Tenneco Inc. has reported third quarter net income of $60 million, or $1.15 per diluted share in 2018, versus $83 million, or $1.57 per diluted share in the third quarter of 2017. Third quarter 2018 adjusted net income was $88 million, or $1.70 per diluted share, compared with $88 million, or $1.67 per diluted share in the third quarter of 2017.
Total revenue in the third quarter of 2018 was $2.372 billion, up 4 percent year-over-year, with growth in the Clean Air and Ride Performance segments. On a constant currency basis, total revenue increased 7 percent driven by strong commercial truck and off-highway volumes and new business and incremental content on light vehicles.
On a constant currency basis, value-add revenue increased 5 percent to $1.776 billion in 2018, significantly outpacing industry production.* Clean Air and Ride Performance revenues increased 6 percent and 5 percent, respectively, while Aftermarket revenue was up 1 percent compared to last year.
Third quarter 2018 EBIT (earnings before interest, taxes and non-controlling interests) was $111 million, compared to $134 million last year. Adjusted EBIT in 2018 was $149 million, versus $154 million last year. Volume increased in both light vehicle and commercial truck and off-highway applications. Tariff-driven steel commodity costs and currency exchange rates impacted EBIT and margin results in the third quarter of 2018.
“Tenneco delivered a solid quarter of strong growth, outpacing industry production by nine percentage points, including double-digit growth in commercial truck and off-highway revenue,” said Brian Kesseler, co-CEO Tenneco. “The strength of Tenneco’s diversified business profile helped mitigate many dynamic economic factors, and I am pleased with our execution and continued focus on operational improvements and cost recoveries.”
Fourth Quarter Outlook
In the fourth quarter, Tenneco expects constant currency organic revenue growth in its legacy business of 3 percent, outpacing forecasted light vehicle industry production growth of 1 percent*. Tenneco anticipates currency will have a negative impact on revenue of 3 percent, based on exchange rates as of Sept. 30, 2018. With the closing of the Federal-Mogul acquisition, Tenneco expects approximately $1.9 billion of additional revenue from Federal-Mogul operations in the fourth quarter.
The company expects fourth quarter combined Tenneco and Federal-Mogul value-add adjusted EBITDA margin in the range of 11 to 11.4 percent.
Full Year Outlook
For the full year, Tenneco is raising its revenue guidance and now expects constant currency organic revenue growth in its legacy business of 6 percent, outpacing industry production by 5 percentage points. The company expects full year revenue of approximately $11.8 billion, reflecting this strong organic growth as well as Federal-Mogul revenue from the date of acquisition.
For the full year, the company expects Tenneco value-add adjusted EBITDA margin, including Federal-Mogul from the date of acquisition, in the range of 11.3 to 11.5 percent.
Acquisition of Federal-Mogul LLC
During a special meeting of stockholders held Sept. 12, Tenneco stockholders approved all of the proposals related to the acquisition of Federal-Mogul. The acquisition was officially completed on Oct. 1.
Company to Restructure North America Ride Control Operations
Tenneco also announced it will close its original equipment (OE) ride control plants in Owen Sound, Ontario and Hartwell, Georgia, as part of an initiative to realign its manufacturing footprint to enhance operational efficiency and respond to changing market conditions and capacity requirements.
The company expects to begin transferring current customer business primarily to its ride control facility in Kettering, Ohio, later this year. Tenneco says it expects to complete the closure of the two facilities near the end of the second quarter of 2020.
“Today’s actions to realign our North American ride control operations will strengthen our long-term competitiveness in this critically important region,” said Kesseler. “We recognize the impact this action will have on our employees, and are working with the local communities to provide transition assistance for all affected employees, including opportunities to transfer to other Tenneco locations.”
The company estimates that these restructuring actions will generate between $20 million and $25 million in annualized savings beginning by the end of 2020. Restructuring and related charges are expected to be in the range of $70 million and $85 million, with $20 million to $30 million occurring in the fourth quarter of 2018. The charges comprise between $40 million and $50 million of cash expenditures (including severance payments to employees, the cost of decommissioning and starting up equipment, and other costs associated with this action) and between $30 million and $35 million of non-cash asset write-downs and other costs.
*Source: IHS Automotive October 2018 global light vehicle production forecast and Tenneco estimates.