Tenneco Inc. (ticker: TEN, exchange: New York Stock Exchange)
November 2, 2020
TENNECO REPORTS THIRD QUARTER 2020 RESULTS
Q3 performance drives cash generation and significant net debt reduction
Paid down revolver by $1.1 billion; liquidity of $1.8 billion at quarter end
Lake Forest, Illinois, November 2, 2020 – Tenneco (NYSE: TEN) today announced results for the third quarter ended September 30, 2020, including the following:
- Revenue of $4.3 billion, down 2% versus prior year, excluding favorable currency of $17 million. Value-add revenue for the third quarter 2020 was $3.3 billion, versus $3.5 billion in the prior year.
- The Company reported a net loss for the third quarter 2020 of $499 million, or $(6.12) per diluted share, which included a non-cash tax valuation allowance charge of $523 million. Third quarter 2020 adjusted net income was $27 million, or 33-cents per diluted share.
- Third quarter EBIT (earnings before interest, taxes and noncontrolling interests) improved to $236 million versus $148 million in the prior year, and EBIT as a percent of revenue increased 210 basis points to 5.5% versus 3.4% in the prior year.
- Adjusted EBITDA was $388 million, up $1 million versus prior year. Adjusted EBITDA as a percent of value-add revenue was 11.8%, 90 basis points higher year-over-year. Earnings performance was driven by operating performance and enhanced contribution from structural and temporary cost savings.
- Cash generated from operations of $486 million was primarily driven by strong earnings resiliency, effective working capital management, including with respect to inventories, and a return to more normalized levels of factoring. Disciplined capital spending also benefitted cash performance in the quarter.
“Our third quarter results demonstrate the effectiveness of our operational execution as we leveraged Tenneco’s global scale and diversified portfolio to deliver strong cash flow performance and year-over-year margin expansion in the face of the prolonged impact of the COVID pandemic,” said Brian Kesseler, Tenneco's chief executive officer. “My thanks to our global team members for their strong execution and commitment to continuous improvement.”
Debt and Liquidity Update
Total debt of $5.8 billion improved by $1.1 billion compared to second quarter 2020 due to the pay down of the revolving credit facility. Net debt of $5.1 billion improved $429 million compared to the second quarter 2020, and was $123 million lower than the prior year. The Company remains in compliance with all lending covenants.
Liquidity increased to $1.8 billion at September 30, 2020, consisting of total cash balances of $721 million and undrawn revolving credit facility availability of $1.1 billion, compared to liquidity of $1.4 billion on June 30, 2020.
For the fourth quarter, Tenneco expects:
- Value-add revenue to be roughly even with the third quarter 2020. The Company’s revenue forecast incorporates more conservative light vehicle production assumptions than IHS Markit.
- Value-add adjusted EBITDA margin to increase almost 200 basis points on a year-over-year basis.
- By year-end 2020, full year capital expenditures of approximately $380 million, and net debt at or below the 2019 year-end level of $5.0 billion.
“The health of our global team members and the safe operation of our facilities remain our top priorities, and we continue to promote healthy behaviors both inside and outside the workplace,” added Kesseler. “Our Accelerate program is delivering structural cost savings as planned and contributing to improved cash flow and margins, positioning Tenneco to finish 2020 strong with positive momentum.”
Earnings Conference Call Details
The Company will host a webcast conference call on Monday, November 2, at 10:00 am ET. The purpose of the call is to discuss the Company's financial results for the third quarter 2020, as well as to provide other information regarding matters that may impact the Company's fourth quarter outlook including vehicle build assumptions, margin rate expectations as temporary cost actions cease and cash flow timing.
A live "listen only" webcast and presentation materials will be available on the investor section of the company’s website at https://investors.tenneco.com. An archive of the webcast will be available approximately one hour after conclusion of the call for one year.
Telephone participants are encouraged to pre-register for the conference call using the following link:
Callers who pre-register will be given a conference passcode and unique PIN to gain immediate access to the call and bypass the live operator. Participants may pre-register at any time, including up to and after the call start time.
Those without internet access or unable to pre-register may dial in, using the passcode “Tenneco Inc.”
PARTICIPANT DIAL IN (TOLL FREE): 1-833-366-1121
PARTICIPANT INTERNATIONAL DIAL IN: 1-412-902-6733
Click here to download a PDF of the press release and all attachments listed below.
Statements of Income (Loss) – 3 months
Statements of Income (Loss) – 9 months
Statements of Cash Flows – 3 Months
Statements of Cash Flows – 9 Months
Reconciliation of GAAP to Non-GAAP Earnings Measures – 3 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 Non-GAAP Measures – Debt Net of Cash/Adjusted LTM EBITDA including noncontrolling interests
Reconciliation of GAAP Revenue to Non-GAAP Revenue Measures – Original Equipment, Original Equipment Service and Aftermarket Revenue – 3 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, Industrial and other revenues – 3 and 9 Months
Tenneco is one of the world's leading designers, manufacturers and marketers of automotive products for original equipment and aftermarket customers, with 2019 revenues of $17.5 billion and approximately 78,000 team members working at more than 300 sites worldwide. Through our four business groups, Motorparts, Ride Performance, Clean Air and Powertrain, Tenneco is driving advancements in global mobility by delivering technology solutions for diversified global markets, including light vehicle, commercial truck, off-highway, industrial, motorsport and the aftermarket.
Visit www.tenneco.com to learn more.
Investors and others should note that Tenneco routinely posts important information on its website and considers the Investor section, www.investors.tenneco.com, a channel of distribution.
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, substrate pricing, and other unusual charges we incur from time to time cannot be forecasted accurately. In this respect, we are not able to forecast corresponding GAAP measures without unreasonable efforts on account of these factors and other factors not in our control.
This press release contains forward-looking statements, including with respect to preliminary third quarter 2020 results. The words “will,” “would,” “could,” “expect,” “anticipate,” and similar expressions (and variations thereof), identify these forward-looking statements. These forward-looking statements are based on the current expectations of the Company (including its subsidiaries). Because these statements involve risks and uncertainties, actual results may differ materially from the expectations expressed in the forward-looking statements.
Important factors that could cause actual results to differ materially from the expectations reflected in the forward-looking statements include: general economic, business, market and social conditions, including the effect of the COVID-19 pandemic; disasters, local and global public health emergencies or other catastrophic events, where we or other customers do business, and any resultant disruptions; our ability (or inability) to successfully execute cost reduction, performance improvement and other plans, including our plans to respond to the COVID-19 pandemic and our previously announced accelerated performance improvement plan (“Accelerate”), and to realize the anticipated benefits from these plans; changes in capital availability or costs, including increases in our cost of borrowing (i.e., interest rate increases), the amount of our debt, our ability to access capital markets at favorable rates, and the credit ratings of our debt and our financial flexibility to respond to COVID-19 pandemic; our ability to maintain compliance with the agreements governing our indebtedness and otherwise have sufficient liquidity through the COVID-19 pandemic; our working capital requirements; our ability to source and procure needed materials, components and other products, and services in accordance with customer demand and at competitive prices; the cost and outcome of existing and any future claims, legal proceedings or investigations; changes in consumer demand for our OE products or aftermarket products, prices and our ability to have our products included on top selling vehicles, including any shifts in consumer preferences; the cyclical nature of the global vehicle industry, including the performance of the global aftermarket sector and the impact of vehicle parts' longer product lives; changes in automotive and commercial vehicle manufacturers’ production rates and their actual and forecasted requirements for our products, due to difficult economic conditions and/or regulatory or legal changes affecting internal combustion engines and/or aftermarket products; our dependence on certain large customers, including the loss of any of our large OE manufacturer customers (on whom we depend for a significant portion of our revenues), or the loss of market shares by these customers if we are unable to achieve increased sales to other OE-customers or any change in customer demand due to delays in the adoption or enforcement of worldwide emissions regulations; the overall highly competitive nature of the automotive and commercial vehicle parts industries, and any resultant inability to realize the sales represented by our awarded book of business (which is based on anticipated pricing and volumes over the life of the applicable program); risks inherent in operating a multi-national Company; damage to the reputation of one or more of our leading brands; industry-wide strikes, labor disruptions at our facilities or any labor or other economic disruptions at any of our significant customers or suppliers or any of our customers’ other suppliers; changes in distribution channels or competitive conditions in the markets and countries where we operate; the evolution towards alternative powertrains, including electrification, car and ride sharing, and autonomous vehicles; customer acceptance of new products; our ability to successfully integrate, and benefit from, any acquisitions that we complete; the potential impairment in the carrying value of our long-lived assets, goodwill, and other intangible assets or the inability to fully realize our deferred tax assets; increases in the costs of raw materials or components, including our ability to successfully reduce the impact of any such cost increases through materials substitutions, cost reduction initiatives, customer recovery and other methods; 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 or increased costs or loss of revenues relating to products subject to changing regulation; and the timing and occurrence (or non-occurrence) of other transactions, events and circumstances which may be beyond our control.
In addition, statements regarding the Company’s ongoing review of strategic alternatives and the potential separation of the Company into a powertrain technology company and an aftermarket and ride performance company constitute forward-looking statements. Important factors that could cause actual results to differ materially from the expectations reflected in the forward-looking statements include (in addition to the risks set forth above): the ability to identify and consummate strategic alternatives that yield additional value for shareholders; the timing, benefits and outcome of the Company’s strategic review process; the structure, terms and specific risk and uncertainties associated with any potential strategic alternative; potential disruptions in our business and stock price as a result of our exploration, review and pursuit of any strategic alternatives; the possibility that the Company may not complete a separation of the aftermarket and ride performance business from the powertrain technology business (or achieve some or all of the anticipated benefits of such a separation); the ability to retain and hire key personnel and maintain relationships with customers, suppliers or other business partners; the potential diversion of management’s attention resulting from a separation; the risk that the combined company and each separate company following a separation will underperform relative to our expectations; the ongoing transaction costs and risk we may incur greater costs following a separation of the business; the risk a spin-off is determined to be a taxable transaction; the risk the benefits of a separation may not be fully realized or may take longer to realize than expected; the risk a separation may not advance our business strategy; and the risk a transaction may have an adverse effect on existing arrangements with us, including those related to transition, manufacturing and supply services and tax matters.
The risks included here are not exhaustive. 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, and will be, 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, 2019 and quarterly reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020.