Tenneco Reports Second Quarter 2014 Results

Tenneco Inc. (NYSE: TEN) reported an increase in second quarter net income to $81 million, or $1.32 per diluted share, versus $63 million, or $1.02 per diluted share, in second quarter 2013. Excluding restructuring costs and a tax adjustment this quarter, net income increased 31% to $89 million, or $1.45 per diluted share, compared with $68 million, or $1.10 per diluted share a year ago. Improved results were driven by stronger production volumes, operational performance and a more favorable effective tax rate compared with last year.

Revenue

Tenneco’s total revenue in the second quarter increased 8% year-over-year to $2.241 billion, on higher revenue in both product lines with Clean Air revenue increasing 10% and Ride Performance up 6%. Excluding substrate sales and currency, total revenue was up 10% to $1.731 billion.

Total revenue includes a 6% year-over-year increase in light vehicle OE revenue, a 27% increase in commercial truck and off-highway OE revenue, and a 4% increase in global aftermarket revenue.

EBIT

Second quarter EBIT (earnings before interest, taxes and noncontrolling interests) was $156 million, up 11% from $141 million in second quarter 2013. Adjusted EBIT increased 12% to $166 million, reflecting a 9% increase in Clean Air adjusted EBIT to $120 million, and a 29% increase in Ride Performance adjusted EBIT to $75 million.

“We delivered another strong performance this quarter with well-balanced revenue growth across product lines, end-markets and geographies,” said Gregg Sherrill, chairman and CEO, Tenneco. “Our strategic imperatives for each product line and strong execution are driving this top-line growth and continued profitability improvement.”

Adjusted second quarter 2014 and 2013 results

Second quarter 2014 adjustments

• Restructuring and related expenses of $10 million pre-tax, or 11-cents per diluted share.
• Tax adjustments of $1 million, or 2-cents per diluted share, for adjustments to prior year estimates.

Second quarter 2013 adjustments

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

EBIT Margin

Tenneco improved its total adjusted EBIT as a percent of value-add revenue to 9.6%.

In the quarter, Clean Air adjusted EBIT as a percent of value-add revenue was 11.7%, driven by stronger light and commercial truck and off-highway volumes, and including $7 million in higher engineering expense. Ride Performance margin was 10.7% due to higher light vehicle and commercial truck revenue in North America, cost savings related to the company's global product cost leadership initiative and strong aftermarket sales in North America and South America.

Cash

Cash generated by operations in the quarter was $114 million, versus $133 million a year ago, due to a greater use of cash for working capital investments.

Capital expenditures in the quarter were $83 million, compared with $47 million in second quarter 2013. The year-over-year comparison included spending timing differences and higher investments to support Clean Air programs in Europe, China and North America.

Outlook

For the third quarter, global light vehicle production* is forecasted to increase 5% year-over-year in the regions where Tenneco operates. The increase includes a 9% increase in North America, 11% in China and 9% in India. Europe is forecasted to be flat, and South America is expected to decline 12%. Tenneco expects its light vehicle revenue in the third quarter to grow in line with the forecast for global industry light vehicle production.

Significant growth will continue in Tenneco's commercial truck and off-highway business as revenue is expected to increase 20% to 25% in the third quarter against a strong year-over-year comparison. The company is launching new business and incremental content on existing platforms to meet off-highway regulations in North America and Europe and expects higher commercial truck revenue in China.

The global aftermarket is expected to be steady with the third quarter of last year.

“I am pleased with our performance in the first half of the year and expect volume strength and our manufacturing performance to continue driving profitable growth in the third quarter. We are capitalizing on a strong global light vehicle production environment, our commercial truck and off-highway business continues to expand with excellent growth, and we expect a solid contribution from the global aftermarket,” said Sherrill.

*IHS and Tenneco July industry production estimates

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 28, 2014 at 9:00 a.m. ET. The dial-in number is 888 664-9961 (domestic) or 517-308-9332 (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 28, 2014 through August 28, 2014. To access this recording, dial 888-445-8680 (domestic) or 203-369-3155(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 an $8 billion global manufacturing company with headquarters in Lake Forest, Illinois and approximately 26,000 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.

Revenue estimates 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; Tenneco’s status as supplier for the existing program and its relationship with the customer; and the actual original equipment revenues achieved by the company for each of the last several years compared to the amount of those revenues that the company estimated it would generate at the beginning of each year. These revenue estimates are also based on anticipated vehicle production levels and pricing, including precious metals pricing and the impact of material cost changes. Currency is assumed to be constant at $1.33 per Euro throughout the entire period.For certain additional assumptions upon which these estimates are based, see the slides accompanying the July 28, 2014 conference call, which are available on the financial section of the Tenneco website at www.tenneco.com.

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) 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 European cost reduction initiatives, and to realize anticipated benefits from these plans;
(x) workforce factors such as strikes or labor interruptions;
(xi)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;
(xii) the negative impact of higher fuel prices on transportation and logistics costs, raw material costs and discretionary purchases of vehicles or aftermarket products;
(xiii) the cyclical nature of the global vehicular industry, including the performance of the global aftermarket sector and longer product lives of automobile parts;
(xiv) product warranty costs;
(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) 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.

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, 2013.