger-than-expected first half industry conditions. While the pace of the economic and industry recovery will vary by region in the second half, we’re well-positioned for continued growth given our revenue drivers," Sherrill said. "In terms of the bottom-line, we expect to continue benefiting from the cost structure changes and operational improvements we’ve made as we work to improve profitability."
Attachment 1:
- Statements of Income – 3 Months
- Statements of Income – 6 Months
- Balance Sheets
- Statements of Cash Flows – 3 Months
- Statements of Cash Flows – 6 Months
Attachment 2:
- Reconciliation of GAAP Net Income to EBITDA including noncontrolling interests – 3 Months
- Reconciliation of GAAP to Non-GAAP Earnings Measures - 3 Months
- Reconciliation of GAAP Net Income to EBITDA including noncontrolling interests – 6 Months
- Reconciliation of GAAP to Non-GAAP Earnings Measures - 6 Months
- Reconciliation of GAAP to Non-GAAP Revenue Measures - 3 Months
- Reconciliation of GAAP to Non-GAAP Revenue Measures - 6 Months
- Reconciliation of Non-GAAP Measures – Debt Net of Cash/Adjusted EBITDA including noncontrolling interests
- Reconciliation of GAAP Revenue to Non-GAAP Revenue Measures – Original Equipment Value-Added Revenues – 3 and 6 Months
CONFERENCE CALL
The company will host a conference call on Thursday, July 29, 2010 at 9:00 a.m. EDT. The dial-in number is 877-917-9492 (domestic) or 312-470-7278 (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 29, 2010 through August 30, 2010. To access this recording, dial 800-925-1773 (domestic) or 402-220-3092 (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 $4.6 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," "projects," "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 at favorable rates, and the credit ratings of the company’s debt;
(ix) 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;
(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) changes in accounting estimates and assumptions, including changes based on additional information;
(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, 2009.
CONTACT:
Jane Ostrander
Media Inquiries
(1) 847 482-5607
jostrander@tenneco.com
Linae Golla
Investor Inquiries
(1) 847 482-5162
lgolla@tenneco.com
Margie Pazikas
Media Inquiries
+32 (0) 2 706 9025
mpazikas@tenneco.com
Jane Ostrander
Media Inquiries
(1) 847 482-5607
jostrander@tenneco.com
Linae Golla
Investor Inquiries
(1) 847 482-5162
lgolla@tenneco.com
Margie Pazikas
Media Inquiries
+32 (0) 2 706 9025
mpazikas@tenneco.com