- Revenue of $2 billion
- Adjusted EBIT margin improvement
- Repurchased 2.4 million shares of common stock in 3Q
Tenneco Inc. (NYSE: TEN) reported third quarter net income of $52 million, or 88-cents per diluted share, compared with $78 million, or $1.27 per diluted share, in third quarter 2014. Excluding restructuring costs and tax adjustments, third quarter net income was $73 million, or $1.22 per diluted share.
Revenue
Tenneco reported total quarterly revenue of $2.025 billion. Excluding a negative currency impact of $160 million, total revenue rose 5% year-over-year to $2.185 billion, with growth in both the Clean Air and Ride Performance product lines.
The company’s OE light vehicle revenue excluding the impact of currency continued to outpace industry production, improving 6% on higher volumes in North America and Europe.
Excluding currency, global aftermarket revenues rose 9% on strong ride performance product sales in North America, South America, and Europe, and higher clean air product sales in North America.
Tenneco’s commercial truck and off-highway revenue also outpaced industry production, driven by incremental content growth to meet global emissions regulations. Customer unit demand declined about 30% versus last year, however, Tenneco’s commercial truck and off-highway revenues, excluding currency, were down only 7%, or 4% on a value-add basis.
EBIT
Third quarter EBIT (earnings before interest, taxes and noncontrolling interests) was $116 million, versus $140 million last year. Adjusted EBIT for the third quarter was $151 million, compared with $152 million a year ago. EBIT includes a year-over-year negative currency impact of $24 million.
“Excluding currency headwinds, we delivered another quarter of solid revenue growth. Both light vehicle as well as commercial truck and off-highway revenue significantly outpaced global industry production, and the aftermarket exceeded market growth rates, reflecting Tenneco’s balance across regions, end-markets, product lines, and customers,” said Gregg Sherrill, chairman and CEO, Tenneco. “We also continued our strong margin performance with our tenth consecutive quarter of EBIT margin improvement, driven by stronger light vehicle volumes, incremental content on commercial truck and off-highway programs, higher aftermarket sales and operational cost improvements.”
Adjusted third quarter 2015 and 2014 results:
| (millions except per share amounts) | Q3 2015 | Q3 2014 | ||||||||||||||||||||||||||
| EBITDA* | EBIT |
Net income attributable to Tenneco Inc. |
Per Share | EBITDA* | EBIT |
Net income attributable to Tenneco Inc. |
Per Share | |||||||||||||||||||||
| Earnings Measures | $ | 169 | $ | 116 | $ | 52 | $ | 0.88 | $ | 192 | $ | 140 | $ | 78 | $ | 1.27 | ||||||||||||
| Adjustments (reflects non-GAAP measures): | ||||||||||||||||||||||||||||
| Restructuring and related expenses | 31 | 35 | 33 | 0.55 | 8 | 8 | 7 | 0.12 | ||||||||||||||||||||
| Bad debt charge | – | – | – | – | 4 | 4 | 3 | 0.05 | ||||||||||||||||||||
| Net tax adjustments | – | – | (12 | ) | (0.21 | ) | – | – | (10 | ) | (0.19 | ) | ||||||||||||||||
| Non-GAAP earnings measures | $ | 200 | $ | 151 | $ | 73 | $ | 1.22 | $ | 204 | $ | 152 | $ | 78 | $ | 1.25 | ||||||||||||
* 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.
Restructuring and Related Expenses
During the quarter, the company recorded $25 million in restructuring charges related to exiting the Marzocchi suspension product line, and $10 million related to the company’s ongoing cost improvement initiatives.
EBIT Margin
Margin expansion continued in the quarter with value-add adjusted EBIT margin improving 20 basis points year-over-year to 9.7%.
Clean Air adjusted EBIT as a percent of value-add revenue increased to 11.5% versus 10.7% a year ago, driven primarily by stronger light vehicle volumes in North America and Europe and higher aftermarket revenue in North America. Clean Air EBIT margin benefitted from the timing of a customer recovery in China of $5 million in EBIT, or 3-cents per diluted share. Excluding the impact of this customer recovery, Clean Air EBIT margin increased to 10.9%.
Ride Performance adjusted EBIT as a percent of value-add revenue was 9.4% versus 9.8% last year. Excluding the impact of unfavorable currency, Ride Performance EBIT margin was 11.0%, driven by stronger light vehicle volumes and higher global aftermarket sales.
|
Q3 2015 |
Q3 2014 |
||||
| EBIT as a percent of revenue | 5.7% | 6.7% | |||
| EBIT as a percent of value-add revenue | 7.5% | 8.7% | |||
| Adjusted EBIT as a percent of revenue | 7.5% | 7.3% | |||
| Adjusted EBIT as a percent of value-add revenue | 9.7% | 9.5% |
Cash
In the third quarter, cash generated by operations was $106 million, versus $115 million last year. Year to date, cash generated by operations was $188 million versus $89 million a year ago, driven by strong working capital management, especially inventory improvements.
In the quarter, capital expenditures were $67 million versus $95 million last year, primarily due to the timing of spending to support new programs. Year to date, capital expenditures were $217 million versus $249 million a year ago, and the company expects to be toward the lower end of its guidance range of $300 million to $320 million for the full year.
Share Repurchase
The company repurchased 2.4 million shares of common stock for $114 million in the third quarter. Year-to-date through the third quarter, Tenneco has repurchased a total of 3.1 million shares for $158 million as part of its previously announced $350 million share repurchase program, which the company expects to complete by the end of 2016.
Tenneco also announced today, in a separate press release, an expansion of its share repurchase program, authorizing the repurchase of an additional $200 million of common stock. Tenneco anticipates completing this additional share repurchase authorization by the end of 2017.
Outlook
Based on current global industry forecasts and sequential improvement in customer production schedules in China, and excluding currency, Tenneco anticipates total fourth quarter revenue growth of 6%, resulting in full-year revenue growth of 5%.
The company anticipates fourth quarter currency headwinds on revenues of approximately 5%.
Global light vehicle industry production in the regions where Tenneco operates is expected to decrease 1% in the fourth quarter. The company is well-positioned to significantly outperform industry production with its balance across customers and platforms.
Tenneco expects commercial truck and off-highway revenue to continue to significantly outpace the industry in the fourth quarter due to content growth, offsetting a significant portion of the ongoing industry production weakness.
The company also expects solid year-over-year revenue growth from its global aftermarket business in the fourth quarter.
“Our success reflects the strength of our two product lines, the benefit of structural growth drivers and strong execution across our operations,” said Sherrill. “Our focus remains on strategies to capture organic growth, investments to drive cost competitiveness and strategic opportunities to enhance our organic growth, all to deliver greater returns and value to our shareholders.”
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