- Record-high third quarter revenue
- Record-high third quarter EBIT before restructuring charges
Tenneco Inc. (NYSE:TEN) reported third quarter net income of $12 million, or 19-cents per diluted share, which includes $59 million in restructuring expense. Third quarter 2012 net income was $125 million, or $2.05 per diluted share. On an adjusted basis, net income rose to $62 million, or 99-cents per diluted share, from $52 million or 85-cents per diluted share a year ago.
Revenue
Total revenue was $1.963 billion, up 10% from the prior year on higher revenues in all segments. Clean Air revenue increased 12% to$1.328 billion and Ride Performance revenue was up 7% to $635 million. Total value-add revenue (revenue excluding substrate sales) was$1.532 billion, a 10% increase versus a year ago.
Global OE light vehicle revenue increased 10% to $1.394 billion, versus an overall 5% increase in global industry light vehicle production in the third quarter. OE commercial and specialty vehicle revenue increased 28% year-over-year to $236 million, and global aftermarket revenue was up 3% to $333 million.
“Our results demonstrate the strength and balance of our operations across end markets, regions, customers and product lines as we delivered record high third quarter revenue and adjusted EBIT, resulting in year-over-year margin improvement in both product lines,” saidGregg Sherrill, chairman and CEO, Tenneco. “Our teams are executing well on plans for top-line growth while continuing to drive profitability with excellent operational performance.”
EBIT
EBIT (earnings before interest, taxes and noncontrolling interests) was $72 million, versus $111 million in third quarter 2012. Adjusted EBIT was $130 million, up 15% from $113 million a year ago. The year-over-year comparison includes $6 million in negative currency.
The higher adjusted EBIT reflects year-over-year improvement in both product divisions with Clean Air increasing 22% and Ride Performance up 20%. The improvement was driven by new light vehicle platforms and stronger volumes, higher year-over-year commercial vehicle revenue and higher aftermarket sales.
Adjusted third quarter 2013 and 2012 results
| (millions except per share amounts) | Q3 2013 | Q3 2012 | |||||||||||||||||||||||||||||
| Net income | Net income | ||||||||||||||||||||||||||||||
| attributable to | attributable to | ||||||||||||||||||||||||||||||
| EBITDA* | EBIT | Tenneco Inc. | Per Share | EBITDA* | EBIT | Tenneco Inc. | Per Share | ||||||||||||||||||||||||
| Earnings Measures | $ | 123 | $ | 72 | $ | 12 | $ | 0.19 | $ | 160 | $ | 111 | $ | 125 | $ | 2.05 | |||||||||||||||
| Adjustments (reflects non-GAAP measures): | |||||||||||||||||||||||||||||||
| Restructuring and related expenses | 58 | 58 | 59 | 0.95 | 7 | 7 | 4 | 0.07 | |||||||||||||||||||||||
| Pullman recoveries | – | – | – | – | (5 | ) | (5 | ) | (3 | ) | (0.05 | ) | |||||||||||||||||||
| Net tax adjustments | – | – | (9 | ) | (0.15 | ) | – | – | (74 | ) | (1.22 | ) | |||||||||||||||||||
| Non-GAAP earnings measures | $ | 181 | $ | 130 | $ | 62 | $ | 0.99 | $ | 162 | $ | 113 | $ | 52 | $ | 0.85 | |||||||||||||||
| * 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 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.
Third quarter 2012 adjustments:
- Restructuring and related expenses of $7 million pre-tax, or 7-cents per diluted share;
- EBIT benefit of $5 million, or 5-cents per diluted share, from property recoveries related to transactions originated by The Pullman Company before being acquired by Tenneco in 1996;
- Net tax benefit of $74 million, or $1.22 per diluted share, primarily related to the reversal of the tax valuation allowance on the company’s U.S. net operating loss position and recording a tax valuation allowance in Spain for tax credits that may not be utilized due to tax losses there.
EBIT Margin
Tenneco capitalized on new light vehicle launches and stronger volumes globally, a year-over-year increase in commercial vehicle revenue and continuous operational improvement to deliver a 40 basis point increase in adjusted EBIT as a percent of value-add revenue.
The company reported the following EBIT as a percent of revenue and EBIT as a percent of value-add revenue.
| Q3 2013 | Q3 2012 | ||||
| EBIT as a percent of revenue | 3.7% | 6.2% | |||
| EBIT as a percent of value-add revenue | 4.7% | 8.0% | |||
| Adjusted EBIT as a percent of revenue | 6.6% | 6.4% | |||
| Adjusted EBIT as a percent of value-add revenue | 8.5% | 8.1% | |||
Cash
Cash generated by operations in the third quarter was $50 million, versus $125 million a year ago. Increased working capital investments on higher revenues and timing on collecting certain receivables accounted for the decrease this quarter.
Capital expenditures in the quarter were $57 million, versus $65 million a year ago, primarily to support Clean Air programs in North America, Europe and China. The company now expects, due to the timing of expenditures, that its capital spending will be about $250 million for the full year.
Taxes
The year-to-date tax rate is 36% and for the full year, the company still expects a tax rate in the range of 36% to 38%. 2013 cash taxes are expected to be approximately $110 million.
Restructuring
During the quarter, Tenneco announced specific actions that are part of its broader initiative announced earlier this year to reduce structural costs in Europe by $60 million annually with related restructuring costs of approximately $120 million. The company has now announced $80 million of these costs. Tenneco is still on plan to reach a full savings run rate in 2016.
Fourth Quarter Outlook
In the fourth quarter, IHS Automotive forecasts a 3% increase in global light vehicle production versus a year ago, which includes a 6% increase in North America and an 8% increase in China. Industry production is expected to decline 5%* in South America and 11% inIndia. Estimates for Europe indicate that production will be about even with last year.
Tenneco’s outlook for its commercial vehicle business remains unchanged from last quarter with strong year-over-year revenue growth expected in the fourth quarter and for the full year, despite continuing weakness in commercial vehicle volumes overall. The company expects its fourth quarter commercial and specialty revenue to be about even with the third quarter and full year commercial vehicle revenue to be toward the lower end of the company’s 2013 revenue guidance.
In the fourth quarter, the global aftermarket is expected to be relatively flat with last year with solid contributions from North America and continued stabilization in Europe.
“Tenneco is well-positioned to finish the year strong by capitalizing on a stronger global light vehicle production environment, launching new light vehicle programs and continuing to deliver year-over-year commercial vehicle revenue growth,” said Sherrill. “In addition, we are focused on launching new commercial vehicle programs to meet U.S. Tier 4 final and Europe Stage 4 off-road emissions regulations, which will drive higher content and incremental revenue growth in 2014.”
