Tenneco Reports Fourth Quarter and Full-Year 2017 Results

• Record fourth quarter and full-year revenue; double-digit growth in commercial truck and off-highway
• Record fourth quarter EBIT and earnings per share
• Record fourth quarter and full year cash from operations
• Returned $222 million to shareholders in dividends and share repurchases in 2017

LAKE FOREST, Ill.--(BUSINESS WIRE)-- Tenneco (NYSE: TEN) reported fourth quarter net income of $68 million, or $1.33 per diluted share. Fourth quarter 2016 net income* was $38 million, or $0.69 per diluted share. Adjusted net income rose to a record $97 million, or $1.89 per diluted share, versus $90 million or $1.63 per diluted share last year*.

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Tenneco Revenue Outlook (Graphic: Business Wire)

Fourth Quarter Results

Revenue

Total revenue in the fourth quarter was a record $2.391 billion, up 11% year-over-year, with increases in both the Clean Air and Ride Performance product lines. On a constant currency basis, total revenue increased 7% driven by higher volumes and incremental content on light vehicle, commercial truck and off-highway applications.

In constant currency, value-add revenue grew 7% versus last year to $1.748 billion, with Ride Performance increasing 9% and Clean Air up 5%. Tenneco’s value-add revenue growth outpaced underlying industry production growth in all OE applications. Global aftermarket revenue was slightly higher versus a year ago.

"We delivered a quarter of strong organic growth with gains in both product lines and double-digit growth in commercial truck and off-highway revenue,” said Brian Kesseler, Tenneco CEO. “We continue to focus on converting top-line growth into higher earnings. This drove a strong increase in earnings, as well as record cash flow from operations in the quarter.”

Adjusted fourth quarter 2017 and 2016 results

EBIT and EBIT Margin*

Fourth quarter EBIT (earnings before interest, taxes and noncontrolling interests) was $135 million, versus $71 million a year ago. Adjusted EBIT increased 10% to $168 million compared with $153 million last year, driven by revenue gains in all end-market applications.

In the fourth quarter 2017, Tenneco EBIT as a percent of revenue was 5.6%, and adjusted EBIT as a percent of value-add revenue was 9.3%, in line with prior year.

Fourth quarter EBIT margin

Cash

Cash generated by operations in the quarter was $466 million, up 86% versus $251 million last year. The cash performance in the quarter was driven by higher earnings and improved working capital management and included $107 million from an additional accounts receivable securitization program established in the fourth quarter.

During the quarter, the company returned $51 million to shareholders, including the repurchase of approximately 627,000 shares of common stock for $38 million, and a dividend payment of 25-cents per share, for $13 million.

Full-Year Results

Adjusted full year 2017 and 2016 results

Revenue

For the full year, total revenue was a record high $9.274 billion. In constant currency, total revenue and value-add revenue each increased 7% to $9.188 billion and $7.018 billion, respectively, significantly outpacing industry production growth. Tenneco’s revenue growth was driven by stronger volumes and higher content on light vehicle, commercial truck and off-highway applications in all regions.

EBIT and EBIT margin*

Full-year EBIT was $417 million, versus $516 million a year ago. Adjusted EBIT rose 4% to $647 million.

EBIT as a percent of revenue was 4.5%. Adjusted EBIT as a percent of value-add revenue was 9.1%.

EBIT was impacted primarily by charges for restructuring and related costs and an antitrust settlement accrual.

Cash

Cash generated by operations for the full year improved 30% to $629 million, compared with $484 million last year.

In 2017, Tenneco returned $222 million to shareholders, including the repurchase of approximately 2.9 million shares of common stock for $169 million, and dividend payments of $53 million.

OUTLOOK

First quarter 2018

Tenneco expects constant dollar total revenue growth of 3% in the first quarter 2018, outpacing a flat** light vehicle industry production growth forecast. The company expects organic growth to outpace the industry with revenues driven by the ramp up of recently launched programs and Tenneco’s strong position on light vehicle platforms globally, double-digit year-over-year growth in commercial truck and off-highway revenues and a solid contribution from the global aftermarket.

Full year 2018 and Mid-Term Revenue Outlook

In 2018, the company expects 5% organic growth, outpacing industry production by 3 percentage points, with increases in both the Ride Performance and Clean Air product lines. The company expects organic growth to be driven by:

• Content growth on light and commercial vehicle platforms;
• The continued industry recovery in regulated off-highway regions.

Assumptions for the 2018 revenue outlook include:

• Global industry light vehicle production +2%**
• Global commercial truck production about flat**
• Off-highway engine production in regulated regions up by low double-digits**
• Organic growth is net of OE price downs
• Substrates estimated at 24% - 25% of total revenue

In 2019 and 2020, Tenneco expects revenue growth will continue to outpace industry production. In those years, the company expects organic growth of 6% - 8% in 2019, and 5% - 7% in 2020, including the current forecasted global light vehicle production growth of 2% in each year.

“Tenneco is well-positioned to accelerate our proven track record of growth,” said Kesseler. “We expect our diverse business portfolio and multiple, sustainable growth drivers will continue to drive results that support investments in future growth and enhance returns to shareholders.”

In 2018, Tenneco expects:

• Capital expenditures between $380 million and $410 million;
• Annual interest expense between $75 million and $80 million;
• Cash taxes between $105 million and $125 million;
• Full year tax rate between 23% and 25%.

*Year-over-year earnings comparisons reflect revisions to prior period financial results for certain immaterial adjustments as described in Tenneco’s form 10K/A for the year ended December 31, 2016.

** Industry production estimates based on IHS Automotive January 2018 global light vehicle production forecast, Power Systems Research (PSR) January 2018 global commercial truck and bus production report and customer production schedules and Tenneco estimates for off-highway engine production in North America and Europe.

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 Net Income to EBITDA including noncontrolling interests – 3 Months
Reconciliation of GAAP to Non-GAAP Earnings Measures – 3 Months
Reconciliation of GAAP Net Income to EBITDA including noncontrolling interests – 12 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 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 and other revenues – 3 Months and 12 Months

CONFERENCE CALL

The company will host a conference call on Friday, February 9, 2018 at 9:00 a.m. ET. The dial-in number is 866-807-9684 (domestic) or 412-317-5415 (international). The passcode is Tenneco Inc. Call. 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 February 9, 2018 through February 16, 2018. To access this recording, dial 877-344-7529 (domestic) or 412-317-0088 (international) or (855) 669-9658 (Canada). The replay access code is 10115986. The purpose of the call is to discuss the company’s operations for the last fiscal quarter and year ending 2017, as well as provide updated information regarding matters impacting the company’s outlook. A copy of the press release is available on the financial and news sections of the Tenneco web site.

ANNUAL MEETING

The Tenneco Board of Directors has scheduled the corporation’s annual meeting of shareholders for Wednesday, May 16, 2018 at 10:00 a.m. CT. The meeting will be held at the corporate headquarters, 500 North Field Drive, Lake Forest, Illinois. The record date for shareholders eligible to vote at the meeting is March 19, 2018.

Tenneco is a $9.3 billion global manufacturing company with headquarters in Lake Forest, Illinois and approximately 32,000 employees worldwide. Tenneco is one of the world’s largest designers, manufacturers and marketers of ride performance and clean air products and systems for automotive and commercial vehicle original equipment markets and the aftermarket. Tenneco’s principal brand names are Monroe®, Walker®, XNOx™ and Clevite®Elastomer.

Revenue estimates 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.These revenue estimates are also based on anticipated vehicle production levels and pricing, including precious metals pricing and the impact of material cost changes. Unless otherwise indicated, our revenue estimate methodology does not attempt to forecast currency fluctuations, and accordingly, reflects constant currency. For certain additional assumptions upon which these estimates are based, see the slides accompanying the February 9, 2018 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.Words such as “may,” “expects,” “anticipate,” “projects,” “will,” “outlook” and similar expressions identify forward-looking statements. These forward-looking statements are based on the current expectations of the company (including its subsidiaries). Because these forward-looking statements involve risks and uncertainties, the company's plans, actions and actual results could differ materially. Among the factors that could cause these plans, actions and results to differ materially from current expectations are:

(i) general economic, business and market conditions;

(ii) the company’s ability to source and procure needed materials, components and other products and services in accordance with customer demand and at competitive prices;

(iii) 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;

(iv) changes in capital availability or costs, including increases in the company's costs of borrowing (i.e., interest rate increases), the amount of the company's debt, the ability of the company to access capital markets at favorable rates, and the credit ratings of the company’s debt;

(v) changes in consumer demand, prices and the company’s ability to have our products included on top selling vehicles, including any shifts in consumer preferences to lower margin vehicles, for which we may or may not have supply arrangements;

(vi) changes in automotive and commercial vehicle manufacturers' production rates and their actual and forecasted requirements for the company's products such as the significant production cuts during recent years by automotive manufacturers in response to difficult economic conditions;

(vii) the overall highly competitive nature of the automobile and commercial vehicle parts industries, and any resultant inability to realize the sales represented by the company’s awarded book of business which is based on anticipated pricing and volumes over the life of the applicable program;

(viii) the loss of any of our large original equipment manufacturer (“OEM”) customers (on whom we depend for a substantial portion of our revenues), or the loss of market shares by these customers if we are unable to achieve increased sales to other OEMs or any change in customer demand due to delays in the adoption or enforcement of worldwide emissions regulations;

(ix) the company's continued success in cost reduction and cash management programs and its ability to execute restructuring and other cost reduction plans, including our current cost reduction initiatives, and to realize anticipated benefits from these plans;

(x) risk inherent in operating a multi-national company, including economic conditions, such as currency exchange and inflation rates, and political environments in the countries where we operate or sell our products, adverse changes in trade agreements, tariffs, immigration policies, political stability, and tax and other laws, and potential disruption of production and/or supply;

(xi) workforce factors such as strikes or labor interruptions;

(xii) increases in the costs of raw materials, including the company’s ability to successfully reduce the impact of any such cost increases through materials substitutions, cost reduction initiatives, customer recovery and other methods;

(xiii) 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;

(xiv) the cyclical nature of the global vehicular industry, including the performance of the global aftermarket sector and longer product lives of automobile parts;

(xv) product warranty costs;

(xvi) the failure or breach of our information technology systems and the consequences that such failure or breach may have to our business;

(xvii) the company's ability to develop and profitably commercialize new products and technologies, and the acceptance of such new products and technologies by the company's customers and the market;

(xviii) changes by the Financial Accounting Standards Board or other accounting regulatory bodies to authoritative generally accepted accounting principles or policies;

(xix) changes in accounting estimates and assumptions, including changes based on additional information;

(xx) 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;

(xxi) natural disasters, acts of war and/or terrorism and the impact of these occurrences or acts on economic, financial, industrial and social condition, including, without limitation, with respect to supply chains and customer demand in the countries where the company operates; and

(xxii) the timing and occurrence (or non-occurrence) of transactions and events which may be subject to circumstances beyond the control of the company and its subsidiaries.

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 detailed from time to time in the company's SEC filings, including but not limited to its annual report on Form 10-K/A for the year ended December 31, 2016, and its quarterly report on Form 10-Q for the quarter ended September 30, 2017.