LAKE FOREST, Ill. – Tenneco Inc. has reported third quarter net income of $125 million, or $2.05 per diluted share, which includes a benefit of $74 million, or $1.22 per diluted share, primarily related to the reversal of a U.S. tax valuation allowance. On an adjusted basis, net income rose to $52 million, or 85-cents per diluted share, compared with $42 million, or 67-cents per diluted share, a year ago.
Total revenue in the quarter was $1.778 billion, compared with $1.773 billion in third quarter 2011. Tenneco said this revenue increase was driven primarily by strong OE light vehicle production volumes in North America and China, and incremental commercial vehicle revenue. In the third quarter, total OE commercial and specialty vehicle revenue increased 8 percent year-over-year to $184 million, and represented approximately 10 percent of total revenue.
Cash generated from operations was $118 million in the quarter, a 48 percent year-over-year improvement from $80 million. The strong performance was driven by higher earnings and effective working capital management, particularly in inventories, the company said.
Tenneco says it continued to strategically invest in growth with capital expenditures in the quarter of $65 million, up from $50 million the prior year. The majority of spending was to support OE light and commercial vehicle program launches and new customer growth.
Tenneco’s net debt at Sept. 30, 2012, was $1.138 billion, versus $1.141 billion the prior year.
“Our North America and China operations drove revenue growth this quarter as we successfully capitalized on stronger light vehicle production volumes and benefited from higher global commercial vehicle revenue versus a year ago,” said Gregg Sherrill, chairman and CEO, Tenneco. “We delivered higher earnings and very good margins despite facing economic headwinds in Europe and South America. We also had a strong cash quarter on the strength of our earnings and working capital improvements."
According to IHS Automotive forecasts, fourth quarter industry light vehicle production in the markets where Tenneco operates will be essentially flat year-over-year. Industry production in North America and China is forecasted to strengthen in the fourth quarter versus last year, while Europe is expected to decline.
In North America, the company expects to leverage stronger industry light vehicle production volumes to drive year-over-year revenue growth. North America aftermarket revenue is expected to be in line with a strong fourth quarter a year ago.
Tenneco says its operations in China will drive results for the Asia Pacific region as the company expects fourth quarter revenue to increase versus last year. Tenneco’s strong position with market-leading OE customers in China and a forecasted rise in industry light vehicle production will drive the increase.
In the Europe, South America and India segment, Tenneco expects sustained economic weakness in Europe to negatively impact the segment results. According to IHS Automotive, Europe industry light vehicle production is forecasted to decline 10 percent in the fourth quarter. While Tenneco enjoys a strong customer and platform position, the company anticipates lower year-over-year revenue in both OE businesses due to the industry decline. Economic weakness throughout the region also will continue to impact the Europe aftermarket.
In light of this weak industry environment, the company announced in the third quarter its intention to close an aftermarket manufacturing facility in Vittaryd, Sweden, which would eliminate 122 positions. This is a first step in Tenneco’s plans to further reduce fixed costs and better align its operations with the market in response to the ongoing economic challenges in Europe.
Commercial vehicle markets around the world continue to be softer than anticipated, and this weakness is expected to continue. For the fourth quarter, Tenneco estimates that revenue from its commercial and specialty vehicle business will be about even with the third quarter, which would result in approximately a 25 percent year-over-year increase in commercial vehicle revenue for the full year.
Tenneco is launching a strong book of business with leading commercial vehicle customers worldwide, which positions the company to capitalize on stronger volumes when industry production recovers. In the third quarter, the company further strengthened its position with the opening of its first manufacturing facility in Japan to supply diesel aftertreatment systems to Kubota, a leading global manufacturer of commercial vehicle engines and equipment. Tenneco also announced that it will supply Scania with Euro VI on-road diesel aftertreatment systems in Europe and diesel aftertreatment in South America.
