- Revenue of $2 billion
- Adjusted EBIT margin improvement
- Repurchased 2.4 million shares of common stock in 3Q
Lake Forest, Illinois, October 23, 2015 – Tenneco Inc. (NYSE: TEN) reported third quarter net income of $52 million, or 88-cents per diluted share, compared with $78 million, or $1.27 per diluted share, in third quarter 2014. Excluding restructuring costs and tax adjustments, third quarter net income was $73 million, or $1.22 per diluted share.
Tenneco reported total quarterly revenue of $2.025 billion. Excluding a negative currency impact of $160 million, total revenue rose 5% year-over-year to $2.185 billion, with growth in both the Clean Air and Ride Performance product lines.
The company’s OE light vehicle revenue excluding the impact of currency continued to outpace industry production, improving 6% on higher volumes in North America and Europe.
Excluding currency, global aftermarket revenues rose 9% on strong ride performance product sales in North America, South America, and Europe, and higher clean air product sales in North America.
Tenneco’s commercial truck and off-highway revenue also outpaced industry production, driven by incremental content growth to meet global emissions regulations. Customer unit demand declined about 30% versus last year, however, Tenneco’s commercial truck and off-highway revenues, excluding currency, were down only 7%, or 4% on a value-add basis.
Third quarter EBIT (earnings before interest, taxes and noncontrolling interests) was $116 million, versus $140 million last year. Adjusted EBIT for the third quarter was $151 million, compared with $152 million a year ago. EBIT includes a year-over-year negative currency impact of $24 million.
“Excluding currency headwinds, we delivered another quarter of solid revenue growth. Both light vehicle as well as commercial truck and off-highway revenue significantly outpaced global industry production, and the aftermarket exceeded market growth rates, reflecting Tenneco’s balance across regions, end-markets, product lines, and customers,” said Gregg Sherrill, chairman and CEO, Tenneco. “We also continued our strong margin performance with our tenth consecutive quarter of EBIT margin improvement, driven by stronger light vehicle volumes, incremental content on commercial truck and off-highway programs, higher aftermarket sales and operational cost improvements.”
Adjusted third quarter 2015 and 2014 results:
|Q3 2015||Q3 2014|
|(millions except per share amounts)||EBITDA*||EBIT||Net income attributable to Tenneco Inc.||Per Share||EBITDA*||EBIT||Net income attributable to Tenneco Inc.||Per Share|
|Adjustments (reflects non-GAAP measures):|
|Restructuring and related expenses||31||35||33||0.55||8||8||7||0.12|
|Bad debt charge||-||-||-||-||4||4||3||0.05|
|Net tax adjustments||-||-||(12)||(0.21)||-||-||(10)||(0.19)|
|Non-GAAP earnings measures||$||200||$||151||$||73||$||1.22||$||204||$||152||$||78||$||1.25|
Restructuring and Related Expenses
During the quarter, the company recorded $25 million in restructuring charges related to exiting the Marzocchi suspension product line, and $10 million related to the company’s ongoing cost improvement initiatives.
Margin expansion continued in the quarter with value-add adjusted EBIT margin improving 20 basis points year-over-year to 9.7%.
Clean Air adjusted EBIT as a percent of value-add revenue increased to 11.5% versus 10.7% a year ago, driven primarily by stronger light vehicle volumes in North America and Europe and higher aftermarket revenue in North America. Clean Air EBIT margin benefitted from the timing of a customer recovery in China of $5 million in EBIT, or 3-cents per diluted share. Excluding the impact of this customer recovery, Clean Air EBIT margin increased to 10.9%.
Ride Performance adjusted EBIT as a percent of value-add revenue was 9.4% versus 9.8% last year. Excluding the impact of unfavorable currency, Ride Performance EBIT margin was 11.0%, driven by stronger light vehicle volumes and higher global aftermarket sales.
|Q3 2015||Q3 2014|
|EBIT as a percent of revenue||5.7%||6.7%|
|EBIT as a percent of value-add revenue||7.5%||8.7%|
|Adjusted EBIT as a percent of revenue||7.5%||7.3%|
|Adjusted EBIT as a percent of value-add revenue||9.7%||9.5%|
In the third quarter, cash generated by operations was $106 million, versus $115 million last year. Year to date, cash generated by operations was $188 million versus $89 million a year ago, driven by strong working capital management, especially inventory improvements.
In the quarter, capital expenditures were $67 million versus $95 million last year, primarily due to the timing of spending to support new programs. Year to date, capital expenditures were $217 million versus $249 million a year ago, and the company expects to be toward the lower end of its guidance range of $300 million to $320 million for the full year.
The company repurchased 2.4 million shares of common stock for $114 million in the third quarter. Year-to-date through the third quarter, Tenneco has repurchased a total of 3.1 million shares for $158 million as part of its previously announced $350 million share repurchase program, which the company expects to complete by the end of 2016.
Tenneco also announced today, in a separate press release, an expansion of its share repurchase program, authorizing the repurchase of an additional $200 million of common stock. Tenneco anticipates completing this additional share repurchase authorization by the end of 2017.
Based on current global industry forecasts and sequential improvement in customer production schedules in China, and excluding currency, Tenneco anticipates total fourth quarter revenue growth of 6%, resulting in full-year revenue growth of 5%.
The company anticipates fourth quarter currency headwinds on revenues of approximately 5%.
Global light vehicle industry production in the regions where Tenneco operates is expected to decrease 1% in the fourth quarter. The company is well-positioned to significantly outperform industry production with its balance across customers and platforms.
Tenneco expects commercial truck and off-highway revenue to continue to significantly outpace the industry in the fourth quarter due to content growth, offsetting a significant portion of the ongoing industry production weakness.
The company also expects solid year-over-year revenue growth from its global aftermarket business in the fourth quarter.
“Our success reflects the strength of our two product lines, the benefit of structural growth drivers and strong execution across our operations,” said Sherrill. “Our focus remains on strategies to capture organic growth, investments to drive cost competitiveness and strategic opportunities to enhance our organic growth, all to deliver greater returns and value to our shareholders.”
Statements of Income – 3 Months
Statements of Income – 9 Months
Statements of Cash Flows – 3 Months
Statements of Cash Flows – 9 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 – 9 Months
Reconciliation of GAAP to Non-GAAP Earnings Measures – 9 Months
Reconciliation of GAAP Revenue to Non-GAAP Revenue Measures – 3 Months
Reconciliation of GAAP Revenue to Non-GAAP Revenue Measures – 9 Months
Reconciliation of GAAP Revenue to Non-GAAP Revenue Measures – 3 Months and 9 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 9 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 – 9 Months
Reconciliation of Non-GAAP Revenue and Earnings Measures – 3 Months
Reconciliation of GAAP Revenue to Non-GAAP Revenue Measures – Original Equipment Commercial Truck, Off-Highway and other revenues – Quarterly
The company will host a conference call on Friday, October 23, 2015 at 8:00 a.m. ET. The dial-in number is 888-946-4303 (domestic) or 210-234-0079 (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 October 23, 2015 through November 23, 2015. To access this recording, dial 866-465-2112 (domestic) or 203-369-1429 (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, along with presentation slides that will be referred to on the call, will be available on the financial section 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 October 23, 2015 conference call, which will be available on the financial section of the Tenneco website.
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.
Linae Golla Bill Dawson
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