LAKE FOREST, IL — Tenneco Automotive has reported third quarter net income of $10 million, or 23 cents per diluted share, up from net income of $6 million, or 14 cents per diluted share in third quarter 2004. Adjusted for the items below, net income rose to $12 million, or 27 cents per diluted share, compared with $7 million, or 16 cents per diluted share a year ago.
The company reported third quarter revenue of $1.096 billion, up from $996 million a year ago. EBIT (earnings before interest, taxes and minority interest) was $50 million compared with $44 million in third quarter 2004. EBITDA (EBIT before depreciation and amortization) was $94 million, up from $86 million the previous year. On an adjusted basis, EBIT was $52 million, up from $46 million a year ago and EBITDA was $96 million, 10 percent higher than $88 million the previous year.
Quarterly revenue of $1.096 billion was the company’s 14th consecutive quarter of year-over-year revenue growth. The increase over $996 million in third quarter 2004 was driven by higher global original equipment (OE) production volumes and $19 million in favorable currency.
The company said its performance in the third quarter was driven by its platform mix with products on strong selling vehicles globally; improved aftermarket ride control volumes in North America and Europe; benefits from the company’s ongoing manufacturing efficiency programs; and reduced costs through tight controls on discretionary spending. These efforts helped offset the negative impact of higher material costs and higher transportation costs due to fuel surcharges.
“We delivered another solid quarter in spite of very challenging market conditions,” said Mark Frissora, chairman, CEO and president, Tenneco Automotive. “Our ability to execute on consistent strategies for growing the top-line while managing costs is proving successful despite lower OE industry production volumes in North America and Europe, our two largest markets, and the impact of higher material and fuel costs globally.”
Cash generated by operations in the quarter was $33 million, which on a year-over-year comparison basis includes a $9 million negative impact from the discontinuation of General Motor’s advanced payment program and a $20 million cash outflow for incremental pension contributions. Cash generated by operations was $76 million for the same period one year ago. The remaining difference in the year-over-year comparison was due to working capital requirements — primarily in accounts receivables — to support approximately $100 million in higher revenue in the quarter.
At quarter-end, total debt was $1.429 billion, compared with $1.423 billion the previous year. Debt net of cash was $1.340 billion versus $1.220 billion a year ago, primarily due to the discontinuation of advance payment programs by General Motors, Ford and DaimlerChrysler, which increased debt by $103 million over the last 12 months. Debt net of cash at June 30, 2005 was $1.346 billion.
During the quarter, Tenneco resolved a commercial lawsuit that is recorded as other income and settled a customer issue, which is netted against revenue. The net of these transactions had no financial impact on the company’s operating results.
The company’s gross margin decreased 1.2 percentage points year-over-year to 18.9 percent. Gross margin was negatively impacted by higher steel costs, fuel surcharges on transportation costs and a shifting business mix between Europe and North America, and between OE and aftermarket businesses. Additionally, resolution of the OE customer issue mentioned above reduced gross margin. These factors offset savings and improved efficiencies from Lean manufacturing, Six Sigma and other cost reduction initiatives.
Total steel cost increases in the third quarter were $33 million, which were largely offset by the company’s cost reduction efforts, including SGA&E restructuring savings, material cost savings, Six Sigma program savings and lean manufacturing efficiencies as well as steel cost recovery from OE and aftermarket customers. Based on the company’s efforts to offset increased steel costs and trends in the steel market, the company doesn’t currently anticipate a significant year-over-year impact on operating results through the remainder of 2005.
Sales, General, Administrative and Engineering (SGA&E) expense in the quarter was 10.8 percent of sales versus 11.3 percent a year ago. SGA&E improvement was driven by higher revenues, cutbacks on discretionary spending and benefits from previously announced restructuring programs.
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