Tenneco Reports Second Quarter 2016 Results
- Revenue growth continuing to outpace industry production
- Record-high second quarter EBIT
- Year-over-year margin expansion
- Record-high second quarter EPS
Lake Forest, Illinois, July 29, 2016 – Tenneco (NYSE: TEN) reported second quarter net income of $86 million, or $1.49 per diluted share, compared with $78 million, or $1.26 per share in second quarter 2015, an improvement of 18% on a per share basis. Adjusted net income rose to $102 million, or $1.78 per diluted share, versus $86 million or $1.39 per share last year, representing EPS growth of 28% versus last year. The earnings per share results represent new record highs for the second quarter.
Total revenue in the second quarter was $2.2 billion, up 4% year-over-year, driven by light vehicle revenue growth led by Europe, China and India. Total light vehicle revenue grew 6%, commercial truck and off-highway revenue declined 1% and global aftermarket revenue was 4% lower versus a year ago.
On a constant currency basis, Tenneco’s revenue in the quarter was $2.3 billion, an increase of 6% versus last year, outpacing global aggregate industry production growth of 3%. On a constant currency basis, light vehicle revenue grew 9%, commercial truck and off-highway revenue grew 1% and global aftermarket revenue was even with strong revenues a year ago.
"Our strong performance exceeded our outlook for revenue growth in excess of industry production and delivered another quarter of margin improvement," said Gregg Sherrill, Tenneco Chairman and CEO. “At the mid-point for the year, I'm pleased with our execution on growth strategies for both Clean Air and Ride Performance and with our improved profitability as we continue to launch new content and drive greater process discipline throughout our business.”
Second quarter EBIT (earnings before interest, taxes and noncontrolling interests) increased 14% to $177 million, a record-high for the quarter, versus $155 million last year.
Adjusted EBIT rose 12% to $182 million, also a record high for the quarter, compared with $162 million a year ago.
Second quarter EBIT was driven by higher light vehicle revenue in both the Clean Air and Ride Performance product lines, commercial truck and off-highway Clean Air content growth and operational cost improvements, and includes $11 million in negative currency.
Adjusted second quarter 2016 and 2015 results
|Q2 2016||Q2 2015|
|(millions except per share amounts)||EBITDA*||EBIT||Net income attributable to Tenneco Inc.||Per Share||EBITDA*||EBIT||Net income attributable to Tenneco Inc.||Per Share|
|Adjustments (reflects non-GAAP measures):|
|Restructuring and related expenses||5||5||4||0.06||7||7||6||0.10|
|Costs related to refinancing||-||-||10||0.18||-||-||-||-|
|Net tax adjustments||-||-||2||0.05||-||-||2||0.03|
|Non-GAAP earnings measures||$||234||$||182||$||102||$||1.78||$||213||$||162||$||86||$||1.39|
Second quarter EBIT margin
In the second quarter 2016, Tenneco EBIT as a percent of revenue was 8.0%, an improvement of 70 basis points year-over-year, and adjusted EBIT as a percent of value-add revenue increased by 90 basis points to 10.8%.
|Q2 2016||Q2 2015|
|EBIT as a percent of revenue||8.0%||7.3%|
|EBIT as a percent of value-add revenue||10.5%||9.5%|
|Adjusted EBIT as a percent of revenue||8.2%||7.6%|
|Adjusted EBIT as a percent of value-add revenue||10.8%||9.9%|
EBIT margin improvement was driven mainly by stronger light vehicle volumes, Clean Air content growth with commercial truck and off-highway customers and operational cost improvements in both product lines.
Cash generated by operations in the quarter was $129 million, consistent with last year, on strong working capital management.
During the quarter the company repurchased approximately 773,000 shares of common stock for $41 million. Since announcing its share repurchase program in 2015, Tenneco has repurchased a total of 5.4 million shares of common stock for $270 million, representing 9% of shares outstanding at that time.
(Note: all forward looking revenue estimates reflect constant currency.)
In the third quarter, Tenneco expects to outpace aggregate industry production by 2 percentage points resulting in total revenue growth of 7% compared with a year ago. Aggregate industry production is forecast to grow 5%* in the third quarter, including an increase in global light vehicle production of 5% and a 1% decline in combined commercial truck and off-highway industry production.
Tenneco’s expected revenue growth in the third quarter will be driven by stronger global light vehicle volumes including new launches and the ramp up on recently launched platforms, and a solid contribution from the global aftermarket. Commercial truck and off-highway revenue is expected to be roughly in line with industry production.
For the full year, the company continues to expect to outpace aggregate industry production by 3% for total revenue growth of 6% year-over-year, with a fourth quarter outpace similar to the third quarter.
Tenneco also expects continued year-over-year adjusted margin expansion for the remainder of the year. Year-to-date, EBIT as a percent of revenue has increased 30 basis points, and adjusted EBIT as a percent of value-add revenue has increased 60 basis points.
In addition to reconfirming the 2016 revenue outlook, Tenneco has secured the necessary future business, including incremental platforms and content, to outpace industry production in 2017 and 2018, as indicated in the company’s January 2016 revenue expectations.
“Tenneco is in a strong position to further accelerate profitable growth. With business secured to meet our 2017 and 2018 estimates for outgrowing industry production, we’re focused on future opportunities and highly confident in our ability to continue delivering growth that outpaces industry production,” said Sherrill. “Margins continue to expand and we’re generating strong cash flow and returning value to shareholders through stock repurchases.”
*Aggregate Industry Production: IHS Automotive July 2016 global light vehicle production forecasts, Power Systems Research (PSR) July 2016 forecast for global commercial truck and buses, PSR off-highway engine production in North America and Europe and Tenneco estimates.
Click here to download Q2 2016 release including all attachments listed below
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
Reconciliation of GAAP Revenue to Non-GAAP Revenue Measures – Original Equipment Commercial Truck, Off-Highway and other revenues – 3 Months and 6 months
The company will host a conference call on Friday, July 29, 2016 at 8:30 a.m. ET. The dial-in number is 800-988-9663 (domestic) or 517-308-9192 (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, 2016 through August 29, 2016. To access this recording, dial 866-481-4961 (domestic) or 203-369-1557 (international). The purpose of the call is to discuss the company’s operations for the second fiscal quarter of 2016, as well as provide updated information regarding matters impacting the company’s outlook.
Tenneco is an $8.2 billion global manufacturing company with headquarters in Lake Forest, Illinois and approximately 30,000 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®Elastomers.
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; and Tenneco’s status as supplier for the existing program and its relationship with the customer. These revenue estimates are also based on anticipated vehicle production levels and pricing, including precious metals pricing and the impact of material cost changes. Unless otherwise indicated, our revenue estimate methodology does not attempt to forecast currency fluctuations, and accordingly, reflects constant currency. For certain additional assumptions upon which these estimates are based, see the slides accompanying the July 29, 2016 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, 2015.
|Q1 2016||Q1 2015|
|EBIT as a percent of revenue||5.8%||5.9%|
|EBIT as a percent of value-add revenue||7.6%||7.7%|
|Adjusted EBIT as a percent of revenue||6.5%||6.2%|
|Adjusted EBIT as a percent of value-add revenue||8.5%||8.0%|