·         Restructuring and related expenses of $1 million pre-tax, or 1-cent per diluted share;

·         Costs of $1 million pre-tax, or 1-cent per diluted share, related to retiring the company’s remaining 8 5/8 percent notes from the December 2010 refinancing transaction, which replaced them with 6 7/8 percent notes;

·         Net tax benefits of $10 million, or 14-cents per diluted share, primarily related to U.S. taxable income with no associated tax expense due to the company’s net operating loss position and income generated in lower tax rate jurisdictions, partially offset by the impact of recording a valuation allowance against the tax benefit for losses in certain foreign jurisdictions.

·         Restructuring and related expenses of $5 million pre-tax, or 6-cents per diluted share;

·         Non-cash tax charges of $5 million, or 8-cents per diluted share, primarily related to the impact of not benefiting tax losses in the U.S. and certain foreign jurisdictions.

Tenneco reported a 34% increase in revenue to $1.760 billion from $1.316 billion a year ago. The increase was driven by higher OE production volumes and aftermarket sales, and incremental revenue from new light and commercial vehicle launches. Commercial and specialty vehicle OE revenue increased 54% year-over-year to 10% of global OE revenue as a result of stronger volumes and launching new diesel aftertreatment business. Aftermarket revenue, with typically higher margins, was 17% of total revenue, versus 20% a year ago. Excluding substrate sales and $42 million in currency, revenue was $1.299 billion, up 23% from $1.055 billion in first quarter 2010. 

 

EBIT margin in the quarter improved to 5.3% from 4.5% in first quarter of last year. Adjusted for the items above, EBIT margin was 5.4%, up from 4.9% a year ago. The improvement was due to capitalizing on stronger OE and aftermarket volumes, new light and commercial vehicle launches and leveraging SGA&E (selling, general, administrative and engineering) spending. These factors more than offset the negative impact of a mix shift between OE and aftermarket generated revenue and a 62% rise in substrate sales. 

 

Adjusted EBIT margins in the North America and Europe, South America and India reporting segments showed strong year-over-year improvement on higher volumes. North America adjusted EBIT margin was up 0.7 percentage points and the adjusted EBIT margin for Europe, South America and India was up 1.1 percentage points. Asia Pacific adjusted EBIT margin declined 2.6 percentage points.   Higher production volumes and Tenneco’s strong operating performance in China were more than offset by significant industry production declines in Australia, costs associated with the start-up of new operations in China and Thailand, and higher engineering investments to support rapid growth in this region.

 

Gross margin percent in the quarter was 16.7%, 1.8 percentage points lower than 18.5% a year ago. The benefit of higher production volumes globally was mostly offset by the OE and aftermarket mix shift and higher year-over-year substrate sales. The company completely offset material cost increases in the quarter through material cost reduction actions and recoveries. However, material recoveries negatively impacted the gross margin percent. Together, the mix shift, substrate sales and material recoveries totaled a negative impact of 1.7 percentage points on gross margin percent.

 

Tenneco successfully leveraged higher revenues in the quarter with an improvement in SGA&E expense as a percent of sales to 8.2% versus 9.7% a year ago.   SGA&E spending in the quarter was $144 million, versus $127 million a year ago, driven by investments in new facilities in China and Thailand, and higher engineering spending to support customer programs, technology applications and growth in emerging markets.  

Tenneco’s cash performance is seasonal with a greater use of cash in the first quarter as the company prepares for OE platform launches and the aftermarket selling season. In the first quarter, Tenneco used $103 million in cash for operations, versus using $57 million a year ago, driven by a $75 million greater demand on working capital to support higher revenues.  

 

Capital expenditures in the quarter were $41 million, compared with $27 million a year ago. The year-over-year increase includes investments to support customer launch programs and expansion in fast-growing markets.

Tenneco’s net debt was $1.132 billion at March 31, 2011, down from $1.146 billion a year ago. The leverage ratio (net debt to adjusted EBITDA including noncontrolling interests) was 2.1x, also down from a year ago at 2.8x.

Industry production in the second quarter will see some impact from the crisis in Japan. Prior to these events, IHS Automotive forecasted a 9% increase in light vehicle production in the regions where Tenneco operates. However, the current forecast, while still up in most regions, has been adjusted to an overall 3% increase in light vehicle production to account for temporary customer disruptions. This includes an 11% year-over-year increase in North America, 6% in China, 16% in India and 7% in South America. The Japan impact has now lowered Europe production estimates to a 6% year-over-year decrease in the second quarter but still up for the year.   In addition, weaker industry conditions – separate from the Japan crisis – are continuing in Australia with a forecasted 3% decline.

 

Despite the temporary disruptions to customer production, volumes are expected to recover by the end of the year. According to IHS Automotive, full-year production in the regions where Tenneco operates is still predicted to increase 7% versus last year, unchanged from previous forecasts.    

 

On the commercial vehicle side of Tenneco’s business, the company is launching diesel aftertreatment programs with 13 commercial vehicle and engine manufacturers globally through 2012. These programs are launching in North America, Europe, China and South America.  Today, Tenneco is adding Daimler and MAN,both in South America, to its list of nine previously announced commercial vehicle customers.    

 

Tenneco also recently announced new aftermarket business in North America with seven customers, expected to generate more than $15 million in annual revenue.  In the second quarter, the company anticipates incurring $12 million in changeover costs, primarily in the form of customer credits, related to this new business.

 

"There are uncertainties regarding OE production in the second quarter due to the Japan crisis. However, we expect the impact on our revenue will be partially offset in the quarter by overall stronger volumes globally and the lost production will fully recover by the end of the year," said Sherrill. "We are on track with our growth strategies including investments and initiatives to expand in emerging markets and launch significant new emission control programs with our commercial vehicle customers. I am pleased with the execution on our commercial vehicle programs, involving new technologies and manufacturing processes." 

 

 

		Q1 11 Revenues		% Change vs. Q1 10			Q1 11 Revenues Excluding Currency & Substrate Sales		% Change vs. Q1 10
North America Original Equipment
	Ride Control	$	152		19%		$	150		17%
	Emission Control	$	526		61%		$	277		45%
	Total North America Original Equipment	$	678		49%		$	427		34%
North America Aftermarket
	Ride Control	$	127		13%		$	126		12%
	Emission Control	$	46		20%		$	45		18%
	Total North America Aftermarket	$	173		15%		$	171		13%
Total North America		$	851		41%		$	598		27%

 

• The increase in OE revenue was driven by higher volumes on vehicles such as the Ford Super-Duty, GM crossovers and the Toyota Tundra. The increase significantly outpaced a rise in industry light vehicle production of 13%.* Incremental commercial vehicle business also contributed to the revenue increase.
•  Aftermarket revenue increased on higher ride control and emission control sales volumes.
• North America EBIT increased to $62 million from $36 million a year ago. The 72% rise was on stronger production volumes and aftermarket sales. EBIT also benefited from new light and commercial vehicle launches in the quarter.
• Adjusted EBIT was up 55% to $62 million, versus $40 million in first quarter 2010.
  • First quarter 2010 EBIT includes $4 million in restructuring and related expenses.

 

 

		Q1 11 Revenues		% Change vs. Q1 10			Q1 11 Revenues Excluding Currency & Substrate Sales		% Change vs. Q1 10
Europe Original Equipment
	Ride Control	$	139		19%		$	136		17%
	Emission Control	$	376		40%		$	238		31%
	Total Europe Original Equipment	$	515		34%		$	374		26%
Europe Aftermarket
	Ride Control	$	44		13%		$	43		10%
	Emission Control	$	30		12%		$	29		7%
	Total Europe Aftermarket	$	74		12%		$	72		9%
South America & India		$	152		37%		$	120		22%
Total Europe, South America & India		$	741		32%		$	566		22%

 

•  Europe aftermarket revenue increased on higher sales volumes in both product lines.
• South America and India revenue increased due to stronger OE and aftermarket volumes in both regions.
• EBIT for Europe, South America and India doubled to $24 million from $12 million a year ago, driven by higher volumes and manufacturing efficiencies.
• Adjusted EBIT was $25 million, up 92% from $13 million in first quarter 2010. First quarter 2011 and 2010 include $1 million in restructuring and related expenses.

 

		Q1 11 Revenues		% Change vs.Q1 10			Q1 11 Revenues Excluding Currency & Substrate Sales		% Change vs. Q1 10
Asia		$	131		17%		$	106		22%
Australia		$	37		(4)%		$	29		(18)%
Total Asia Pacific		$	168		12%		$	135		10%

 

• Strong production volumes on GM, VW and Nissan platforms in China drove the revenue increase in Asia.
• Australia revenue decreased due to a 15% decline in industry light vehicle production.*
• Asia Pacific EBIT was $8 million, versus $11 million a year ago. 
  • China EBIT improved year-over-year on strong volumes and operational performance, which more than made up for higher expenses related to opening and ramping up operations at three new plants and higher engineering costs to support growth initiatives including new commercial vehicle platforms. 
  • The strong performance in China was more than offset by significant production volume declines in Australia and higher expenses in Thailand associated with a new facility and engineering to support new business growth. 
  • Asia Pacific EBIT includes $1 million in negative currency.

 

 * IHS Automotive production estimates April 2011

 

  Reconciliation of GAAP Revenue to Non-GAAP Revenue Measures – Original Equipment and Aftermarket Revenue – 3 Months