- Record-high first quarter revenue, outpacing industry production
- Expects constant currency revenue growth of 8% in second quarter
- Changed segment reporting to Clean Air, Ride Performance and Aftermarket
Tenneco Inc. (NYSE: TEN) reported first quarter net income of $58 million, or $1.13 per diluted share. First quarter 2017 net income was $59 million, or $1.09 per diluted share. First quarter 2018 adjusted net income was $81 million, or $1.58 per diluted share, compared with $79 million, or $1.46 per diluted share last year.
Revenue
Total revenue in the first quarter was $2.574 billion, up 12% year-over-year, with revenue growth in Clean Air and Ride Performance. On a constant currency basis, total revenue increased 6% driven by higher volumes and incremental content on light vehicle, commercial truck and off-highway programs.
On a constant currency basis, value-add revenue increased 4% to $1.822 billion, significantly outpacing an industry production* decline of 1%. Ride Performance revenue increased 13%, global Aftermarket revenue was 3% lower, and Clean Air revenue rose 3% compared to last year.
EBIT **
First quarter EBIT (earnings before interest, taxes and noncontrolling interests) was $117 million, versus $121 million last year. Adjusted EBIT was $147 million, even with last year, driven by stronger volumes on light vehicle and commercial truck and off-highway applications and strong Clean Air incremental margins. However, steel commodity costs, the lower aftermarket revenues, and launch costs related to a major truck platform impacted margins.
| Q1 2018 | Q1 2017 | |||
| EBIT as a percent of revenue | 4.5% | 5.3% | ||
| EBIT as a percent of value-add revenue | 6.1% | 6.9% | ||
| Adjusted EBIT as a percent of revenue | 5.7% | 6.4% | ||
| Adjusted EBIT as a percent of value-add revenue | 7.6% | 8.4% | ||
Cash
Cash generated by operations improved by $31 million year-over-year. During the quarter, the company returned $13 million to shareholders through a dividend payment of 25-cents per common share.
“Tenneco delivered record revenue for the quarter, significantly outpacing OE industry production, driven by higher Ride Performance revenues, including intelligent suspension growth, and double-digit gains in Clean Air commercial truck and off-highway revenue,” said Brian Kesseler, CEO Tenneco. “We also delivered record earnings per share despite margin pressure from last year’s tariff-driven steel cost increases, although there was a lower year-over-year impact as we continue to make progress on recovery mechanisms.”
Adjusted first quarter 2018 and 2017 results**
| Q1 2018 | Q1 2017 | |||||||||||||||||
| (millions except per share amounts) | Net income attributable to Tenneco Inc. | Earnings Per Share | EBIT | EBITDA(1)(2) | Net income attributable to Tenneco Inc. | Earnings Per Share | EBIT | EBITDA(1)(2) | ||||||||||
| Earnings Measures | $ | 58 | $ | 1.13 | $ | 117 | $ | 176 | $ | 59 | $ | 1.09 | $ | 121 | $ | 173 | ||
| Adjustments (reflects non-GAAP measures): | ||||||||||||||||||
| Restructuring and related expenses | 8 | 0.16 | 12 | 12 | 14 | 0.25 | 15 | 14 | ||||||||||
| Acquisition costs | 11 | 0.21 | 13 | 13 | – | – | – | – | ||||||||||
| Warranty charge | 4 | 0.08 | 5 | 5 | – | – | – | – | ||||||||||
| Pension charges/Stock vesting | – | – | – | – | 7 | 0.13 | 11 | 11 | ||||||||||
| Net tax adjustments | – | – | – | – | (1) | (0.01) | – | – | ||||||||||
| Adjusted Net income, EPS, EBIT and EBITA | $ | 81 | $ | 1.58 | $ | 147 | $ | 206 | $ | 79 | $ | 1.46 | $ | 147 | $ | 198 | ||
OUTLOOK
Second quarter and full year 2018
Tenneco expects constant currency total revenue growth of 8% in the second quarter 2018, outpacing 5% light vehicle industry production* growth forecast. The company expects organic growth to outpace industry production* with higher light vehicle revenue, double-digit growth in commercial truck and off-highway revenue, and a stable contribution from the aftermarket segment.
The company reaffirmed its 2018 full year outlook, and expects 5% organic revenue growth, outpacing industry production* by 3 percentage points, and full year margins roughly in line with 2017.
Acquisition of Federal-Mogul
Tenneco signed a definitive agreement on April 10, 2018, to acquire Federal-Mogul, a leading global supplier to original equipment manufacturers and the aftermarket. Tenneco intends to separate the combined businesses into two independent, publicly traded companies through a tax-free spin-off to shareholders that will establish an aftermarket and ride performance company and a powertrain technology company.
The Federal-Mogul acquisition is expected to close in the second half of 2018, subject to regulatory and shareholder approvals and other customary closing conditions, with the separation expected to occur in the second half of 2019.
The transaction is expected to be value accretive with run-rate earnings synergies of at least $200 million and one-time working capital synergies of at least $250 million within 24 months of closing.
“Our acquisition of Federal-Mogul accelerates and expands on our strategies to deliver sustained, profitable growth, positioning the new companies to capitalize on trends that are fundamentally changing our industry,” said Kesseler. “Each company will have a unique competitive position to provide its customers with differentiated products and systems, drive profitable growth, and generate value for shareholders.”
*Source: IHS Automotive April 2018 global light vehicle production forecast and Tenneco estimates.
** Year-over-year earnings comparisons reflect revisions to prior period financial results for certain immaterial adjustments as described in Tenneco’s Form 10-Q/A for the period ended March 31, 2017.
Click here to download the earnings release and all the schedules listed below.
Attachment 1
Statements of Income – 3 Months
Balance Sheets
Statements of Cash Flows – 3 Months
Attachment 2
Reconciliation of GAAP Net Income to EBITDA including noncontrolling interests – 3 Months
Reconciliation of GAAP to Non-GAAP Earnings Measures – 3 Months
Reconciliation of GAAP Revenue to Non-GAAP Revenue Measures – 3 Months
Reconciliation of GAAP Revenue to Non-GAAP Revenue Measures – 3 Months
Reconciliation of Non-GAAP Measures – Debt Net of Cash/Adjusted LTM EBITDA including noncontrolling interests
Reconciliation of GAAP Revenue to Non-GAAP Revenue Measures – Original Equipment and Aftermarket Revenue – 3 Months
Reconciliation of GAAP Revenue and Earnings to Non-GAAP Revenue and Earnings Measures – 3 Months
Reconciliation of GAAP Revenue to Non-GAAP Revenue Measures – Original Equipment Commercial Truck, Off-Highway and other revenues – 3 Months
