- Revenue of $2.1 billion
- Continued EBIT margin improvement
- Higher year-over-year cash from operations
Lake Forest, Illinois, July 24, 2015 – Tenneco Inc. (NYSE: TEN) reported second quarter net income of $78 million, or $1.26 per diluted share, compared with $81 million, or $1.32 per diluted share, in second quarter 2014. Excluding expenses for restructuring and tax adjustments, net income was $86 million, or $1.39 per diluted share.
Tenneco reported quarterly revenue of $2.130 billion. Excluding a negative currency impact of $176 million, total revenue in the quarter rose 3% year-over-year to $2.306 billion, driven by growth in both the Clean Air and Ride Performance businesses. Excluding currency, OE light vehicle revenue improved 4% on higher volumes globally and new platform launches, and global aftermarket revenue rose 6% on strong ride performance sales in North and South America and growth with new customers. While commercial truck and off-highway customer unit demand was down about 25% versus last year, excluding currency, Tenneco’s commercial truck and off-highway revenues were down 7%, or 4% on a value-add basis, based on the launch and ramp up of significant new incremental content.
Second quarter EBIT (earnings before interest, taxes and noncontrolling interests) was $155 million, versus $156 million last year. Adjusted EBIT for the second quarter was $162 million. Excluding a negative currency impact of $17 million, adjusted EBIT rose to $179 million.
“Tenneco delivered another solid quarter of profitability improvement, leveraging our strong light vehicle position globally and generating strong aftermarket sales. I’m especially pleased with our performance given the currency headwinds we faced and continuing weakness in commercial truck and off-highway markets around the world” said Gregg Sherrill, Tenneco chairman and CEO. “In addition to our light vehicle and aftermarket performance, our focus on product cost leadership and execution on our restructuring initiatives contributed to our ninth consecutive quarter of margin improvement.”
Adjusted second quarter 2015 and 2014 results:
|Q2 2015||Q2 2014|
|(millions except per share amounts)||EBITDA*||EBIT||Net income attributable to Tenneco Inc.||Per Share||EBITDA*||EBIT||Net income attributable to Tenneco Inc.||Per Share|
|Adjustments (reflects non-GAAP measures):|
|Restructuring and related expenses||7||7||6||0.10||10||10||7||0.11|
|Net tax adjustments***||-||-||2||0.03||-||-||1||0.02|
|Non-GAAP earnings measures||$||213||$||162||$||86||$||1.39||$||218||$||166||$||89||$||1.45|
Tenneco continued margin expansion in the quarter with year-over-year improvement in both reported and adjusted value-add EBIT margin for the company. Ride Performance adjusted EBIT as a percentage of value-add revenue rose to 11.5% from 10.7% last year on higher light vehicle volumes, strong aftermarket sales in North and South America and the benefit of our product cost leadership and restructuring activities. Clean Air adjusted EBIT as a percent of value-add revenue was 11.2% versus 11.7% a year ago, reflecting higher light vehicle volumes but impacted by lower commercial truck and off-highway volumes and costs associated with the startup of new Clean Air plants in the U.S. and Poland, as well as a major expansion of a facility in the UK to support a number of new light vehicle and commercial truck programs.
|Q2 2015||Q2 2014|
|EBIT as a percent of revenue||7.3%||7.0%|
|EBIT as a percent of value-add revenue||9.5%||9.0%|
|Adjusted EBIT as a percent of revenue||7.6%||7.4%|
|Adjusted EBIT as a percent of value-add revenue||9.9%||9.6%|
Cash generated by operations in the quarter increased to $132 million, versus $114 million a year ago, driven by strong working capital management, especially inventory improvements.
In the quarter, capital expenditures to support structural growth were $80 million versus $83 million last year.
The company repurchased 556,000 shares of common stock for $33 million in the second quarter, and year-to-date has repurchased a total of 748,000 shares for $44 million. Taking into account the company’s performance year-to-date, Tenneco now anticipates accelerating its share repurchase program and completing it by the end of 2016.
In the third quarter, Tenneco expects growth will continue to be supported by well-established structural growth drivers:
- Increasing global light vehicle industry production;
- Emissions regulations which require new content to meet more stringent requirements;
- Increased demand for MONROE® Intelligent Suspension technologies;
- The growing global car parc, which the company serves with industry-leading aftermarket brands.
Global light vehicle industry production is expected to increase 4% in the regions where Tenneco operates. The company is well-positioned to leverage higher light vehicle volumes with its strong platform position with leading global OEMs, including launching 43 new light vehicle and commercial truck and off-highway programs.
Tenneco also expects continued content growth on commercial truck and off-highway programs to meet global emissions requirements, despite ongoing production weakness in these markets.
Increased penetration of the MONROE® Intelligent Suspension system technology, including the recent launches on Volvo XC-90, and Renault Espace, is expected to further support Ride Performance growth.
The company also expects strong year-over-year sales growth from its global aftermarket business in the third quarter.
Excluding currency, Tenneco anticipates total revenue growth of about 6% in the third quarter. Based on current exchange rates, the company anticipates a currency headwind in the third quarter of approximately 7%.
Based on the most recent third party industry light vehicle production forecasts and further industry production weakness in the company’s commercial truck and off-highway business, Tenneco expects total full-year revenue growth of 5%, excluding currency, within the company’s original range.
“We continue to win new business, launch new programs and ramp up incremental content, further strengthening our foundation for long term growth. ” said Sherrill. “Our focus on execution, regardless of market cycles, has helped us deliver steady margin expansion, and together with our structural growth drivers, puts Tenneco in a unique position for continued profitable growth and enhanced shareholder value.”
Statements of Income – 3 Months
Statements of Income – 6 Months
Statements of Cash Flows – 3 Months
Statements of Cash Flows – 6 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 Net Income to EBITDA including noncontrolling interests – 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
Reconciliation of GAAP Revenue to Non-GAAP Revenue Measures – 3 Months and 6 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 and 6 Months
Reconciliation of GAAP Revenue and Earnings to Non-GAAP Revenue and Earnings Measures – 3 Months
Reconciliation of GAAP Revenue and Earnings to Non-GAAP Revenue and Earnings Measures – 6 Months
The company will host a conference call on Friday, July 24, 2015 at 8:30 a.m. ET. The dial-in number is 888-847-6590 (domestic) or 517-308-9117 (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 24, 2015 through August 24, 2015. To access this recording, dial 800-551-8143 (domestic) or 402-220-2056 (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 an $8.4 billion global manufacturing company with headquarters in Lake Forest, Illinois and approximately 29,000 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. For certain additional assumptions upon which these estimates are based, see the slides accompanying the July 24, 2015 webcast, which will be 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) economic, exchange rate and political conditions in the countries where we operate or sell our products;
(xi) workforce factors such as strikes or labor interruptions;
(xii) 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;
(xiii) the negative impact of fuel price volatility on transportation and logistics costs, raw material costs, discretionary purchases of vehicles or aftermarket products, and demand for off-highway equipment;
(xiv) the cyclical nature of the global vehicular industry, including the performance of the global aftermarket sector and longer product lives of automobile parts;
(xv) product warranty costs;
(xvi) the failure or breach of our information technology systems and the consequences that such failure or breach may have to our business;
(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 annual report on Form 10-K for the year ended December 31, 2014.