LAKE FOREST, Ill. — Tenneco has reported a third quarter net loss of $8 million, or 17 cents per diluted share, compared with a loss of $136 million, or $2.92 per diluted share in third quarter 2008. Adjusted for the items below, net income was $3 million, or 7 cents per diluted share, versus net income of less than $1 million, or 1 cent per diluted share a year ago.
EBIT (earnings before interest, taxes and non-controlling interests) was $35 million, up 25 percent over $28 million a year ago. Adjusted EBIT was $46 million, up 36 percent from $34 million in third quarter 2008. EBITDA including non-controlling interests (EBIT before depreciation and amortization) was $90 million, an increase over $84 million in third quarter 2008. Adjusted EBITDA including non-controlling interests was $101 million, compared with $90 million a year ago.
“The actions we have taken to help counter overall weak industry conditions helped improve our profitability this quarter and position Tenneco to capitalize on an improving production environment going forward. We were also encouraged by our stronger sequential revenue improvement this quarter versus last,” said Gregg Sherrill, chairman and CEO, Tenneco. “Our results are a testament to the hard work of our employees worldwide who have done an outstanding job executing on our cost management and cash generation initiatives while continuing to develop and deliver quality products and services to our customers.”
Third quarter 2009 revenue was $1.254 billion, down from $1.497 billion in third quarter 2008 but up from $1.106 billion in second quarter 2009. Excluding the negative currency impact of $63 million and substrate sales, revenue was $1.058 billion, down 6 percent from $1.129 billion the prior year. The year-over-year revenue decrease was primarily driven by lower OE production volumes in Europe, North America and Australia and declining Europe aftermarket sales, partially offset by stronger OE production volumes in China and South America and higher North America aftermarket sales.
Gross margin in the quarter was 16.8 percent, an improvement versus 13.3 percent a year ago despite higher year-over-year restructuring costs in third quarter 2009. The gross margin performance was driven by the benefits of restructuring actions implemented in 2008, cost reductions including temporary salary reductions, efficiency improvements, managing material costs and lower substrate sales as a percent of revenue versus a year ago.
SGA&E (selling, general, administrative and engineering) expense was $117 million, relatively even with $116 million in third quarter 2008. Tenneco realized savings from its restructuring and cost reduction actions, including the temporary salary reductions and 401(k) match suspension. Higher year-over-year expense for other compensation related costs and the 2008 Marzocchi acquisition offset these savings. SGA&E as a percent of sales increased to 9.3 percent from 7.7 percent a year ago due to lower year-over-year revenues. SGA&E in third quarter 2008 included $3 million in restructuring and related costs.
The company’s continued emphasis on generating cash resulted in $77 million in cash flow from operations in the quarter, compared with $40 million in third quarter 2008. The improved cash performance was driven by working capital improvements, particularly in inventory and from increased use of the available accounts receivable securitization programs.
The company’s worldwide factored receivables were $208 million as of Sept. 30 compared with $226 million a year ago and up from $172 million at June 30 of this year. Factored receivables had a cash flow impact of $36 million in the quarter, compared with $10 million a year ago.
Capital spending was $22 million in the quarter. Tenneco continues to closely manage and prioritize spending without compromising investments needed for new business launches, technology development and future growth opportunities including redeploying available capacity to commercial vehicle applications. The company now expects that its capital spending will be approximately $125 million for 2009.
At Sept. 30, Tenneco’s leverage ratio under its senior credit facility was 5.17, below the maximum level of 7.90. The interest coverage ratio was 2.16, above the minimum of 1.55. At the end of the quarter, Tenneco had an EBITDA cushion of $74 million against its tightest ratio.
The company continued to strengthen its liquidity in the quarter and reduced net debt by $66 million year-over-year.
Tenneco said it expects that fourth quarter industry production in North America and Europe will increase sequentially; China and India will continue to see robust light vehicle production growth year-over-year; and the global aftermarket will remain stable year-over-year, following its typical seasonal pattern.
Given the company’s cash flow and earnings performance, coupled with this more stable industry outlook, Tenneco is announcing that effective Oct. 1, it has begun restoring salaries for all salaried employees worldwide, which were reduced approximately 10 percent on April 1. This temporary action delivered about $7 million in savings in both the second and third quarters of 2009.
“We are confident that we will see a more positive overall production environment going forward in the fourth quarter and into next year, albeit with some caution in Europe as the various countries’ scrappage incentives come to an end,” Sherrill said. “We will stay focused on executing our program launches, flexing operations as required and continue driving our cost and cash management processes.”
“The operational improvements we have made over the past year will allow us to leverage our performance during an industry recovery,” said Sherrill. “Our growth plans are on track and we continue to invest the necessary resources to support that growth, especially in the commercial vehicle market and in rapidly growing markets such as China.”