- Record high quarterly revenue
- Record high first quarter EBIT
- Strong EBIT margin improvement
Lake Forest, Illinois, April 28, 2014 – Tenneco Inc. (NYSE: TEN) reported first quarter net income of $46 million, or 75-cents per diluted share, compared with $54 million, or 88-cents per diluted share, in first quarter 2013. Excluding expenses for restructuring and a tax benefit in 2013, net income increased 27% to $56 million, or 91-cents per diluted share, versus $44 million, or 72-cents per diluted share a year ago.
Tenneco reported its highest-ever quarterly revenue of $2.094 billion, driven by an 11% increase in Clean Air revenues and a 7% increase in Ride Performance. Excluding substrate sales and currency, total revenue was up 13% year-over-year to $1.633 billion. Total revenue reflects a 9% year-over-year increase in light vehicle OE revenue, a 30% increase in commercial truck and off-highway OE revenue, and a 2% increase in global aftermarket revenue.
“I am very pleased with our strong results this quarter as we continue to capitalize on Tenneco’s outstanding growth drivers and balance across regions and end-markets. We delivered revenue growth in all Clean Air and Ride Performance operating segments, including year-over-year increases in light vehicle, commercial truck and off-highway, and the aftermarket,” said Gregg Sherrill, chairman and CEO. “We continue to improve profitability and delivered significant margin improvement by leveraging our top-line growth with strong operational performance.”
First quarter EBIT (earnings before interest, taxes and noncontrolling interests) was $113 million, up 22% from $93 million last year. Adjusted EBIT rose 27% to $123 million.
Clean Air adjusted EBIT increased 19% to $93 million driven by higher light vehicle volumes; increased commercial truck and off-highway equipment revenue; the ramp up of new light and commercial truck and off-highway programs in North America, Europe and China; and operational cost performance.
Ride Performance adjusted EBIT increased 38% to $55 million due to strong manufacturing performance on higher light vehicle volumes in North America, Europe and China; increased commercial vehicle revenues in North America and Europe; and higher aftermarket sales in Europe. These results include a $7 million expense to adjust workers’ compensation reserves.
Adjusted first quarter 2014 and 2013 results
|Q1 2014||Q1 2013|
|(millions except per share amounts)||EBITDA*||EBIT||Net income attributable to Tenneco Inc.||Per Share||EBITDA*||EBIT||Net income attributable to Tenneco Inc.||Per Share|
|Adjustments (reflects non-GAAP measures):|
|Restructuring and related expenses||10||10||10||0.16||4||4||3||0.04|
|Net tax adjustments||-||-||-||-||-||-||(13)||(0.20)|
|Non-GAAP earnings measures||$||174||$||123||$||56||$||0.91||$||147||$||97||$||44||$||0.72|
First quarter 2014 adjustments
- Restructuring and related expenses of $10 million pre-tax, or 16-cents per diluted share.
First quarter 2013 adjustments
- Restructuring and related expenses of $4 million pre-tax, or 4-cents per diluted share;
- Tax adjustments of $13 million, or 20-cents per diluted share, mostly related to recognizing a U.S. tax benefit for foreign taxes.
Tenneco delivered strong margin improvement in the quarter with year-over-year improvement in each product division for total adjusted EBIT as a percent of value-add revenue of 7.6%. Clean Air adjusted EBIT as a percent of value-add revenue increased to 9.7% from 9.3% a year ago, and Ride Performance was 8.5%, a significant increase from 6.6%. The total margin improvement was driven by higher light and commercial vehicle volumes, new platforms and an increase in commercial vehicle content, higher Ride Performance aftermarket sales, and continued strong operational performance.
First quarter results
|Q1 2014||Q1 2013|
|EBIT as a percent of revenue||5.4%||4.9%|
|EBIT as a percent of value-add revenue||7.0%||6.4%|
|Adjusted EBIT as a percent of revenue||5.9%||5.1%|
|Adjusted EBIT as a percent of value-add revenue||7.6%||6.7%|
Cash used by operations in the quarter was $140 million, compared with a cash use of $92 million a year ago. Working capital investments to support growth drove a greater use of cash this quarter.
Capital expenditures in the quarter were $71 million versus $59 million last year, primarily for Clean Air programs in China, North America and Europe.
For the second quarter, IHS forecasts global light vehicle production to increase 2% year-over-year in the regions where Tenneco operates. This includes IHS estimates of year-over-year increases in North America (2%), China (11%) and India (6 %). Europe is forecasted to be down 1%, South America down 26% and Australia is expected to decrease 3%.
The company expects to outpace global light vehicle production in the second quarter with its strong platform position globally. Commercial truck and off-highway equipment revenue is expected to increase consistent with the full-year revenue growth estimate of 20% to 30%, driven by new business and incremental content launching on current platforms. Tenneco also expects a steady performance from its global aftermarket business, up slightly in the second quarter versus last year with some growth in North America and Europe.
“This quarter continues to demonstrate that our growth is well-balanced across end-markets and geographically. We expect our revenue growth to continue in the second quarter with a slightly stronger light vehicle production environment and incremental revenue from our growing commercial truck and off-highway equipment business,” said Sherrill. “We are also staying focused on continuously driving improved operational performance across all our businesses.”
Statements of Income – 3 Months
Statements of Cash Flows – 3 Months
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 Revenue to Non-GAAP Revenue Measures – 3 Months
Reconciliation of GAAP Revenue to Non-GAAP Revenue Measures – 3 Months
Reconciliation of Non-GAAP Measures – Debt Net of Cash/Adjusted LTM EBITDA including noncontrolling interests
Reconciliation of GAAP Revenue to Non-GAAP Revenue Measures – Original Equipment and Aftermarket Revenue – 3 Months
Reconciliation of GAAP Revenue and Earnings to Non-GAAP Revenue and Earnings Measures – 3 Months
The company will host a conference call on Monday, April 28, 2014 at 10:00 a.m. ET. The dial-in number is 888 282-0172 (domestic) or 630-395-0312 (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 28, 2014 through May 28, 2014. To access this recording, dial 866-430-8796 (domestic) or 203-369-0942(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.
The Tenneco Board of Directors has scheduled the corporation’s annual meeting of shareholders for Wednesday, May 14, 2014 at 10:00 a.m. CT. The meeting will be held at the corporate headquarters, 500 North Field Drive, Lake Forest, Illinois.
Tenneco is an $8 billion global manufacturing company with headquarters in Lake Forest, Illinois and approximately 26,000 employees worldwide. Tenneco is one of the world’s largest designers, manufacturers and marketers of clean air and ride performance products and systems for automotive and commercial vehicle original equipment markets and the aftermarket. Tenneco’s principal brand names are Monroe®, Walker®, XNOx™ and Clevite®Elastomer.
Revenue estimates in this release are based on OE manufacturers’ programs that have been formally awarded to the company; programs where Tenneco is highly confident that it will be awarded business based on informal customer indications consistent with past practices; Tenneco’s status as supplier for the existing program and its relationship with the customer; and the actual original equipment revenues achieved by the company for each of the last several years compared to the amount of those revenues that the company estimated it would generate at the beginning of each year. These revenue estimates are also based on anticipated vehicle production levels and pricing, including precious metals pricing and the impact of material cost changes. Currency is assumed to be constant at $1.33 per Euro throughout the entire period. For certain additional assumptions upon which these estimates are based, see the slides accompanying the April 28, 2014 conference call, which are available on the financial section of the Tenneco website at www.tenneco.com.
This press release contains forward-looking statements. Words such as “may,” “expects,” “anticipate,” ”projects,” “will,” “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) general economic, business and market conditions;
(ii) the company’s ability to source and procure needed materials, components and other products and services in accordance with customer demand and at competitive prices;
(iii) the cost and outcome of existing and any future claims, legal proceedings, or investigations, including, but not limited to, any of the foregoing arising in connection with the ongoing global antitrust investigation, product performance, product safety or intellectual property rights;
(iv) 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;
(v) changes in consumer demand, prices and the company’s ability to have our products included on top selling vehicles, including any shifts in consumer preferences to lower margin vehicles, for which we may or may not have supply arrangements;
(vi) changes in automotive and commercial vehicle manufacturers' production rates and their actual and forecasted requirements for the company's products such as the significant production cuts during recent years by automotive manufacturers in response to difficult economic conditions;
(vii) the overall highly competitive nature of the automobile and commercial vehicle parts industries, and any resultant inability to realize the sales represented by the company’s awarded book of business which is based on anticipated pricing and volumes over the life of the applicable program;
(viii) the loss of any of our large original equipment manufacturer (“OEM”) customers (on whom we depend for a substantial portion of our revenues), or the loss of market shares by these customers if we are unable to achieve increased sales to other OEMs or any change in customer demand due to delays in the adoption or enforcement of worldwide emissions regulations;
(ix) the company's continued success in cost reduction and cash management programs and its ability to execute restructuring and other cost reduction plans, including our current European cost reduction initiatives, and to realize anticipated benefits from these plans;
(x) workforce factors such as strikes or labor interruptions;
(xi) 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;
(xii) the negative impact of higher fuel prices on transportation and logistics costs, raw material costs and discretionary purchases of vehicles or aftermarket products;
(xiii) the cyclical nature of the global vehicular industry, including the performance of the global aftermarket sector and longer product lives of automobile parts;
(xiv) product warranty costs;
(xv) the failure or breach of our information technology systems and the consequences that such failure or breach may have to our business;
(xvi) economic, exchange rate and political conditions in the countries where we operate or sell our products;
(xvii) 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;
(xviii) changes by the Financial Accounting Standards Board or other accounting regulatory bodies to authoritative generally accepted accounting principles or policies;
(xix) changes in accounting estimates and assumptions, including changes based on additional information;
(xx) the impact of the extensive, increasing and changing laws and regulations to which we are subject, including environmental laws and regulations, which may result in our incurrence of environmental liabilities in excess of the amount reserved;
(xxi) natural disasters, acts of war and/or terrorism and the impact of these occurrences or acts on economic, financial, industrial and social condition, including, without limitation, with respect to supply chains and customer demand in the countries where the company operates; and
(xxii) 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, 2013.