Tenneco Reports First Quarter Results

Tenneco Reports First Quarter Results

  • Revenue of $1.9 billion

  • Net income of $54 million

  • EPS of 88-cents per diluted share

  • Record first quarter leverage ratio of 1.8x

LAKE FOREST, Ill.--(BUSINESS WIRE)-- Tenneco Inc. (NYS: TEN) reported first quarter net income of $54 million, or 88-cents per diluted share, compared with $30 million, or 49-cents per diluted share in first quarter 2012. On an adjusted basis, net income was $44 million, or 72-cents per diluted share, versus $41 million, or 66-cents per diluted share a year ago.

Revenue


Total revenue in the quarter was $1.903 billion compared with $1.912 billion in the first quarter 2012. Clean Air revenue increased to $1.296 billion from $1.285 billion, driven by higher Asia Pacific volumes, mainly on the strength of light vehicle production in China. Ride Performance revenue was $607 million versus $627 million a year ago. The decline was largely due to weaker light and commercial vehicle revenues in Europe and lower commercial vehicle revenue in North America. Value-add revenue excluding unfavorable currency of $28 million was $1.477 billion, versus $1.456 billion a year ago.

"I am pleased with howour Clean Air and Ride Performance divisions are executing in what continues to be a mixed global industry environment," said Gregg Sherrill, chairman and CEO, Tenneco. "As anticipated, our total revenue was down slightly year-over-year yet we still delivered record earnings. Importantly, with these lower revenues, adjusted EBIT margin was even with last year, driven by margin improvement in the Clean Air business."

Global OE light vehicle revenue increased about 1% year-over-year to $1.388 billion. Continued weakness in global commercial vehicle demand impacted total OE commercial and specialty vehicle revenue in the quarter, which was $213 million versus $222 million last year. Global aftermarket revenue decreased 3% to $302 million, primarily due to market weakness in Europe and South America.

EBIT

EBIT (earnings before interest, taxes and noncontrolling interests) was $93 million, compared with $96 million in first quarter 2012. After adjusting for restructuring, EBIT was $97 million, even with a year ago. The adjusted EBIT results reflect improvement in Clean Air EBIT, driven by higher Asia Pacific volumes and effective operational cost management. Ride Performance EBIT was down year-over-year due mostly to lower volumes in Europe and North America and related manufacturing absorption costs.

Adjusted First Quarter 2013 and 2012 Results

(millions except per share amounts)

Q1 2013

Q1 2012

EBITDA*

EBIT

Net income
attributable to
Tenneco Inc.

Per Share

EBITDA*

EBIT

Net income
attributable to
Tenneco Inc.

Per Share

Earnings Measures

$

143

$

93

$

54

$

0.88

$

145

$

96

$

30

$

0.49

Adjustments (reflects non-GAAP measures):

Restructuring and related expenses

4

4

3

0.04

1

1

1

0.01

Costs related to refinancing

-

-

-

-

-

-

11

0.18

Net tax adjustments

-

-

(13

)

(0.20

)

-

-

(1

)

(0.02

)

Non-GAAP earnings measures

$

147

$

97

$

44

$

0.72

$

146

$

97

$

41

$

0.66

* 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.

First Quarter 2013 adjustments:

  • Restructuring and related expenses of $4 million pre-tax, or 4-cents per diluted share;

  • Tax adjustments of $13 million, or 20-cents per diluted share, mostly related to recognizing a U.S. tax benefit for foreign taxes.

First quarter 2012 adjustments:

  • Restructuring and related expenses of $1 million pre-tax, or 1-cent per diluted share;

  • Pre-tax costs of $17 million, or 18-cents per diluted share related to refinancing the company's senior credit facility and retiring senior notes due in 2015;

  • Net tax benefits of $1 million, or 2-cents per diluted share, related to the valuation allowance on U.S. tax benefits.

EBIT Margin

Tenneco reported the following EBIT as a percent of revenue and EBIT as a percent of value-add revenue (revenue excluding substrate sales.)

Q1 2013

Q1 2012

EBIT as a percent of revenue

4.9%

5.0%

EBIT as a percent of value-add revenue

6.4%

6.6%

Adjusted EBIT as a percent of revenue

5.1%

5.1%

Adjusted EBIT as a percent of value-add revenue

6.7%

6.7%

Cash

Cash used by operations in the quarter was $123 million, compared with a cash use of $85 million in first quarter 2012. The greater use of cash versus a year ago was driven primarily by the timing of tooling and engineering recoveries for future program launch activities and long-term incentive compensation payments.

Capital expenditures in the quarter were even with last year at $59 million, primarily to support continued growth in the Clean Air business.

The leverage ratio (net debt to adjusted LTM EBITDA including noncontrolling interests) was 1.8x, down from 1.9x a year ago.

Outlook

In the second quarter, Tenneco anticipates year-over-year improvement in light vehicle production, increasing about 3% globally based on IHS Automotive forecasts. Production increases are forecasted for most regions with North America expected to rise 4%, China up 8%, South America up 9% and India up 3%. Tenneco is well-positioned to benefit from these higher volumes with its strong platform position globally and excellent footprint in the fastest growing markets.

Europe will continue to be weak in the second quarter with IHS forecasts showing a 3% decline. As previously announced, the company intends to reduce structural costs in Europe by $60 million annually with a related cost of about $120 million, most of which the company expects to record later in 2013 and in 2014.

Global commercial vehicle production is expected to continue at low levels in the second quarter due to ongoing negative economic conditions and customers reducing inventory levels. Tenneco anticipates some volume recovery in the second half of the year as the industry works through these reductions. The majority of the company's 2013 new commercial vehicle launches will also occur later in the year as customers begin preparing for 2014 regulatory changes.

Global aftermarket revenue in the second quarter is expected to be similar year-over-year, with steady performance in North America, and a continued weak industry environment in Europe.

"We expect to benefit from stronger global light vehicle production in the second quarter and continued strengthening for the full year. As we indicated earlier in the year, the second half also looks better for our commercial vehicle business with some industry volume improvement," said Sherrill. "Our focus remains on executing distinct Clean Air and Ride Performance strategies to drive top-line growth and profit improvement, capitalizing on Tenneco's strengths including our customer and platform positions, global footprint, technology and strong emphasis on operational performance."

Attachment 1
Statements of Income - 3 Months
Balance Sheets
Statements of Cash Flows - 3 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 Revenue to Non-GAAP Revenue Measures - 3 Months
Reconciliation of GAAP Revenue to Non-GAAP Revenue Measures - 3 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
Reconciliation of GAAP Revenue and Earnings to Non-GAAP Revenue and Earnings Measures - 3 Months

CONFERENCE CALL

The company will host a conference call on Monday, April 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 April 29, 2013, through May 31, 2013. To access this recording, dial 888-562-0525 (domestic) or 402-998-1420 (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.

2013 ANNUAL MEETING

The Tenneco Board of Directors has scheduled the company's annual meeting of shareholders for Wednesday, May 15, 2013 at 10:00 a.m. CT. The meeting will be held at the corporate headquarters, 500 North Field Drive, Lake Forest, Illinois.

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 MARCH 31,

(Millions except per share amounts)

2013

2012

Net sales and operating revenues

Clean Air Division - Value-add revenues

$

842

$

829

Clean Air Division - Substrate sales

454

456

Ride Performance Division - Value-add revenues

607

627

$

1,903

$

1,912

Costs and expenses

Cost of sales (exclusive of depreciation and amortization shown below)

1,604

(a)

1,607

(c)

Engineering, research and development

35

38

Selling, general and administrative

119

(a)

118

Depreciation and amortization of other intangibles

50

49

Total costs and expenses

1,808

1,812

Loss on sale of receivables

(1

)

(1

)

Other income (expense)

(1

)

(3

)

Total other income (expense)

(2

)

(4

)

Earnings before interest expense, income taxes, and noncontrolling interests

Clean Air Division

75

(a)

76

Ride Performance Division

39

(a)

43

(c)

Other

(21

)

(23

)

93

96

Interest expense (net of interest capitalized)

20

42

(d)

Earnings before income taxes and noncontrolling interests

73

54

Income tax expense

12

(b)

18

(e)

Net income

61

36

Less: Net income attributable to noncontrolling interests

7

6

Net income attributable to Tenneco Inc.

$

54

$

30

Weighted average common shares outstanding:

Basic

60.3

60.2

Diluted

61.5

61.7

Earnings per share of common stock:

Basic

$

0.90

$

0.50

Diluted

$

0.88

$

0.49

(a) Includes restructuring and related charges of $4 million pre-tax, $3 million after tax or $0.04 per diluted share. Of the adjustment, $3 million is recorded in cost of sales and $1 million is recorded in selling, general and administrative expenses. $3 million is recorded in the Clean Air Division and $1 million is recorded in the Ride Performance Division.

(b) Includes net tax benefits of $13 million or $0.20 per diluted share for tax adjustments to prior year estimates, primarily related to recognizing a U.S. tax benefit for foreign taxes.

(c) Includes restructuring and related charges of $1 million pre-tax, $1 million after tax or $0.01 per diluted share, which is recorded in cost of sales in Europe, South America and India's Ride Performance Division.

(d) Includes pre-tax expenses of $17 million, $11 million after tax or $0.18 per diluted share for costs related to refinancing activities.

(e) Includes net tax benefits of $1 million or $0.02 per diluted share primarily related to U.S. taxable income with no associated tax expense due to the company's net operating loss position and income generated in lower tax rate jurisdictions, 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

BALANCE SHEETS

(Unaudited)

(Millions)

March 31, 2013

December 31, 2012

Assets

Cash and cash equivalents

$

242

$

223

Receivables, net

1,153

(a)

986

(a)

Inventories

697

667

Other current assets

291

248

Investments and other assets

377

362

Plant, property, and equipment, net

1,120

1,122

Total assets

$

3,880

$

3,608

Liabilities and Shareholders' Equity

Short-term debt

$

115

$

113

Accounts payable

1,245

1,186

Accrued taxes

39

50

Accrued interest

14

10

Other current liabilities

277

290

Long-term debt

1,252

(b)

1,067

(b)

Deferred income taxes

29

27

Deferred credits and other liabilities

556

559

Redeemable noncontrolling interests

17

15