Tenneco Reports Second Quarter Results

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Tenneco Reports Second Quarter Results

  • Highest-ever quarterly revenue of $2.1 billion
  • Highest-ever quarterly EBIT of $141 million
  • Record second quarter cash from operations of $133 million

LAKE FOREST, Ill.--(BUSINESS WIRE)-- Tenneco Inc. (NYS: TEN) reported second quarter net income of $63 million, or $1.02 per diluted share, compared with net income of $87 million, or $1.42 per diluted share in second quarter 2012. On an adjusted basis, net income was $68 million, or $1.10 per diluted share, versus $70 million, or $1.14 per diluted share a year ago. The decrease in net income and earnings per share was more than explained by a higher year-over-year tax rate.

Revenue


Total revenue was $2.067 billion, up 8% from prior year, driven by revenue increases in both the Clean Air and Ride Performance businesses. Clean Air revenue increased 10% to $1.406 billion, on stronger light vehicle production in North America, China and South America as well as revenue growth in both the light and commercial vehicle businesses in Europe. Ride Performance revenue rose 2% versus prior year to $661 million, largely driven by strong light vehicle production in China.

Value-add revenue (revenue excluding substrate sales) was $1.579 billion, up 6% year-over-year.

"We delivered another solid quarter with top-line growth in both product divisions driven by stronger global light vehicle production, higher commercial vehicle revenue in Europe and South America and a solid contribution from our global aftermarket business," said Gregg Sherrill, chairman and CEO, Tenneco. "I am also pleased that we delivered record-high EBIT and adjusted EBIT. In addition, our outstanding effort in managing working capital drove our best-ever second quarter performance for generating cash from operations."

Global OE light vehicle revenue increased 10% year-over-year to $1.483 billion with light vehicle growth in nearly all regions due to the ramp-up on new programs and leveraging higher industry production with a strong platform mix. OE commercial and specialty vehicle revenue increased 5% to $237 million in the quarter, compared with $226 million a year ago. The increase was due to commercial vehicle revenue gains in Europe and South America. Global aftermarket revenue increased 1% to $347 million.

EBIT

EBIT (earnings before interest, taxes and noncontrolling interests) was $141 million, up from $137 million in second quarter 2012. Adjusted EBIT was $148 million, up from $139 million a year ago. The year-over-year comparison includes unfavorable currency impacts of $8 million.

The adjusted EBIT improvement reflects a 15% increase in Clean Air adjusted EBIT, driven by light vehicle volumes in North America, China and South America and effective operational cost management. Ride Performance adjusted EBIT also improved year-over-year, up 4% on stronger volumes in China.

Adjusted second quarter 2013 and 2012 Results

        
(millions except per share amounts)Q2 2013Q2 2012
 EBITDA*EBIT

Net income
attributable to
Tenneco Inc.

Per ShareEBITDA*EBIT

Net income
attributable to
Tenneco Inc.

Per Share
Earnings Measures$191$141$63$1.02$187$137$87$1.42
 
Adjustments (reflects non-GAAP measures):
Restructuring and related expenses7750.082210.02
Costs related to refinancing------10.01
Net tax adjustments------(19)(0.31)
 
        
Non-GAAP earnings measures$198$148$68$1.10$189$139$70 $1.14 

* EBITDA including noncontrolling interests (EBIT before depreciation and amortization)

In addition to the items set forth above, the tables at the end of this press release reconcile GAAP to non-GAAP results.

Second Quarter 2013 adjustments:

  • Restructuring and related expenses of $7 million pre-tax, or 8-cents per diluted share.

Second Quarter 2012 adjustments:

  • Restructuring and related expenses of $2 million pre-tax, or 2-cents per diluted share;
  • Costs related to refinancing of $1 million pre-tax or 1-cent per diluted share;
  • Net tax benefits of $19 million, or 31-cents per diluted share, primarily related to U.S. taxable income with no associated tax expense due to the valuation allowance on the company's net operating loss position.

EBIT Margin

The company's operational performance and ability to capitalize on higher light vehicle production in key regions drove an increase in adjusted EBIT margin on value-add revenue.

Tenneco reported the following EBIT as a percent of revenue and EBIT as a percent of value-add revenue.

 

Q2 2013

  

Q2 2012

 
EBIT as a percent of revenue6.8%7.1%
EBIT as a percent of value-add revenue8.9%9.2%
 
Adjusted EBIT as a percent of revenue7.2%7.2%
Adjusted EBIT as a percent of value-add revenue9.4%9.3%

Cash

Cash generated by operations in the quarter was $133 million, up 55% from $86 million in second quarter 2012. The record second quarter cash performance was primarily driven by working capital improvements including strong year-over-year improvement in inventories.

Capital expenditures in the second quarter were $47 million, compared with $62 million a year ago. The majority of the capital spending was to support Clean Air customer programs in North America, Europe and China.

Taxes

The tax rate in the quarter was 39%, up from 18% in the second quarter of last year. The higher rate was primarily due to the reversal of the U.S. tax net operating loss valuation allowance in the third quarter of 2012, and to an increase in unbenefitted foreign losses in certain countries.

For the remainder of the year, the company anticipates a tax rate between 36% and 38%, and 2013 cash taxes to be approximately $110 million.

Outlook

In the third quarter, IHS Automotive forecasts a 4% increase in global light vehicle production versus a year ago with both North America and China increasing 8% year-over-year. South America is expected to be even with last year and production declines of 3% are expected in Europe.

Tenneco is well-positioned to capitalize on the stronger global light vehicle production environment with an excellent platform mix, the continued ramp-up on new programs and a well-established footprint in the fastest growing markets.

In general, the global commercial vehicle market remains relatively weak. There is modest demand improvement in certain areas; however, inventory corrections are still expected to impact production levels. The company anticipates its commercial vehicle revenues for the next two quarters will be relatively flat compared with the second quarter, bringing full year revenues within the lower end of the company's previously announced range.

"While industry conditions globally are somewhat mixed, I am pleased with our performance through the first half of the year," said Sherrill. "For the remainder of the year, our Clean Air and Ride Performance businesses are staying focused on improving operating performance and driving profitable growth. With this focus we anticipate continued improvement by capitalizing on stronger light vehicle production and our global position in the commercial vehicle market."

Attachment 1
Statements of Income - 3 Months
Statements of Income - 6 Months
Balance Sheets
Statements of Cash Flows - 3 Months
Statements of Cash Flows - 6 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 - 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

CONFERENCE CALL

The company will host a conference call on Monday, July 29, 2013 at 10:00 a.m. ET. The dial-in number is 888-469-2980 (domestic) or 212-547-0154 (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, 2013, through August 30, 2013. To access this recording, dial 888-282-0036 (domestic) or 203-369-3022 (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 is available on the financial and news sections of the Tenneco web site.

Tenneco is a $7.4 billion global manufacturing company with headquarters in Lake Forest, Illinois and approximately 25,000 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.

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) 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;
(iv) 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;
(v) 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;
(vi) 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;
(vii) 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;
(viii) workforce factors such as strikes or labor interruptions;
(ix)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;
(x) the negative impact of higher fuel prices on transportation and logistics costs, raw material costs and discretionary purchases of vehicles or aftermarket products;
(xi) the cyclical nature of the global vehicular industry, including the performance of the global aftermarket sector and longer product lives of automobile parts;
(xii) the company's continued success in cost reduction and cash management programs and its ability to execute restructuring and other cost reduction plans and to realize anticipated benefits from these plans;
(xiii) product warranty costs;
(xiv) the cost and outcome of existing and any future legal proceedings;
(xv) the failure or breach of our information technology systems and the consequences that such failure or breach may have to our business;
(xvi) economic, exchange rate and political conditions in the countries where we operate or sell our products;
(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) governmental actions, including the ability to receive regulatory approvals and the timing of such approvals, as well as the impact of the enforcement of, changes to or compliance with laws and regulations, including those pertaining to environmental concerns, pensions or other regulated activities;
(xxi) natural disasters, acts of war and/or terrorism and the impact of these occurrences or acts on economic, financial, industrialand 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 report on Form 10-K for the year ended December 31, 2012.

ATTACHMENT 1
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME

Unaudited

THREE MONTHS ENDED JUNE 30,
(Millions except per share amounts)
 
 2013  2012 
Net sales and operating revenues
Clean Air Division - Value-add revenues$918$845
Clean Air Division - Substrate sales488429
Ride Performance Division - Value-add revenues 661  646 
$2,067$1,920
 
Costs and expenses
Cost of sales (exclusive of depreciation and amortization shown below)1,736(a)1,595(b)
Engineering, research and development3328
Selling, general and administrative106(a)109
Depreciation and amortization of other intangibles 50  50 
Total costs and expenses 1,925  1,782 
 
Loss on sale of receivables(1)(1)
Other income (expense) -  - 
Total other income (expense) (1) (1)
 

Earnings before interest expense, income taxes, and noncontrolling interests

Clean Air Division107(a)95(b)
Ride Performance Division56(a)55(b)
Other (22)(a) (13)
141137
 
Interest expense (net of interest capitalized) 20  21 (c)
Earnings before income taxes and noncontrolling interests121116
 
Income tax expense 47  21 (d)
Net income7495
 
Less: Net income attributable to noncontrolling interests 11  8 
Net income attributable to Tenneco Inc.$63 $87 
 
 
Weighted average common shares outstanding:
Basic 60.5  60.0 
Diluted 61.6  61.3 
 
Earnings per share of common stock:
Basic$1.04 $1.45 
Diluted$1.02 $1.42 

(a) Includes restructuring and related charges of $7 million pre-tax, $5 million after tax or $0.08 per diluted share. Of the adjustment, $4 million is recorded in cost of sales and $3 million is recorded in selling, general and administrative expenses. $3 million is recorded in the Clean Air Division, $2 million is recorded in the Ride Performance Division and $2 million is recorded in Other.

(b) Includes restructuring and related charges of $2 million pre-tax, $1 million after tax or $0.02 per diluted share, which is recorded in cost of sales. $1 million is recorded in the Clean Air Division and $1 million is recorded in the Ride Performance Division.

(c) Includes pre-tax expenses of $1 million, $1 million after tax or $0.01 per diluted share for costs related to refinancing activities.

(d) Includes net tax benefits of $19 million or $0.31 per diluted share primarily related to U.S. taxable income with no associated tax expense due to the valuation allowance on the company's net operating loss position and prior year tax adjustments, partially offset by the impact of recording a valuation allowance against the tax benefit for losses in certain foreign jurisdictions.

ATTACHMENT 1
TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME

Unaudited

SIX MONTHS ENDED JUNE 30,
(Millions except per share amounts)
 
 2013  2012 
Net sales and operating revenues
Clean Air Division - Value-add revenues$1,760$1,674
Clean Air Division - Substrate sales942885
Ride Performance Division - Value-add revenues 1,268  1,273 
$3,970$3,832
 
Costs and expenses
Cost of sales (exclusive of depreciation and amortization shown below)3,340(a)3,202(c)
Engineering, research and development6866
Selling, general and administrative225(a)227
Depreciation and amortization of other intangibles 100  99 
Total costs and expenses 3,733  3,594 
 
Loss on sale of receivables(2)(2)
Other income (expense) (1) (3)
Total other income (expense) (3) (5)
 

Earnings before interest expense, income taxes,and noncontrolling interests

Clean Air Division182(a)171(c)
Ride Performance Division95(a)98(c)
Other (43)(a) (36)
234233
 
Interest expense (net of interest capitalized) 40  63 (d)
Earnings before income taxes and noncontrolling interests194170
 
Income tax expense 59 (b) 39 (e)
Net income135131
 
Less: Net income attributable to noncontrolling interests  Read Full Story

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