Tenneco has reported first quarter financial results dominated by the effects of the Federal-Mogul acquisition, and now says the planned spinoff of the DriV business will now be mid-2020.
Tenneco Inc. reported first quarter 2019 revenue** of $4.5 billion, a 74% increase versus $2.6 billion a year ago. On a constant currency basis, organic revenue grew 4% and net revenue growth from acquisitions and divestitures was 75%, while the impact of exchange rates was negative 5%. On a constant currency pro forma basis, total revenue increased 1% versus last year, while light vehicle industry production declined 7%. Value add revenue for the first quarter was $ 3.8 billion.
The company reported a net loss for first quarter 2019 of $117 million, or a loss of $1.44 per diluted share. First quarter 2018 net income** was $60 million, or $1.17 per diluted share. First quarter 2019 adjusted net income was $42 million, or 52-cents per diluted share, compared with $83 million, or $1.62 per diluted share last year.**
First quarter EBIT (earnings before interest, taxes and noncontrolling interests) was $(24) million, versus $122 million last year. EBIT as a percent of revenue was -0.5% versus 4.7% last year.
First quarter adjusted EBITDA was $327 million versus $212 million last year. Adjusted EBITDA as a percent of value-add revenue was 8.7% compared with 11.0% a year ago. In addition to the inclusion of the acquired Federal-Mogul business, the comparison includes the unfavorable mix impact on earnings of weaker aftermarket and China OE volumes and related operational inefficiencies.
Cash used by operations was $150 million, excluding proceeds from the deferred purchase price of factored receivables of $60 million. Capital investments in the quarter were $173 million. During the quarter, the company returned $20 million to shareholders through a dividend payment of 25-cents per common share.
“Tenneco delivered organic revenue growth that outpaced industry production by eight percentage points, driven by higher light vehicle, commercial truck and off-highway revenues,” said Roger Wood, co-CEO Tenneco. “While lower aftermarket sales and China volume declines impacted earnings in the quarter, we are confident in the strength of our growth drivers and actions underway to reduce cost and improve cash generation.”
Second Quarter Outlook
Tenneco expects second quarter revenue in the range of $4.45 billion to $4.55 billion, about flat with the first quarter. Further, the company expects its second quarter adjusted EBITDA to be in the range of $375 – $395 million, nearly a 20% sequential improvement from the prior quarter at the range midpoint, with aftermarket revenues returning to expected levels and the ramping up of synergies and other initiatives.
Full year 2019
The company has revised its 2019 full year outlook, and now expects total revenues in the range of $17.7 billion to $18.1 billion, including 3% pro forma organic revenue growth, and outpacing light vehicle industry production* by 6 percentage points.
The following table summarizes the full year guidance.
|Adjusted EBITDA||$1,500 -$1,620M|
|VA Adjusted EBITDA margin||10.0-10.6%|
|Pro forma organic revenue growth||3%|
|Currency translation impact||-2%|
|See “About revenue and EBITDA guidance” below for further information about revenue guidance and forecasted performance measures.|
Leverage and Spin Update
The company anticipates year-end 2019 leverage (net debt/adjusted EBITDA) to be approximately 3.3x, based on the midpoint of its adjusted EBITDA guidance. As a result, and due in part to the current weak market environment, the company has revised its timing target for the separation of the business into two standalone companies, and now expects the DRiV spinoff to occur mid-2020. The additional time will allow the two new organizations to align and stabilize business processes and systems, solidify margin and cash flow performance metrics, and strengthen their balance sheets.
“We expect revenue to continue to outperform industry production in the second quarter and deliver sequential improvements in profitability,” said Brian Kesseler, co- CEO. “The global market and technology trends driving demand remain positive, and customers are enthusiastic about the two new companies’ unique capabilities to deliver value through tailored solutions. We continue to believe significant value can be unlocked by separating the current Tenneco portfolio into two, purpose-built businesses and remain committed to the separation as soon as favorable conditions exist.”
*Source: IHS Markit April 2019 global light vehicle production forecast and Tenneco estimates.
**Financial results for the first quarter of 2018 have been revised for certain immaterial adjustments, which will be further discussed in Tenneco’s Form 10-Q for the quarter ended March 31, 2019.
The company hosted a conference call on Thursday, May 9, 2019 at 9:30 a.m. ET. The call and accompanying slides will be available on the financial section of the Tenneco web site at www.investors.tenneco.com. A recording of the call will be available one hour following completion of the call on May 9, 2019 through May 16, 2019. To access this recording, dial 877-344-7529 (domestic) or 412-317-0088 (international) or 855 669-9658 (Canada). The replay access code is 10130965.