- Record full-year revenue of $8.4 billion
- Record full-year EBIT of $492 million
- Continued margin expansion
Tenneco (NYSE: TEN) reported fourth quarter net income of $21 million, or 33-cents per diluted share, which includes $46 million in restructuring, pension and refinancing related expenses. Fourth quarter 2013 net income was $54 million, or 88-cents per diluted share. On an adjusted basis, net income rose to a fourth quarter record high of $65 million, or $1.05 per diluted share, versus $59 million, or 96-cents per diluted share a year ago.
Revenue
Total revenue in the fourth quarter was $2.004 billion, down slightly year-over-year primarily due to the impact of $84 million in negative currency, as well as lower commercial truck and off-highway revenue. Excluding currency, total revenue in the fourth quarter increased 3% to $2.088 billion.
For the full year, Tenneco reported its highest-ever total revenue of $8.420 billion, up 6% from a year ago. Tenneco grew revenue in both the Clean Air and Ride Performance divisions and across all segments with OE light vehicle revenue improving 5%, commercial truck and off-highway revenue climbing 16% and aftermarket revenue increasing 1% versus last year. Excluding substrate sales, and the impact of $126 million in negative currency, revenue increased 8% to $6.612 billion.
“We had strong fourth quarter earnings with record high adjusted net income and EBIT including improvement in both divisions despite significant currency headwinds. For the full year we delivered our highest ever revenue and EBIT. These results were driven by our strong light vehicle platform position, which helped us outpace industry light vehicle production, double-digit revenue growth in our commercial truck and off-highway business and higher global aftermarket sales,” said Gregg Sherrill, chairman and CEO, Tenneco. “We leveraged higher global light vehicle volumes and delivered a solid operational performance to drive higher earnings and improved profitability.”
EBIT
Fourth quarter EBIT (earnings before interest, taxes and noncontrolling interests) was $83 million, versus $118 million last year. Adjusted EBIT rose 7% to $136 million, a record high for the fourth quarter, reflecting 6% higher adjusted EBIT in each of the Clean Air and Ride Performance divisions. The year-over-year EBIT comparison includes $5 million in unfavorable currency.
Adjusted fourth quarter 2014 and 2013 results
| Q4 2014 | Q4 2013 | |||||||||||||||||
| (millions except per share amounts) | EBITDA* | EBIT | Net income attributable to Tenneco Inc. | Per Share | EBITDA* | EBIT | Net income attributable to Tenneco Inc. | Per Share | ||||||||||
| Earnings Measures | $ | 136 | $ | 83 | $ | 21 | $ | 0.33 | $ | 172 | $ | 118 | $ | 54 | $ | 0.88 | ||
| Adjustments (reflects non-GAAP measures): | ||||||||||||||||||
| Restructuring and related expenses | 20 | 21 | 18 | 0.29 | 9 | 9 | 8 | 0.13 | ||||||||||
| Pension/Postretirement charges | 32 | 32 | 20 | 0.32 | – | – | – | – | ||||||||||
| Costs related to refinancing** | – | – | 8 | 0.13 | – | – | – | – | ||||||||||
| Net tax adjustments*** | – | – | (2) | (0.02) | – | – | (3) | (0.05) | ||||||||||
| Non-GAAP earnings measures | $ | 188 | $ | 136 | $ | 65 | $ | 1.05 | $ | 181 | $ | 127 | $ | 59 | $ | 0.96 | ||
Fourth quarter EBIT Margin
| Q4 2014 | Q4 2013 | |||
| EBIT as a percent of revenue | 4.1% | 5.8% | ||
| EBIT as a percent of value-add revenue | 5.4% | 7.5% | ||
| Adjusted EBIT as a percent of revenue | 6.8% | 6.3% | ||
| Adjusted EBIT as a percent of value-add revenue | 8.8% | 8.1% | ||
Clean Air adjusted EBIT as a percent of value-add revenue was up 80 basis points to 11.0%, driven by higher light vehicle volumes globally including new platform launches in China. Ride Performance adjusted EBIT improved 60 basis points to 8.9%, largely due to stronger light vehicle volumes in China, higher North America aftermarket sales, and benefits from the company’s product cost leadership initiative.
FULL-YEAR 2014 RESULTS
Adjusted Full Year 2014 and 2013 results
| 2014 | 2013 | |||||||||||||||||
| (millions except per share amounts) | EBITDA* | EBIT | Net income attributable to Tenneco Inc. | Per Share | EBITDA* | EBIT | Net income attributable to Tenneco Inc. | Per Share | ||||||||||
| Earnings Measures | $ | 700 | $ | 492 | $ | 226 | $ | 3.66 | $ | 629 | $ | 424 | $ | 183 | $ | 2.97 | ||
| Adjustments (reflects non-GAAP measures): | ||||||||||||||||||
| Restructuring and related expenses | 48 | 49 | 42 | 0.67 | 78 | 78 | 75 | 1.21 | ||||||||||
| Bad debt charge | 4 | 4 | 3 | 0.05 | – | – | – | – | ||||||||||
| Pension/Postretirement charges | 32 | 32 | 20 | 0.32 | – | – | – | – | ||||||||||
| Costs related to refinancing | – | – | 8 | 0.13 | – | – | – | – | ||||||||||
| Net tax adjustments | – | – | (11) | (0.18) | – | – | (25) | (0.40) | ||||||||||
| Non-GAAP earnings measures | $ | 784 | $ | 577 | $ | 288 | $ | 4.65 | $ | 707 | $ | 502 | $ | 233 | $ | 3.78 | ||
Full Year EBIT
Full-year EBIT increased to $492 million, versus $424 million a year ago. Adjusted EBIT rose 15% to $577 million. Earnings were driven by leveraging higher light vehicle volumes globally, commercial truck and off-highway revenue growth, higher North America aftermarket sales, the benefit of restructuring activities and managing operational costs. The 2014 year-over-year EBIT comparison includes $10 million in negative currency.
Full year EBIT margin
Tenneco delivered its fifth consecutive year of improved adjusted EBIT as a percent of value-add revenue.
| 2014 | 2013 | |||
| EBIT as a percent of revenue | 5.8% | 5.3% | ||
| EBIT as a percent of value-add revenue | 7.6% | 6.9% | ||
| Adjusted EBIT as a percent of revenue | 6.9% | 6.3% | ||
| Adjusted EBIT as a percent of value-add revenue | 8.9% | 8.2% | ||
Cash
Cash generated by operations in the fourth quarter was $252 million, which is in line with Tenneco’s historical positive trend of cash generation. This compares to a record high $412 million in fourth quarter 2013 which was the result of significant year-over-year changes in working capital versus 2012. For the full year, cash generated by operations in 2014 was $341 million versus $503 million a year ago. This comparison also reflects the record high cash generation a year ago.
The company continues to invest in growth with total capital spending for the full year of $317 million, versus $254 million a year ago. Investments for Clean Air programs in Europe, North America and China drove the increase.
During the year, Tenneco completed a stock buyback program, repurchasing 400,000 shares of its outstanding common stock for $22 million to offset dilution from shares issued to employees in 2014.
Tenneco’s earnings improvement and strong cash generation resulted in a new all-time low net debt to adjusted EBITDA ratio of 1.1x, an improvement from 1.2x at the end of 2013.
OUTLOOK AND FINANCIAL GUIDANCE
Tenneco’s revenue growth will continue to be driven by consistent and strong structural growth drivers including:
- Increasing global light vehicle industry production;
- The company’s strong platform position on leading light vehicle programs, especially in the world’s largest and fastest-growing geographic markets;
- Emissions regulations which require new content to meet increasingly stringent requirements for light vehicles, as well as commercial trucks, off-highway equipment, locomotive, marine and stationary engines;
- Increased use of electronically controlled components in vehicle suspensions;
- The growing global car parc, which the company serves with industry-leading global aftermarket brands.
First quarter 2015
For the first quarter of 2015, modest industry light vehicle production growth is expected, with IHS forecasting 1% growth in the regions where Tenneco operates. Excluding currency, Tenneco anticipates total combined OE and aftermarket revenue growth of about 4%, driven primarily by higher light vehicle unit volumes, additional content on commercial truck and off-highway programs to meet environmental regulations, and year-over-year growth in the aftermarket. Based on current exchange rates, the company anticipates a currency headwind in the first quarter of approximately 4%.
Full Year 2015
In 2015, IHS is forecasting 3% higher industry light vehicle production globally. Tenneco anticipates OE light vehicle revenue in 2015 to continue outpacing global industry production, driven by the company’s strong platform position with leading OEMs worldwide, the launch and ramp up of new programs and increased technology content.
The company anticipates further weakness in the off-highway industry as well as continued production weakness in commercial trucks in Brazil. However, Tenneco expects strong year-over-year revenue growth in its commercial truck and off highway business, driven by the ramp up of content to meet global emissions requirements, including in China as compliance with emissions regulations increases, as well as new program launches.
Tenneco’s global aftermarket business is expected to continue to be a steady contributor to revenue performance, driven by the company’s leading market share in key regions.
For the full year 2015, Tenneco expects year-over-year total combined OE and aftermarket revenue growth in the range of 5% to 8%, excluding the impact of currency.
Beyond 2015, there are no changes to Tenneco’s structural growth outlook excluding the effects of currency exchange rates and market cyclicality.
“Tenneco’s structural growth drivers include higher technology content to meet increasingly stringent global emissions regulations, an outstanding light vehicle position across geographic regions and a growing book of business with the world’s leading commercial truck and off-highway manufacturers, ” stated Sherrill. “These underlying drivers fuel Tenneco’s revenue growth independent of market cycles, and looking forward, we see outstanding opportunities for continued growth and further margin improvement.”
In 2015, Tenneco expects:
Capital expenditures between $300 million and $320 million
Annual interest expense about $75 million
Cash taxes between $150 million and $175 million
Tax rate between 33% and 36%
