- Record-high 1Q revenue, outpacing industry production
- Record-high EBIT, net income and EPS
- Operating cash performance improves 42% year-over-year
- Raising full-year revenue outlook
Tenneco (NYSE: TEN) reported first quarter net income of $57 million, or 99-cents per diluted share, compared with $49 million, or 80-cents per diluted share in first quarter 2015. Adjusted net income rose 24% to a first quarter record high of $67 million, or $1.17 per diluted share, versus $54 million or 88-cents per diluted share last year, a 33% improvement in adjusted earnings per share.
Revenue
Total revenue in the first quarter was $2.136 billion, up 6% year-over-year. Excluding a negative currency impact of $69 million, total first quarter revenue increased 9% to $2.205 billion. Tenneco’s total revenue excluding currency significantly outgrew global aggregate industry production growth of 1% in the quarter driven by light vehicle revenue growth of 11%, led by North America, Europe, China and India; commercial truck and off-highway revenue growth of 1%; and an 8% increase in global aftermarket revenue on higher sales in Europe, South America and North America.
“We are off to a strong start for the year with outstanding first quarter results including strong revenue growth, record-high earnings, and our twelfth consecutive quarter of margin improvement,” said Gregg Sherrill, chairman and CEO, Tenneco. “In addition to delivering on our growth plans, we drove higher earnings and improved margins with a disciplined approach to improving manufacturing efficiency and lowering our cost structure. This consistent quarterly performance demonstrates solid execution on our strategies for achieving profitable growth while continuing to plan and invest for the future.”
EBIT
First quarter EBIT (earnings before interest, taxes and noncontrolling interests) increased to $124 million, versus $120 million last year. Adjusted EBIT rose 10% to $138 million, a record high for the first quarter. Adjusted EBIT includes $12 million in negative currency. The record-high first quarter EBIT was driven by strong light vehicle volumes, commercial truck and off-highway clean air content growth, higher global aftermarket sales and operational cost improvements.
Adjusted first quarter 2016 and 2015 results
| (millions except per share amounts) | Q1 2016 | Q1 2015 | ||||||||||||||||||||||||
| EBITDA* | EBIT |
Net income attributable to Tenneco Inc. |
Per Share | EBITDA* | EBIT |
Net income attributable to Tenneco Inc. |
Per Share | |||||||||||||||||||
| Earnings Measures | $ | 178 | $ | 124 | $ | 57 | $ | 0.99 | $ | 170 | $ | 120 | $ | 49 | $ | 0.80 | ||||||||||
| Adjustments (reflects non-GAAP measures): | ||||||||||||||||||||||||||
| Restructuring and related expenses | 11 | 14 | 13 | 0.23 | 5 | 5 | 4 | 0.07 | ||||||||||||||||||
| Net tax adjustments | – | – | (3 | ) | (0.05 | ) | – | – | 1 | 0.01 | ||||||||||||||||
| Non-GAAP earnings measures | $ | 189 | $ | 138 | $ | 67 | $ | 1.17 | $ | 175 | $ | 125 | $ | 54 | $ | 0.88 | ||||||||||
* 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 EBIT margin
In the first quarter 2016, Tenneco delivered its twelfth consecutive quarter of value-add adjusted EBIT margin improvement with higher margins in both product lines.
| Q1 2016 | Q1 2015 | ||||
| EBIT as a percent of revenue | 5.8% | 5.9% | |||
| EBIT as a percent of value-add revenue | 7.6% | 7.7% | |||
| Adjusted EBIT as a percent of revenue | 6.5% | 6.2% | |||
| Adjusted EBIT as a percent of value-add revenue | 8.5% | 8.0% |
Clean Air adjusted EBIT as a percent of value-add revenue was up 110 basis points to 11%, driven by higher light vehicle volumes and new platform launches, as well as commercial truck and off-highway content growth and higher aftermarket revenue in North America. Ride Performance adjusted EBIT margin improved 100 basis points to 10.1%, driven by stronger light vehicle volumes in Europe, India and China and higher aftermarket sales in Europe, South America and North America. Both Clean Air and Ride Performance margins include the benefit of operational cost improvements.
Cash
Cash used by operations in the quarter was $29 million, a 42% improvement compared with a cash use of $50 million a year ago. The improvement was driven by higher earnings and strong working capital management.
During the quarter the company repurchased 360,000 shares of common stock for $16 million. Since January 1, 2015, the company has repurchased a total of 4.6 million shares of common stock for $229 million.
OUTLOOK
Second quarter 2016
Tenneco expects total revenue growth of 6% in the second quarter 2016 (excluding currency), outpacing estimated aggregate industry production growth of 4%* which includes an increase in light vehicle industry production of 4% and a 1% decline in combined commercial truck and off-highway industry production.
Based on current exchange rates, the company anticipates no significant currency headwinds in the second quarter.
Tenneco’s expected 6% revenue increase will be driven by stronger global light vehicle volumes including new launches and the ramp up on recently launched platforms, and a solid contribution from the global aftermarket. Commercial truck and off-highway revenue is expected to be roughly in line with industry production.
The company also expects continued margin improvement in the second quarter.
Revised Full Year Revenue Outlook
Tenneco is upwardly revising its revenue guidance for the full year. The company now expects to outgrow global industry production by 3 percentage points, resulting in annual revenue growth of 6 percent, excluding currency based on current aggregate industry production estimates.
“Given our first quarter results and based on what we see in the markets today, we expect to deliver full year revenue growth that exceeds industry production by 3%. Looking beyond this year, we see our growth accelerating in both 2017 and 2018 primarily due to new light vehicle emissions regulations beginning to take effect in North America and Europe,” said Sherrill. “We also expect continued margin improvement as we leverage higher volumes and execute on our operational improvement initiatives.”
*Aggregate Industry Production: IHS Automotive April 2016 global light vehicle production forecasts, Power Systems Research (PSR), April 2016 forecast for global commercial truck and buses and PSR off-highway engine production in North America and Europe and Tenneco estimates.
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