- Record third quarter revenue of $2.1 billion
- Record third quarter EBIT of $140 million
- EPS of $1.27 per diluted share
Tenneco Inc. (NYSE: TEN) reported third quarter net income of $78 million, or$1.27 per diluted share, up from $12 million, or 19-cents per diluted share, in third quarter 2013. On an adjusted basis, net income was $78 million, or $1.25 per diluted share, an increase from $62 million, or 99-cents per diluted share a year ago.
Revenue
Total revenue in the third quarter was up 6% year-over-year to $2.081 billion. The increase includes higher revenues in both product lines with Clean Air increasing 8% and Ride Performance up 2%. Excluding substrate sales, total revenue increased 5% to $1.602 billion. The year-over-year comparison includes $32 million in negative currency.
Tenneco’s OE light vehicle revenue increased 6% year-over-year, outpacing global industry light vehicle production. Commercial truck and off-highway revenue was up 15%, driven by Clean Air revenue growth in Europe, China and Japan, and higher North America Ride Performance revenue. Global aftermarket revenue was essentially flat versus prior year with higher revenues in both product lines in North America offset by lower revenues in the Europe aftermarket.
EBIT
Third quarter EBIT (earnings before interest, taxes and noncontrolling interests) was $140 million, versus $72 million in third quarter 2013. Adjusted EBIT increased 17% to $152 million, reflecting a 6% increase in Clean Air adjusted EBIT and a 16% increase in Ride Performance adjusted EBIT. EBIT results this quarter include a $9 million benefit from stock-indexed compensation expense. The year-over-year comparison includes $5 million in negative currency.
“We recorded another quarter of record high revenue by outpacing global light vehicle industry production, generating strong year-over-year revenue growth in our commercial truck and off-highway business and benefiting from a continued steady contribution from the global aftermarket,” said Gregg Sherrill, chairman and CEO, Tenneco. “This top-line growth and strong operational performance also drove record high earnings and improved profitability.”
Adjusted third quarter 2014 and 2013 results
| (millions except per share amounts) | Q3 2014 | Q3 2013 | |||||||||||||||||||||||||||
| Net income | Net income | ||||||||||||||||||||||||||||
| attributable to | attributable to | ||||||||||||||||||||||||||||
| EBITDA* | EBIT | Tenneco Inc. | Per Share | EBITDA* | EBIT | Tenneco Inc. | Per Share | ||||||||||||||||||||||
| Earnings Measures | $ | 192 | $ | 140 | $ | 78 | $ | 1.27 | $ | 123 | $ | 72 | $ | 12 | $ | 0.19 | |||||||||||||
| Adjustments (reflects non-GAAP measures): | |||||||||||||||||||||||||||||
| Restructuring and related expenses | 8 | 8 | 7 | 0.12 | 58 | 58 | 59 | 0.95 | |||||||||||||||||||||
| Bad debt charge | 4 | 4 | 3 | 0.05 | – | – | – | – | |||||||||||||||||||||
| Net tax adjustments | – | – | (10 | ) | (0.19 | ) | – | – | (9 | ) | (0.15 | ) | |||||||||||||||||
| Non-GAAP earnings measures | $ | 204 | $ | 152 | $ | 78 | $ | 1.25 | $ | 181 | $ | 130 | $ | 62 | $ | 0.99 | |||||||||||||
* 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.
Third quarter 2014 adjustments
- Restructuring and related expenses of $8 million pre-tax, or 12-cents per diluted share.
- A charge of $4 million pre-tax, or 5-cents per diluted share related to the bankruptcy of an aftermarket customer in Europe.
- Net tax benefits of $10 million, or 19-cents per diluted share, for tax adjustments to prior year estimates.
Third quarter 2013 adjustments
- Restructuring and related expenses of $58 million pre-tax, or 95-cents per diluted share.
- Net tax benefits of $9 million or 15-cents per diluted share, for tax adjustments to prior year estimates.
EBIT Margin
Tenneco improved its total adjusted EBIT as a percent of value-add revenue to 9.5%, an increase of 100 basis points.
|
Q3 2014 |
Q3 2013 |
|||
| EBIT as a percent of revenue | 6.7% | 3.7% | ||
| EBIT as a percent of value-add revenue | 8.7% | 4.7% | ||
| Adjusted EBIT as a percent of revenue | 7.3% | 6.6% | ||
| Adjusted EBIT as a percent of value-add revenue | 9.5% | 8.5% |
Clean Air adjusted EBIT as a percent of value-add revenue was 10.7%, driven by stronger light vehicle volumes in North America andChina, higher commercial truck and off-highway revenue in Europe, China and Japan and reflecting $4 million in higher engineering investments for new programs, versus last year. Ride Performance adjusted EBIT as a percent of revenue was 9.8%, primarily due to stronger aftermarket sales in North and South America, and cost savings related to the company’s global product cost leadership initiative.
Cash
Cash generated by operations in the quarter was $115 million, versus $50 million a year ago. The improvement was primarily driven by higher earnings and managing working capital.
Capital investments in the quarter were $95 million, compared with $57 million in third quarter 2013. Similar to the higher engineering investments, the increase in capital investments supports future growth in OE Clean Air and Ride Performance programs in North America,Europe and China. With the addition of incremental new programs and the timing of expenditures, the company now expects its capital investments for the full year to be about $330 million.
Outlook
According to IHS Automotive estimates*, global light vehicle industry production in the fourth quarter is forecasted to increase 3% year-over-year in the regions where Tenneco operates. North America is expected to increase 4%, China up 6% and India up 10%. Europeindustry light vehicle production is expected to decrease 1% and a decline of 9% is forecasted for South America.
In the fourth quarter, Tenneco anticipates that higher light vehicle unit volumes and higher commercial truck and off-highway content will counteract an estimated 3% of total revenue currency headwind, resulting in total revenue about the same to slightly higher compared with the strong fourth quarter last year. For the quarter, revenues, including the currency impact, are expected to reflect this trend for light vehicle, commercial truck and off-highway and the global aftermarket.
“Higher light vehicle unit volumes and higher content demonstrate the effectiveness of our growth drivers including Tenneco’s strong balance across geographies and end markets, an outstanding platform position with top OE customers globally and a regulatory environment that continues to create opportunities with new programs and incremental content,” said Sherrill. “This means we should finish 2014 with strong revenue growth year-over-year with light vehicle revenue outpacing global industry production, a strong increase in commercial truck and off-highway revenues, and an increase in global aftermarket revenue.”
*IHS Automotive October 2014 industry production estimates
