- Record-high second quarter revenue, outpacing industry production
- Double-digit growth in commercial truck and off highway revenue
- Returned $57 million to shareholders through share repurchases and dividends
- Company raises full-year revenue outlook
Lake Forest, Illinois, July 28, 2017 – Tenneco Inc. (NYSE: TEN) reported a second quarter net loss of $2 million, or 3-cents per diluted share, which includes adjustments of $104 million after tax. Second quarter 2016 net income* was $84 million, or $1.46 per diluted share. Adjusted net income increased to $102 million, or $1.90 per diluted share, versus $100 million or $1.75 per diluted share last year.*
Second quarter revenue was $2.317 billion, up 5% year-over-year, driven by growth in both the Ride Performance and Clean Air product lines.
On a constant currency basis, total second quarter revenue increased 6%, outpacing flat industry production.** Record high revenue in the quarter reflects a 5% increase in light vehicle revenue on the strength of the company’s global platform position. Commercial truck revenue increased 26%, outpacing industry growth of 4%**, with increases in all regions. Off-highway and specialty revenue improved 8% year-over-year on higher volumes in Europe and Japan, with North America revenue steady versus last year. Global aftermarket revenue was roughly flat versus last year.
In constant currency, value-add revenue increased 6% versus last year, and included 6% increases in both Ride Performance and Clean Air revenues.
Adjusted second quarter 2017 and 2016 results
|Q2 2017||Q2 2016*|
|(millions except per share amounts)||EBITDA#||EBIT||Net income attributable to Tenneco Inc.||Per Share||EBITDA#||EBIT||Net income attributable to Tenneco Inc.||Per Share|
|Adjustments (reflects non-GAAP measures):|
|Restructuring and related expenses||16||17||16||0.30||5||5||4||0.06|
|Antitrust settlement accrual||132||132||85||1.60||-||-||-||-|
|Gain on sale of unconsolidated JV||(5)||(5)||(4)||(0.08)||-||-||-||-|
|Costs related to refinancing||-||-||1||0.02||-||-||10||0.18|
|Net tax adjustments||-||-||1||0.01||-||-||2||0.05|
|Non-GAAP earnings measures||$||233||$||179||$||102||$||1.90||$||230||$||178||$||67||$||1.75|
EBIT and EBIT Margin*
Second quarter EBIT (earnings before interest, taxes and noncontrolling interests) was $28 million, versus $173 million last year. Adjusted EBIT rose to $179 million. Excluding a negative currency impact of $8 million, adjusted EBIT was $187 million.
Tenneco EBIT as a percent of revenue was 1.2%. Adjusted EBIT as a percent of value-add revenue was 10.1%. Excluding a 30 basis point currency headwind, adjusted EBIT as a percent of value-add revenue was 10.4%.
EBIT results reflect strong light vehicle volumes, higher commercial truck and off-highway revenues, and the timing of commodity cost recoveries and other offsets.
Second quarter EBIT margin
|Q2 2017||Q2 2016*|
|EBIT as a percent of revenue||1.2%||7.8%|
|EBIT as a percent of value-add revenue||1.6%||10.2%|
|Adjusted EBIT as a percent of revenue||7.7%||8.0%|
|Adjusted EBIT as a percent of value-add revenue||10.1%||10.5%|
Cash generated by operations in the quarter was $119 million, compared with $132 million a year ago, driven by increased use of cash for components of working capital. Year to date, cash generated by operations was $110 million, a 7% increase versus last year.
During the quarter, Tenneco repurchased 783,800 shares of common stock for $44 million, and paid a dividend of 25-cents per share, for $13 million.
Third quarter 2017
In the third quarter, Tenneco expects year-over-year revenue growth of approximately 7% on a constant currency basis, outpacing estimated light vehicle industry production growth** by 5 percentage points. The company anticipates minimal currency impact on the year-over-year revenue comparison in the third quarter, based on exchange rates at the end of the second quarter.
The company’s organic revenue growth is expected to be driven by Ride Performance and Clean Air content on top-selling light vehicle platforms globally; strong double digit growth in commercial truck and off-highway revenue; and a steady contribution from the global aftermarket.
Full Year 2017
Tenneco announced an increase to its full-year revenue growth outlook. On a constant currency basis, the company now expects year-over-year revenue growth of 6%, outpacing estimated light vehicle industry growth by 5 percentage points.
The company expects second-half 2017 value add adjusted EBIT margins to be in line with the prior year second half.
Tenneco updated its anticipated tax rate, and now expects a tax rate between 27-28% for 2017, due to continued optimization of the global business structure.
“We’re pleased with our year-to-date results, including revenue growth, strong earnings, and improved cash performance,” said Brian Kesseler, Tenneco CEO. “As a result of the strong outlook for both our light vehicle and commercial truck and off-highway revenues, we are raising our full-year revenue outlook and expect to outpace industry production by five percentage points. With these results and multiple and diverse core growth drivers, we are confident in our ability to continue accelerating top and bottom line growth.”
*Year-over-year earnings comparisons reflect revisions to prior period financial results for certain immaterial supplier cost reduction payments that Tenneco determined should have been recognized in future periods. Tenneco’s Form 10-Q for the second quarter may reflect further revisions based on Tenneco’s ongoing review of certain supplier payments, but Tenneco does not expect that any such revisions will be material to prior periods.
**Source: IHS Automotive July 2017 global light vehicle production forecast, Power Systems Research July 2017 commercial truck forecast, and/or and Tenneco estimates.
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 Non-GAAP Revenue and Earnings Measures – 3 Months and 6 months
Reconciliation of GAAP Revenue to Non-GAAP Revenue Measures – Original Equipment Commercial Truck, Off-Highway and other revenues – 3 Months
The company will host a conference call on Friday, July 28, 2017 at 8:30 a.m. ET. The dial-in number is 866-807-9684 (domestic) or 412-317-5415 (international). The passcode is TENNECO. The call and accompanying slides will be available on the financial section of the Tenneco web site at www.investors.tenneco.com. A recording of the call will be available one hour following completion of the call on July 28, 2017 through August 28, 2017. To access this recording, dial 877-344-7529 (domestic) or 412-317-0088 (international). The purpose of the call is to discuss the company’s operations for the second fiscal quarter of 2017, as well as provide updated information regarding matters impacting 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 $8.6 billion global manufacturing company with headquarters in Lake Forest, Illinois and approximately 31,000 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 28, 2017 webcast, which will be available on the financial section of the Tenneco website at www.investors.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 cost reduction initiatives, and to realize anticipated benefits from these plans;
(x) risk inherent in operating a multi-national company, including economic, exchange rate and political conditions in the countries where we operate or sell our products, adverse changes in trade agreements, tariffs, immigration policies, political stability, and tax and other laws, and potential disruption of production and/or supply;
(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, 2016.