Tenneco Inc. (NYSE: TEN) reported second quarter net income of $40
million, or 66-cents per diluted share, up from a net loss of $33
million, or 72-cents per diluted share in second quarter 2009. Adjusted
for the items below, net income was $38 million, or 62-cents per diluted
share, compared with a net loss of $10 million, or 22-cents per diluted
share a year ago. The tables in this press release reconcile GAAP
results to non-GAAP results.
EBIT (earnings before interest, taxes and noncontrolling interests) was
$93 million, an increase from $17 million a year ago. Adjusted EBIT was
$97 million, versus $25 million in second quarter 2009. The EBIT
increase was driven by a significant improvement in production volumes
in all regions, related manufacturing efficiencies and higher
aftermarket sales globally, partially offset by higher SGA&E costs.
EBITDA including noncontrolling interests (EBIT before depreciation and
amortization) was $146 million, up from $72 million in second quarter
2009. Adjusted EBITDA including noncontrolling interests was $149
million, compared with $79 million a year ago.
?I am pleased with how we are capitalizing on a much improved production
environment with strong year-over-year revenue and earnings growth, and
solid cash performance,? said Gregg Sherrill, chairman and CEO, Tenneco.
?We are on track in executing on our growth plans and, equally
important, converting that growth to profit with the cost structure we
now have in place and actions to continuously improve our operational
performance.?
Adjusted second quarter 2010 and 2009 results:
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Q2 2010
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Q2 2009
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EBITDA
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EBIT
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Net income
attributable to
Tenneco Inc.
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Per Share
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EBITDA
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EBIT
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Net loss
attributable to
Tenneco Inc.
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Per Share
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Earnings Measures
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$
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146
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$
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93
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$
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40
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$
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0.66
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$
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72
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$
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17
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$
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(33
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)
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$
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(0.72
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)
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Adjustments (reflect non-GAAP measures):
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Restructuring and related expenses
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3
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4
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3
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0.04
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2
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3
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2
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0.04
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Environmental reserve
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-
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-
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-
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-
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5
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5
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3
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0.07
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Charges related to refinancing
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-
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-
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1
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0.02
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-
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-
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-
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-
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Net tax adjustments
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-
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-
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(6
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)
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(0.10
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)
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-
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-
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18
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0.39
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Non-GAAP earnings measures
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$
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149
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$
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97
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$
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38
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$
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0.62
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$
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79
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$
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25
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$
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(10
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)
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$
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(0.22
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)
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Second quarter 2010 adjustments:
-
Restructuring and related expenses of $4 million pre-tax, or 4-cents
per diluted share;
-
Charges of $1 million pre-tax, or 2-cents per diluted share, related
to debt refinancing;
-
Tax benefits of $6 million, or 10-cents per diluted share, related to
income generated in lower tax rate jurisdictions as well as
adjustments to tax estimates.
Second quarter 2009 adjustments:
-
Restructuring and related expenses of $3 million pre-tax, or 4-cents
per diluted share;
-
A reserve of $5 million pre-tax, or 7-cents per diluted share, related
to environmental liabilities of a company Tenneco acquired in 1996 at
locations never operated by Tenneco, and for which that acquired
company had been indemnified by Mark IV Industries, which declared
bankruptcy in the second quarter 2009;
-
Non-cash tax charges of $18 million, or 39-cents per diluted share,
primarily related to the impact of recording a valuation allowance
against our tax benefit for losses in the U.S. and certain foreign
jurisdictions.
REVENUE
Second quarter revenue was $1.502 billion, up 36% from $1.106 billion a
year ago. Excluding substrate sales and the impact of $16 million in
negative currency, revenue was $1.209 billion, versus $892 million in
second quarter 2009. Revenue rose primarily as a result of stronger OE
production volumes across all regions including new platform launches.
Stronger year-over-year aftermarket sales globally, particularly in
North America and South America, also contributed to the increase.
GROSS MARGIN AND SGA&E
Second quarter gross margin was 18.6% up from 17.5% a year ago and
18.5% in first quarter 2010. The year-over-year gross margin improvement
was driven by higher OE production volumes and related manufacturing
efficiencies, and an increase in higher-margin aftermarket sales.
Compared to first quarter 2010, operating improvements were offset by $9
million in unfavorable currency, or a 0.6 percentage point negative
impact on gross margin this quarter.
SGA&E (selling, general, administrative and engineering) expense as a
percent of sales was 8.7% versus 10.1% a year ago as the company
continues to leverage higher year-over-year revenues. SGA&E expense in
the quarter was $131 million, compared with $112 million in second
quarter 2009. The year-over-year increase reflects restoration of salary
and benefit cuts made in the second quarter 2009 and higher
performance-based compensation costs; lower customer engineering cost
recoveries; higher engineering expenses related to customer programs and
diesel aftertreatment technology development; and changeover costs
associated with new aftermarket business in North America.
CASH FLOW AND DEBT
Tenneco generated $104 million in cash flow from operations, versus $112
million in second quarter 2009. This strong performance was the result
of higher earnings and efficiently managing working capital. The company
generated cash from working capital in the quarter despite an increased
demand for working capital, driven by the industry recovery with
significantly higher year-over-year OE production and higher aftermarket
sales.
Tenneco ended the second quarter with net debt at $1.108 billion, down
from $1.409 billion at the end of second quarter 2009. The
year-over-year debt reduction was generated by positive cash flow as
well as $188 million in proceeds from the company's common stock
offering in fourth quarter 2009.
The company's leverage ratio – net debt to adjusted EBITDA including
noncontrolling interests – was 2.3x, down significantly from 5.5x at
June 30, 2009.
?Our stronger earnings, combined with working capital efficiencies,
helped generate solid cash flow in the quarter,? Sherrill said. ?We also
continue to reduce our debt, which remains one of our top priorities as
reflected in the fact that our leverage ratio is at an all-time low.?
Capital expenditures incurred in the quarter were $30 million, versus
$24 million a year ago. The expenditures reflect Tenneco's ongoing
investments to support customer programs, expansion activities in
emerging markets and future growth opportunities.
NORTH AMERICA
-
North America OE revenue was $557 million, up from $318 million in
second quarter 2009. Excluding substrate sales and the impact of
currency, revenue increased to $369 million, from $209 million.
Stronger volumes on Tenneco-supplied vehicles such as the Ford Super
Duty pick-up truck, GM Epsilon models, the GMT900 and Dodge Ram
pick-ups drove the 78% increase.
-
North America aftermarket revenue rose to $181 million from $150
million in second quarter 2009. Excluding the impact of currency,
revenue increased 19% to $179 million. Higher volumes in both product
lines drove the increase.
-
EBIT for North America operations increased to $50 million, versus $6
million a year ago. Second quarter 2010 EBIT includes an increase of
$5 million in changeover costs related to new aftermarket business,
primarily for new emission control business with NAPA Canada. Adjusted
for the following items, EBIT was $53 million, versus $12 million a
year ago.
-
Second quarter 2010 EBIT includes $3 million in restructuring and
related expenses. Second quarter 2009 EBIT includes $1 million in
restructuring and related expenses, and a $5 million charge
related to environmental liabilities.
-
EBIT improvement was driven by significantly higher OE production
volumes, related manufacturing efficiencies and strong aftermarket
sales. Second quarter 2010 EBIT included $3 million in negative
currency.
EUROPE, SOUTH AMERICA AND INDIA
-
Europe OE revenue was $380 million, up from $329 million in second
quarter 2009. Excluding substrate sales and the impact of currency,
revenue increased 27% to $326 million, from $258 million. The increase
was driven by Tenneco's content on strong selling vehicles such as the
Ford Focus, Mazda 3, VW Golf, Audi 3, Volvo Truck, BMW 5-Series and
the Daimler Sprinter.
-
Europe aftermarket revenue was $97 million, compared with $101 million
a year ago. Excluding the impact of currency, revenue rose 3% to $105
million, primarily driven by higher ride control sales.
-
South America and India revenue was $129 million, up from $90 million
in second quarter 2009. Excluding substrate sales and the impact of
currency, revenue rose 33% to $107 million, versus $78 million. The
increase was driven by higher aftermarket sales in South America and
stronger OE volumes in both regions.
-
EBIT for Europe, South America and India increased to $30 million,
compared with $6 million in second quarter 2009. Adjusted for the
following items, EBIT was $31 million, versus $8 million a year ago.
-
Second quarter 2010 EBIT includes $1 million in restructuring and
related expenses and second quarter 2009 EBIT includes $2 million
in restructuring and related expenses.
-
Stronger OE production volumes across all regions, manufacturing
efficiencies and materials cost management drove the improvement.
Second quarter 2010 EBIT includes $5 million in negative
currency.
ASIA PACIFIC
-
Asia revenue was $121 million, up from $88 million in second quarter
2009. Excluding substrate sales and the impact of currency, revenue
rose 37% to $94 million, versus $69 million a year ago. Strong
OE volumes in China drove the increase, particularly on
Tenneco-supplied GM and VW platforms.
-
Australia revenue was $37 million, an increase from $30 million in
second quarter 2009. Excluding substrate sales and the impact of
currency, revenue was up 12% to $29 million, versus $27 million a year
ago, driven by OE production volume increases.
-
Asia Pacific EBIT rose to $13 million from $5 million a year ago,
driven by stronger volumes and related manufacturing efficiencies.
Second quarter 2010 EBIT includes $1 million in positive currency.
OUTLOOK
According to IHS Automotive, light vehicle production in the second half
of 2010, versus a year ago, is projected to be up 11% in North America,
5% in China and 5% in South America, whereas Europe light vehicle
production is expected to be down 7%.
Tenneco's revenue growth continues to be driven by production volume
recovery, the company's strong position on many top-selling vehicle
platforms, increased light vehicle content in both ride and emission
control, as well as the launch and ramp-up of new commercial vehicle
business. Tenneco has announced that the company is launching programs
with 11 different commercial vehicle customers through 2011. Most of the
2010 programs will be launching in the fourth quarter and ramping up
next year.
?Our performance year-to-date shows that we took advantage of
stronger-than-expected first half industry conditions. While the pace of
the economic and industry recovery will vary by region in the second
half, we're well-positioned for continued growth given our revenue
drivers,? Sherrill said. ?In terms of the bottom-line, we expect to
continue benefiting from the cost structure changes and operational
improvements we've made as we work to improve profitability.?
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 Non-GAAP Measures – Debt Net of Cash/Adjusted EBITDA
including noncontrolling interests
Reconciliation of GAAP Revenue to Non-GAAP Revenue Measures – Original
Equipment Value-added Revenues – 3 and 6 Months
CONFERENCE CALL
The company will host a conference call on Thursday, July 29, 2010 at
9:00 a.m. EDT. The dial-in number is 877-917-9492 (domestic) or
312-470-7278 (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, 2010 through August 30, 2010. To access this
recording, dial 800-925-1773 (domestic) or 402-220-3092 (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 $4.6 billion global manufacturing company with headquarters
in Lake Forest, Illinois and approximately 21,000 employees worldwide.
Tenneco is one of the world's largest designers, manufacturers and
marketers of emission control and ride control products and systems for
the automotive original equipment market and the aftermarket. Tenneco
markets its products principally under the Monroe®, Walker®, Gillet? and
Clevite®Elastomer brand names.
This press release contains forward-looking statements. Words
such as ?may,? ?expects,? ?anticipate,? ?projects,? ?will,? and
?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) changes in automotive manufacturers' production rates and their
actual and forecasted requirements for the company's products such as
recent and significant production cuts by automotive manufacturers in
response to difficult economic conditions;
(ii) the company's resultant inability to realize the sales
represented by its awarded book of business which is based on
anticipated pricing for the applicable program over its life, and is
subject to increases or decreases due to changes in customer
requirements, customer and consumer preferences, and the number of
vehicles actually produced by customers;
(iii) 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;
(iv) the cyclical nature of the global vehicular industry, including
the performance of the global aftermarket sector, and changes in
consumer demand and prices, including longer product lives of automobile
parts and the cyclicality of automotive production and sales of
automobiles which include the company's products, and the potential
negative impact on the company's revenues and margins from such products;
(v) 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;
(vi) the general political, economic and competitive conditions in
markets and countries where the company and its subsidiaries operate,
including the strength of other currencies relative to the U.S. dollar
and currency fluctuations and other risks associated with operating in
foreign countries;
(vii) governmental actions, including the ability to receive
regulatory approvals and the timing of such approvals;
(viii) 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;
(ix) the cost and outcome of existing and any future legal
proceedings, and the impact of changes in and compliance with laws and
regulations, including environmental laws and regulations and the
adoption of the current mandated timelines for worldwide emissions
regulations;
(x) workforce factors such as strikes or labor interruptions;
(xi) 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;
(xii) further changes in the distribution channels for the company's
aftermarket products, further consolidations among automotive parts
customers and suppliers, and product warranty costs;
(xiii) changes by the Financial Accounting Standards Board or other
accounting regulatory bodies to authoritative generally accepted
accounting principles or policies;
(xiv) changes in accounting estimates and assumptions, including
changes based on additional information;
(xv) acts of war, riots or terrorism, including, but not limited to
the events taking place in the Middle East, the current military action
in Iraq and the continuing war on terrorism, as well as actions taken or
to be taken by the United States or other governments as a result of
further acts or threats of terrorism, and the impact of these acts on
economic, financial and social conditions in the countries where the
company operates; and
(xvi) 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, 2009.
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ATTACHMENT 1
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TENNECO INC. AND CONSOLIDATED SUBSIDIARIES
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STATEMENTS OF INCOME (LOSS)
|
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Unaudited
|
|
THREE MONTHS ENDED JUNE 30,
|
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(Millions except per share amounts)
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|
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|
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2010
|
|
2009
|
|
|
Net sales and operating revenues
|
|
$
|
1,502
|
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$
|
1,106
|
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|
|
|
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|
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|
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Costs and expenses
|
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|
|
|
|
|
Cost of sales (exclusive of depreciation shown below)
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|
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1,222
|
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(a)
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913
|
|
(e)
|
|
Engineering, research and development
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|
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33
|
|
|
|
24
|
|
|
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Selling, general and administrative
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98
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|
|
|
88
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(e)
|
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Depreciation and amortization of other intangibles
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53
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(a)
|
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55
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(e)
|
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Total costs and expenses
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1,406
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|
|
1,080
|
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|
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Loss on sale of receivables
|
|
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(1
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)
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(d)
|
|
(2
|
)
|
|
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Other income (expense)
|
|
|
(2
|
)
|
|
|
(7
|
)
|
(f)
|
|
Total other income (expense)
|
|
|
(3
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
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|
|
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Income before interest expense, income taxes,
|
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|
|
|
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and noncontrolling ownership interests
|
|
|
|
|
|
|
North America
|
|
|
50
|
|
(a)
|
|
6
|
|
(e) (f)
|
|
Europe, South America & India
|
|
|
30
|
|
(a)
|
|
6
|
|
(e)
|
|
Asia Pacific
|
|
|
13
|
|
|
|
5
|
|
|
|
|
|
|
93
|
|
|
|
17
|
|
|
|
Less:
|
|
|
|
|
|
|
Interest expense (net of interest capitalized)
|
|
|
32
|
|
(b) (d)
|
|
© Business Wire 2010
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| Short term | Mid-term | Long term |
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