• Record-high third quarter revenue
• Raises full-year organic revenue growth outlook to 6%, outpacing industry production by 5 percentage points
• Federal-Mogul acquisition closed on October 1

Lake Forest, Illinois, October 26, 2018 – Tenneco Inc. (NYSE: TEN) reported third quarter net income of $60 million, or $1.15 per diluted share in 2018, versus $83 million, or $1.57 per diluted share in the third quarter of 2017.  Third quarter 2018 adjusted net income was $88 million, or $1.70 per diluted share, compared with $88 million, or $1.67 per diluted share in the third quarter of 2017.

Revenue

Total revenue in the third quarter of 2018 was $2.372 billion, up 4% year-over-year, with growth in the Clean Air and Ride Performance segments.  On a constant currency basis, total revenue increased 7% driven by strong commercial truck and off-highway volumes and new business and incremental content on light vehicles.

On a constant currency basis, value-add revenue increased 5% to $1.776 billion in 2018, significantly outpacing industry production.*  Clean Air and Ride Performance revenues increased 6% and 5% respectively, while Aftermarket revenue was up 1% compared to last year.

EBIT

Third quarter 2018 EBIT (earnings before interest, taxes and noncontrolling interests) was $111 million, compared to $134 million last year.  Adjusted EBIT in 2018 was $149 million, versus $154 million last year.  Volume increased in both light vehicle and commercial truck and off-highway applications.  Tariff-driven steel commodity costs and currency exchange rates impacted EBIT and margin results in the third quarter of 2018.

 

 

Cash

Cash used in operating activities in the quarter was $41 million, compared with cash provided by operating activities of $25 million a year ago.  Third quarter results reflect our investment in working capital to support revenue growth and cash payments for transaction costs.  During the quarter, the company returned $14 million to shareholders through a dividend payment of 25-cents per common share.

“Tenneco delivered a solid quarter of strong growth, outpacing industry production by nine percentage points, including double–digit growth in commercial truck and off-highway revenue,” said Brian Kesseler, co-CEO Tenneco.  “The strength of Tenneco’s diversified business profile helped mitigate many dynamic economic factors, and I am pleased with our execution and continued focus on operational improvements and cost recoveries.”

Adjusted third quarter 2018 and 2017 results

 

Fourth Quarter Outlook  

In the fourth quarter, Tenneco expects constant currency organic revenue growth in its legacy business of 3%, outpacing forecasted light vehicle industry production growth of 1%*.  Tenneco anticipates currency will have a negative impact on revenue of 3%, based on exchange rates as of September 30, 2018.  With the closing of the Federal-Mogul acquisition, Tenneco expects approximately $1.9 billion of additional revenue from Federal-Mogul operations in the fourth quarter.

The company expects fourth quarter combined Tenneco and Federal-Mogul value-add adjusted EBITDA margin in the range of 11.0% to 11.4%.

Full Year Outlook

For the full year, Tenneco raises its revenue guidance and now expects constant currency organic revenue growth in its legacy business of 6%, outpacing industry production by 5 percentage points.  The company expects full year revenue of approximately $11.8 billion, reflecting this strong organic growth as well as Federal-Mogul revenue from the date of acquisition.

For the full year, the company expects Tenneco value-add adjusted EBITDA margin, including Federal-Mogul from the date of acquisition, in the range of 11.3% to 11.5%.

Acquisition of Federal-Mogul LLC

During a special meeting of stockholders held September 12, 2018, Tenneco stockholders approved all of the proposals related to the acquisition of Federal-Mogul. The acquisition was officially completed on October 1, 2018.

*Source: IHS Automotive October 2018 global light vehicle production forecast and Tenneco estimates.

Click here to download the earnings release and all the schedules listed below.

Attachment 1

Statements of Income – 3 Months

Statements of Income – 9 Months

Balance Sheets

Statements of Cash Flows – 3 Months

Statements of Cash Flows – 9 Months

Attachment 2

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 GAAP Revenue to Non-GAAP Revenue Measures – Original Equipment Commercial Truck, Off-Highway and other revenues – 3 Months and 9 months

CONFERENCE CALL

The company will host a conference call on Friday, October 26, 2018 at 9:00 a.m. ET.  The dial-in number is 866-807-9684 (domestic) or 412-317-5415 (international).  The passcode is Tenneco Inc. call.  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 October 26, 2018 through November 2, 2018.  To access this recording, dial 877-344-7529 (domestic), 855-669-9658 (Canada) or 412-317-0088 (international).  The replay access code is 10124354. The purpose of the call is to discuss the company’s operations for the third fiscal quarter of 2018, 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.

About Tenneco

Headquartered in Lake Forest, Illinois, Tenneco is one of the world’s leading designers, manufacturers and marketers of Ride Performance and Clean Air products and technology solutions for diversified markets, including light vehicle, commercial truck, off-highway equipment and the aftermarket, with 2017 revenues of $9.3 billion and approximately 32,000 employees worldwide. 

On October 1, 2018, Tenneco completed the acquisition of Federal-Mogul, a leading global supplier to original equipment manufacturers and the aftermarket with nearly 55,000 employees globally and 2017 revenues of $7.8 billion.  Additionally, the company expects to separate its businesses to form two new, independent companies, an Aftermarket and Ride Performance company as well as a new Powertrain Technology company, in late 2019.

About the Future Aftermarket and Ride Performance Company

Following the separation, the aftermarket and ride performance company will be one of the largest global multi-line, multi-brand aftermarket companies, and one of the largest global OE ride performance and braking companies.  The aftermarket and ride performance company’s principal product brands will include Monroe®, Walker®, Clevite®Elastomers, MOOG®, Fel-Pro®, Wagner®, and Champion®. The Aftermarket and Ride Performance company would have 2017 pro-forma revenues of $6.4 billion, with 57% of those revenues from aftermarket and 43% from original equipment customers.

About the Future Powertrain Technology Company

Following the separation, the powertrain technology company will be one of the world’s largest pure-play powertrain companies serving OE markets worldwide with engineered solutions addressing fuel economy, power output, and criteria pollution requirements for gasoline, diesel and electrified powertrains. The powertrain technology company would have 2017 pro-forma revenues of $10.7 billion, serving light vehicle, commercial truck, off-highway and industrial markets.

Forecasts

Revenue estimates and other forecasted information 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.  This information is also based on anticipated vehicle production levels and pricing, including precious metals pricing and the impact of material cost changes. Unless otherwise indicated, our methodology does not attempt to forecast currency fluctuations, and accordingly, reflects constant currency. Certain elements of the restructuring and related expenses, legal settlements and other unusual charges we incur from time to time cannot be forecasted accurately.  In this respect, we are not able to forecast EBIT or EBITDA (and the related margins) on a forward-looking basis without unreasonable efforts on account of these factors and the difficulty in predicting GAAP revenues (for purposes of a margin calculation) due to variability in production rates and volatility of precious metal pricing in the substrates that we pass through to our customers.  For certain additional assumptions upon which these estimates are based, see the slides accompanying the October 26, 2018 webcast, which will be available on the financial section of the Tenneco website at www.investors.tenneco.com.

Safe Harbor

This release contains forward-looking statements. These forward-looking statements include, but are not limited to, (i) all statements, other than statements of historical fact, included in this communication that address activities, events or developments that we expect or anticipate will or may occur in the future or that depend on future events and (ii) statements about our future business plans and strategy and other statements that describe Tenneco’s outlook, objectives, plans, intentions or goals, and any discussion of future operating or financial performance. These forward-looking statements are included in various sections of this communication and the words  “may,” “will,” “believe,” “should,” “could,” “ plan,”  “expect,” “anticipate,” “estimate,” and similar expressions (and variations thereof) are intended to identify forward-looking statements. Forward-looking statements included in this release concern, among other things, the benefits of the Federal-Mogul acquisition; the combined company’s plans, objectives and expectations; future financial and operating results; and other statements that are not historical facts. Forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to materially differ from those described in the forward-looking statements, including the outcome of any legal proceeding that may be instituted against Tenneco and others following the announcement of the transaction; the possibility that the combined company may not complete the spin-off of the Aftermarket & Ride Performance business from the Powertrain Technology business (or achieve some or all of the anticipated benefits of such a spin-off); the possibility that the transaction may have an adverse impact on existing arrangements with Tenneco, including those related to transition, manufacturing and supply services and tax matters; the ability to retain and hire key personnel and maintain relationships with customers, suppliers or other business partners; the risk that the benefits of the transaction, including synergies, may not be fully realized or may take longer to realize than expected; the risk that the transaction may not advance the combined company’s business strategy; the risk that the combined company may experience difficulty integrating all employees or operations; the potential diversion of Tenneco management’s attention resulting from the  transaction; as well as the risk factors and cautionary statements included in Tenneco’s periodic and current reports (Forms 10-K, 10-Q and 8-K) filed from time to time with the SEC.

In addition, the forward-looking statements contained herein pertaining to the company’s performance 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 conditions, such as currency exchange and inflation rates, and political environments 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.

Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Unless otherwise indicated, the forward-looking statements in this release are made as of the date of this communication, and, except as required by law, Tenneco does not undertake any obligation, and disclaims any obligation, to publicly disclose revisions or updates to any forward-looking statements. 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, 2017. 

###

Tenneco investor inquiries:
Linae Golla
847 482-5162 (office)
224 632-0986 (cell)
lgolla@tenneco.com 

Tenneco media inquiries:
Bill Dawson
847 482-5807 (office)
224 280-4308 (cell)
bdawson@tenneco.com 

 

C