TEN Tenneco Inc

LAKE FOREST, Ill., Feb. 20, 2020 /PRNewswire/ -- Tenneco Inc. (NYSE: TEN) reported fourth quarter 2019 revenue of $4.1 billion, versus $4.3 billion a year ago.  On a constant currency pro forma basis, total revenue decreased 2% versus last year, while light vehicle industry production* declined 5% in the quarter. Value-add revenue for the fourth quarter was $3.4 billion.  Revenue comparisons include a negative $88 million impact due to a work stoppage at the company's largest customer.

Including non-cash, non-recurring items of approximately $230 million, the company reported a net loss for fourth quarter 2019 of $293 million, or $(3.62) per diluted share, compared with a fourth quarter net loss of $109 million, or $(1.35) per diluted share in 2018. Fourth quarter 2019 adjusted net income was $23 million, or $0.28 per diluted share, compared with $105 million, or $1.30 per diluted share last year.  

Fourth quarter EBIT (earnings before interest, taxes and noncontrolling interests) was a loss of $117 million, versus a loss of $23 million last year.  EBIT as a percent of revenue was -2.8% versus -0.5% last year.  Earnings comparisons include a negative $27 million impact due to a work stoppage at the company's largest customer. Fourth quarter adjusted EBITDA was $314 million versus $407 million last year. Adjusted EBITDA as a percent of value-add revenue was 9.3% versus 11.2% last year.  Cash generated from operations was $380 million. 

"Continued execution on cost reduction initiatives and operating improvements enabled us to deliver on our fourth quarter guidance, despite challenging economic and business conditions," said Brian Kesseler, Tenneco CEO.  "We are executing our Accelerate program to drive additional cost savings, strengthen cash flow performance, and reduce leverage to drive value and better position both the DRiV and New Tenneco divisions for the planned separation."   

The Accelerate program is modeled after the company's successful approach to capturing acquisition synergies. Compared to year-end 2019, this 2-year program includes opportunities expected to deliver the following:

• Annual run rate cost savings of $200 million
• Working capital improvement of $250 million
• Capital expenditure improvements of $100 million

The company expects to incur approximately $250 million in one-time costs over the 2-year program.

"The Accelerate program is at the core of our operating plans for 2020 and 2021 as we work to improve capital efficiency and reduce leverage to better position both divisions for the planned separation," Kesseler added. "In addition to streamlining our leadership structure, we are working to lower SG&A costs and evaluating multiple strategic options, ranging from the sale of individual product lines to complete divisions. The Board and management team are committed to taking purposeful and proactive action to better position Tenneco to succeed in today's operating environment and enhance value for all shareholders."

Full-Year Results

For the full year, total revenue was a record high $17.45 billion, up 48%, which includes the first full year of Federal-Mogul revenues. Full-year EBIT was $148 million, versus EBIT of $322 million a year ago. Adjusted EBITDA was $1,442 million, versus $1,062 million a year ago. Cash generated by operations for the full year was $444 million, compared with $439 million last year.

OUTLOOK

Full year 2020
We are continuing to monitor the effects of the COVID-19 virus, which is impacting the China automotive industry. The uncertainty of the full impact of the COVID-19 virus results in a wider full year outlook range for revenue and EBITDA than customary. This outlook assumes that the equivalent of four full weeks of production would be lost in China in the first quarter, which would represent a negative impact of approximately $150 million on value add revenue, and $50 million on EBITDA.

2020 revenue is expected in the range of $16.7 billion to $17.1 billion. Global light vehicle production* is forecast to be down 4% in 2020.  We anticipate currency to have a 1% unfavorable year-over-year impact on 2020 revenue. 

2020 Financial Outlook Summary

(1) Includes expenditures for software, consistent with cash payments for property, plant and equipment on cash flow statement.
(2) Before one-time fees related to the February 2020 covenant amendment.
(3) Adjusted free cash flow is cash from operations plus reclassified factoring proceeds less capital expenditures.

First Quarter 2020
As referenced in the full year outlook, we anticipate the COVID-19 virus to negatively impact value add revenue and EBITDA in the first quarter. The company expects total revenue in the range of $3.95 billion to $4.15 billion, value-add revenue in the range of $3.2 billion to $3.4 billion, and adjusted EBITDA in the range of $240 million to $280 million in the first quarter 2020. 

*Source: IHS Markit January 2020 global light vehicle production forecast and Tenneco estimates.  

See "About Revenue and Other Guidance" below for further information about revenue guidance and forecasted performance measures.

Attachment 1
Statements of Income – 3 Months
Statements of Income – 12 Months
Balance Sheets
Statements of Cash Flows – 3 Months
Statements of Cash Flows – 12 Months

Attachment 2
Reconciliation of GAAP to Non-GAAP Earnings Measures – 3 Months
Reconciliation of GAAP to Non-GAAP Earnings Measures – 12 Months
Reconciliation of GAAP Revenue to Non-GAAP Revenue Measures – 3 Months
Reconciliation of GAAP Revenue to Non-GAAP Revenue Measures – 12 Months
Reconciliation of GAAP Revenue to Non-GAAP Revenue Measures – 3 Months and 12 Months
Reconciliation of Non-GAAP Measures – Debt Net of Cash/Adjusted LTM and pro forma adjusted LTM EBITDA including noncontrolling interests
Reconciliation of GAAP Revenue to Non-GAAP Revenue Measures – Original Equipment and Aftermarket Revenue – 3 Months and 12 Months
Reconciliation of GAAP Revenue and Earnings to Non-GAAP Revenue and Earnings Measures – 3 Months
Reconciliation of GAAP Revenue and Earnings to Non-GAAP Revenue and Earnings Measures – 12 Months
Reconciliation of GAAP Revenue to Non-GAAP Revenue Measures – Original Equipment Commercial Truck, Off-Highway, Industrial and other revenues – quarterly and annual
Reconciliation of GAAP Revenue to pro forma Revenue and Non-GAAP Earnings Measures – 2018 quarterly
Reconciliation of GAAP Revenue to pro forma Revenue and Non-GAAP Earnings Measures – 2018 and 2017 annual
Division Level Full Year 2020 Outlook

CONFERENCE CALL
The company will host a webcast conference call on Thursday, February 20, 2020 at 10:00 a.m. ET. The purpose of the call is to discuss the company's financial results for the fourth quarter and full year 2019, as well as to provide other information regarding matters that may impact the company's outlook, including 2020 guidance and details on its performance acceleration plan. For a "listen only" broadcast and access to the presentation materials, go to the company's website  www.investors.tenneco.com.  To participate by telephone, please dial: 1-833-366-1121 (domestic) or 1-412-902-6733 (international), using the passcode "Tenneco Inc." A call playback will be available for one week, starting approximately one hour after the conclusion of the call.  To connect, please dial 1-877-344-7529 (domestic), 1-412-317-0088 (international), 855-669-9658 (Canada), using the replay access code 10138628.    

About Tenneco
Headquartered in Lake Forest, Illinois, Tenneco is one of the world's leading designers, manufacturers and marketers of Aftermarket, Ride Performance, Clean Air and Powertrain products and technology solutions for diversified markets, including light vehicle, commercial truck, off-highway, industrial and the aftermarket, with 2019 revenues of $17.45 billion and approximately 78,000 employees worldwide. On October 1, 2018, Tenneco completed the acquisition of Federal-Mogul, a leading global supplier to original equipment ("OE") manufacturers and the aftermarket.  Additionally, the company expects to separate its businesses to form two new, independent companies, an Aftermarket and Ride Performance company as well as a new Powertrain Technology company.

About DRiV™ - the future Aftermarket and Ride Performance Company
Following the separation, DRiV will be one of the largest global multi-line, multi-brand aftermarket companies, and one of the largest global OE ride performance and braking companies.  DRiV's principal product brands will feature Monroe®, Öhlins®, Walker®, Clevite®Elastomers, MOOG®, Fel-Pro®, Wagner®, Ferodo®, Champion® and others. DRiV would have 2019 revenues of $5.9 billion, with 53% of those revenues from aftermarket and 47% from original equipment customers.

About the new Tenneco - the future Powertrain Technology Company
Following the separation, the new Tenneco will be one of the world's largest pure-play powertrain companies serving OE markets worldwide with engineered solutions addressing fuel economy, power output, and criteria pollution requirements for gasoline, diesel and electrified powertrains. The new Tenneco would have 2019 revenues of $11.5 billion, serving light vehicle, commercial truck, off-highway and industrial markets.

About Revenue and Other Guidance
Revenue estimates and other forecasted information in this release are based on OE manufacturers' programs that have been formally awarded to the company; programs where Tenneco is highly confident that it will be awarded business based on informal customer indications consistent with past practices; and Tenneco's status as supplier for the existing program and its relationship with the customer.  This information is also based on anticipated vehicle production levels and pricing, including precious metals pricing and the impact of material cost changes. Unless otherwise indicated, our methodology does not attempt to forecast currency fluctuations, and accordingly, reflects constant currency. Certain elements of the restructuring and related expenses, legal settlements and other unusual charges we incur from time to time cannot be forecasted accurately. In this respect, we are not able to reconcile forecasted EBITDA (and the related margins), effective tax rate, depreciation and amortization, interest expense, noncontrolling interest expense and adjusted free cash flow on a forward-looking basis without unreasonable efforts on account of these factors and other factors not in our control. For certain additional assumptions upon which these estimates are based, see the slides accompanying the February 20, 2020 webcast, which will be available on the financial section of the Tenneco website at www.investors.tenneco.com.

This press release contains forward-looking statements. The words "will," "would," "could," "plan," "expect," "anticipate," "estimate," "opportunities," and similar expressions (and variations thereof), identify these forward-looking statements. These forward-looking statements are based on the current expectations of the company (including its subsidiaries).  Because these statements involve risks and uncertainties, actual results may differ materially from the expectations expressed in the forward-looking statements. Important factors that could cause actual results to differ materially from the expectations reflected in the forward-looking statements include:

• general economic, business and market conditions;
• our ability to successfully execute cost reduction and other performance improvement plans, including the Accelerate program, and to realize the anticipated benefits from these plans;
• our ability to source and procure needed materials, components and other products and services in accordance with customer demand and at competitive prices;
• the cost and outcome of existing and any future claims, legal proceedings or investigations, including, but not limited to, any of the foregoing arising in connection with the ongoing global antitrust investigation, product performance, product safety or intellectual property rights;
• changes in consumer demand for our OE or aftermarket products or aftermarket products, prices and our ability to have our products included on top selling vehicles, including any shifts in consumer preferences away from historically higher margin products for our customers and us, to other lower margin vehicles, for which we may or may not have supply arrangements;
• the cyclical nature of the global vehicle industry, including the performance of the global aftermarket sector and the impact of vehicle parts' longer product lives;
• changes in automotive and commercial vehicle manufacturers' production rates and their actual and forecasted requirements for our products, due to difficult economic conditions and/or regulatory or legal changes affecting internal combustion engines and/or aftermarket products;
• our dependence on certain large customers, including the loss of any of our large OE manufacturer customers (on whom we depend for a significant portion of our revenues), or the loss of market shares by these customers if we are unable to achieve increased sales to other OE customers or any change in customer demand due to delays in the adoption or enforcement of worldwide emissions regulations;
• new technologies that reduce the demand for certain of our products or otherwise render them obsolete;
• our ability to introduce new products and technologies that satisfy customers' needs in a timely fashion;
• the overall highly competitive nature of the automotive and commercial vehicle parts industries, and any resultant inability to realize the sales represented by our awarded book of business (which is based on anticipated pricing and volumes over the life of the applicable program);
• changes in capital availability or costs, including increases in our cost of borrowing (i.e., interest rate increases), the amount of our debt, our ability to access capital markets at favorable rates, and the credit ratings of our debt;
• our ability to comply with the covenants contained in our debt instruments;
• our working capital requirements;
• risks inherent in operating a multi-national company, including economic conditions, such as currency exchange and inflation rates, political conditions in the countries where we operate or sell our products, adverse changes in trade agreements, tariffs, immigration policies, political instability, and tax and other laws, and potential disruptions of production and supply;
• increasing competition from lower cost, private-label products;
• damage to the reputation of one or more of our leading brands;
• the impact of improvements in automotive parts on aftermarket demand for some of our products;
• industry-wide strikes, labor disruptions at our facilities or any labor or other economic disruptions at any of our significant customers or suppliers or any of our customers' other suppliers;
• developments relating to our intellectual property, including our ability to changes in technology;
• costs related to product warranties and other customer satisfaction actions;
• the failure or breach of our information technology systems, including the consequences of any misappropriation, exposure or corruption of sensitive information stored on such systems and the interruption to our business that such failure or breach may cause;
• the impact of consolidation among vehicle parts suppliers and customers on our ability to compete in the highly competitive automotive and commercial vehicle supplier industry;
• changes in distribution channels or competitive conditions in the markets and countries where we operate;
• the evolution towards autonomous vehicles and car and ride sharing;
• customer acceptance of new products;
• our ability to successfully integrate, and benefit from, any acquisitions that we complete;
• our ability to effectively manage our joint ventures and other third-party relationships;
• the potential impairment in the carrying value of our long-lived assets and goodwill or our deferred tax assets;
• the negative impact of fuel price volatility on transportation and logistics costs, raw material costs, discretionary purchases of vehicles or aftermarket products and demand for off-highway equipment;
• increases in the costs of raw materials or components, including our ability to successfully reduce the impact of any such cost increases through materials substitutions, cost reduction initiatives, customer recovery and other methods;
• changes by the Financial Accounting Standards Board ("FASB") or the Securities and Exchange Commission ("SEC") of generally accepted accounting principles or other authoritative guidance;
• changes in accounting estimates and assumptions, including changes based on additional information;
• any changes by the International Organization for Standardization ("ISO") or other such committees in their certification protocols for processes and products, which may have the effect of delaying or hindering our ability to bring new products to market;
• the impact of the extensive, increasing and changing laws and regulations to which we are subject, including environmental laws and regulations, which may result in our incurrence of environmental liabilities in excess of the amount reserved or increased costs or loss of revenues relating to products subject to changing regulation;
• potential volatility in our effective tax rate;
• disasters, local and global public health emergencies or other catastrophic events, such as fires, earthquakes, and flooding, pandemics or epidemics, where we or other customers do business, and any resultant disruptions in the supply or production of goods or services to us or by us, in demand by our customers or in the operation of our system, disaster recovery capabilities or business continuity capabilities;
• acts of war and/or terrorism, as well as actions taken or to be taken by the United States and other governments as a result of further acts or threats of terrorism, and the impact of these acts on economic, financial and social conditions in the countries where we operate;
• pension obligations and other postretirement benefits;
• our hedging activities to address commodity price fluctuations; and
• the timing and occurrence (or non-occurrence) of other transactions, events and circumstances which may be beyond our control.

In addition, this release includes forward-looking statements regarding the Company's ongoing review of strategic alternatives and the planned separation of the Company into a powertrain technology company and an aftermarket and ride performance company. Important factors that could cause actual results to differ materially from the expectations reflected in the forward-looking statements, include:

• the ability to identify and consummate strategic alternatives that yield additional value for shareholders;
• the timing, benefits and outcome of the Company's strategic review process;
• the structure, terms and specific risk and uncertainties associated with any potential strategic alternative;
• potential disruptions in our business and stock price as a result of our exploration, review and pursuit of any strategic alternatives;
• the risk that the company may not complete a separation of its powertrain technology business and its aftermarket and ride performance business;
• the risk that the combined company and each separate company following the separation will underperform relative to our expectations;
• the ongoing transaction costs and risk that we may incur greater costs following the separation of the businesses;
• the risk the spin-off is determined to be a taxable transaction;
• the risk the benefits of the separation may not be fully realized or may take longer to realize than expected;
• the risk the separation may not advance our business strategy; and
• the risk the transaction may have an adverse effect on existing arrangements with us, including those related to transition, manufacturing and supply services and tax matters; our ability to retain and hire key personnel; or our ability to maintain relationships with customers, suppliers or other business partners.

The risks included here are not exhaustive.  The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date of this press release. Additional information regarding these risk factors and uncertainties is, and will be, detailed from time to time in the company's SEC filings, including but not limited to its annual report on Form 10-K for the year ended December 31, 2018 and the Form 10-Q for the quarter ended September 30, 2019.   

Investor inquiries:
Linae Golla
847-482-5162
lgolla@tenneco.com

Rich Kwas
248-849-1340
rich.kwas@tenneco.com

Media inquiries:
Bill Dawson
847-482-5807
bdawson@tenneco.com