Tenneco Inc. has reported second quarter 2019 revenue of $4.5 billion, a 78% increase versus $2.5 billion a year ago, which includes $1.9 billion from acquisitions. On a constant currency pro forma basis, total revenue increased 1% versus last year, while light vehicle industry production* declined 8% in the quarter. Value-add revenue for the second quarter was $3.7 billion.
The company reported net income for second quarter 2019 of $26 million, or 32 cents per diluted share. Second quarter 2018 net income was $47 million, or 92 cents per diluted share. Second quarter 2019 adjusted net income was $97 million, or $1.20 per diluted share, compared with $96 million, or $1.84 per diluted share last year. Diluted shares outstanding in the second quarter increased 57% to 80.9 million shares, from 51.6 million shares in the second quarter 2018, primarily due to the acquisition of Federal-Mogul. 
Second quarter EBIT (earnings before interest, taxes and noncontrolling interests) was $141 million including the acquired Federal-Mogul business, versus $111 million last year. EBIT as a percent of revenue was 3.1% versus 4.4% last year and compares to -0.5% last quarter.
Second quarter adjusted EBITDA was $414 million versus $233 million last year. Adjusted EBITDA as a percent of value-add revenue was 11.1%. Second quarter performance improved 240 basis points sequentially, compared to first quarter 2019, driven by the ramp up of synergy benefits and cost control initiatives. Cash generated from operations was $50 million.
“Tenneco’s revenue growth outpaced industry production by nine percentage points, driven by higher light vehicle, commercial truck and off-highway revenues,” said Brian Kesseler, co-CEO, Tenneco. “We delivered sequential earnings improvement on flat revenue quarter to quarter, with disciplined cost management and effective synergy capture actions.”
Outlook
Third Quarter 2019
Tenneco expects third quarter revenue in the range of $4.3 billion to $4.4 billion. Further, the company expects its third quarter adjusted EBITDA to be in the range of $390 million to $410 million, including year-over-year pro forma margin improvement of approximately 100 basis points in both the DRiV and New Tenneco divisions.
Full Year 2019
The company updated its 2019 full year outlook, and now expects:
- Total revenues in the range of $17.6 billion to $17.8 billion.
- Value-add revenues in the range of $14.6 billion to $14.8 billion
- Value-add adjusted EBITDA margin of 10.4% to 10.6%
- Adjusted EBITDA of $1,515 million to $1,565 million
- Interest expense of ~$335 million
- Cash taxes in the range of $180 million to $200 million
- Capital expenditures of ~$730 million
- Net debt/LTM adjusted EBITDA of 3.3x
“In the third quarter, we expect our revenues to outgrow the markets we serve,” said Roger Wood, co-CEO, Tenneco. “More importantly, we anticipate higher margins on a year-over-year basis in both divisions supported by operational performance improvements, synergy realization and our continued focus on eliminating waste and cost throughout the business.”
Leverage and Spin Update
The company confirmed its targeted timing for the separation of the business into two standalone companies and expects the DRiV spinoff to occur mid-2020. Management remains focused and committed to the separation of the businesses.
*Source: IHS Markit July 2019 global light vehicle production forecast and Tenneco estimates.
