NYSE: TEN
October 26, 2018
Third Quarter Earnings Conference Call
1
TENNECO INC. Q3 2018 EARNINGS
Third Quarter Earnings Conference Call October 26, 2018 NYSE: TEN - - PowerPoint PPT Presentation
Third Quarter Earnings Conference Call October 26, 2018 NYSE: TEN TENNECO INC. Q3 2018 EARNINGS 1 Safe Harbor Forward-Looking Statements This communication contains forward-looking statements. These forward-looking statements include, but are
1
TENNECO INC. Q3 2018 EARNINGS
2 This communication contains forward-looking statements. These forward-looking statements include, but are not limited to, (i) all statements,
anticipate will or may occur in the future or that depend on future events and (ii) statements about our future business plans and strategy and
“believe,” “should,” “could,” “plan,” “expect,” “anticipate,” “estimate,” and similar expressions (and variations thereof) are intended to identify forward-looking statements. Forward-looking statements included in this communication concern, among other things, benefits of the Federal-Mogul acquisition; the combined company’s plans, objectives and expectations; future financial and operating results; and other statements that are not historical facts. Forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to materially differ from those described in the forward-looking statements, including the outcome of any legal proceeding that may be instituted against Tenneco and others following the announcement of the transaction; the possibility that the combined company may not complete the spin-off of the Aftermarket & Ride Performance business from the Powertrain Technology business (or achieve some or all of the anticipated benefits of such a spin-off); the possibility that the transaction may have an adverse impact on existing arrangements with Tenneco, including those related to transition, manufacturing and supply services and tax matters; the ability to retain and hire key personnel and maintain relationships with customers, suppliers or other business partners; the risk that the benefits of the transaction, including synergies, may not be fully realized or may take longer to realize than expected; the risk that the transaction may not advance the combined company’s business strategy; the risk that the combined company may experience difficulty integrating or separating all employees or
cautionary statements included in Tenneco’s periodic and current reports (Forms 10-K, 10-Q and 8-K) filed from time to time with the SEC. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Unless otherwise indicated, the forward-looking statements in this release are made as of the date of this communication, and, except as required by law, Tenneco does not undertake any obligation, and disclaims any obligation, to publicly disclose revisions or updates to any forward-looking statements. In addition, please see Tenneco’s financial results press release for factors that could cause Tenneco’s future performance to vary from the expectations expressed or implied by the forward-looking statements herein.
Forward-Looking Statements
TENNECO INC. Q3 2018 EARNINGS
Co-Chief Executive Officer
Chief Financial Officer
Co-Chief Executive Officer
3
TENNECO INC. Q3 2018 EARNINGS
Non-GAAP Results: Please see the tables that reconcile GAAP results with non-GAAP results at the end of this presentation and in Tenneco’s financial results press release, which is incorporated herein by reference.
4
– Commercial truck and off-highway revenue up 27% – Light vehicle industry production down 2% globally
Strong organic growth outpaced industry production by 9 percentage points
TENNECO INC. Q3 2018 EARNINGS
**IHS light vehicle production forecast and Tenneco estimates
* Organic revenue growth is measured at constant currency rates and excludes acquisitions and divestitures.
5
TENNECO INC. Q3 2018 EARNINGS
Chinese OEMs underperforming LV production
JVs and select domestic OEMs
disruptions and diesel declines
platform mix is relatively neutral
by passenger car diesel mix
‒ passenger cars weak with YoY declines ‒ light trucks strong YoY growth
trend with > 80% pickups and SUVs
strength
6
Organic growth in all product applications; strong growth in commercial truck and off-highway
* In constant currency
TENNECO INC. Q3 2018 EARNINGS
RECORD
VA REVENUE YOY comparison
Light Vehicle 2%* Commercial Truck 23%* Off-Highway 25%* Aftermarket 1%*
VA REVENUE by product application
CA LV 47% RP LV 22% CT 6% OH 7% AM 18%
Q3 2018
**IHS light vehicle production forecast and Tenneco estimates
7
TENNECO INC. Q3 2018 EARNINGS
applications (constant currency)
– Steel economics and tariff costs increased, 30bps impact on YoY margins – Currency a negative 20bps impact on YoY margins, primarily Argentina transactional Fx
RECORD
Q3 Commercial Highlights
incremental), with leading global and domestic OEMs
commercial truck programs
YTD 2018 total of 9 hybrid program awards
8
TENNECO INC. Q3 2018 EARNINGS
Light Vehicle 83% OH 12% CT 5%
VA REVENUE by product application Q3 2018
Light Vehicle + 2%* VA Revenue $831M
Americas
+ 7%*
EMEA
+ 3%*
and Ford. APAC
CTOH + 25%* VA Revenue $175M
Americas
+ 35%*
and John Deere EMEA
+ 33%*
APAC
flat*
* In constant currency
9
Light Vehicle + 3%* VA Revenue $394M
Americas
+ 7%*
EMEA
APAC
+ 5%*
LV Conventional 78% CTOH 15%
CTOH + 21%* VA Revenue $67M
Americas
+ 21%*
and Hendrickson EMEA
+ 16%*
Paccar and Scania
* In constant currency
TENNECO INC. Q3 2018 EARNINGS
VA REVENUE by product application Q3 2018
LV Intelligent Suspension 7%
and close 2 plants -- expect savings of $20M to $25M by end of 2020
Q3 Commercial Highlights
suspension, 1 incremental
launches, 1 incremental
India continue to drive revenue growth above production growth
Q3 Commercial Highlights
Monroe Installers, and expanded coverage with 120 new SKUs launched
with 160 ride control SKUs launched
key distribution gains in South America and North America
Americas 74% EMEA 21%
10
TENNECO INC. Q3 2018 EARNINGS
VA REVENUE by region Q3 2018
AP 5%
Americas
+ 2%*
continue to trend up through Q3
EMEA
continues in established markets (Germany); Turkey economic issues weigh down revenue
APAC + 9%*
India
* In constant currency
11
– Clean Air $1M – Ride Performance $10M, primarily related to the accelerated move of our Beijing Ride Performance plant and North America cost reductions – Aftermarket $1M
– $12M acquisition advisory costs – $4M structural cost reductions in advance of closing, primarily for salaried headcount reduction
TENNECO INC. Q3 2018 EARNINGS
12
TENNECO INC. Q3 2018 EARNINGS
– $6M for acquisition-related costs – $2M for litigation settlement
– China high-tech designation secured in Q3 and benefitted the ETR in the quarter
13
– Q3 results reflect investment in working capital to support revenue growth and cash payments for transaction costs
– Q3 spending $15M lower compared to last year
– Board of Directors approved Q4 dividend of $0.25/share to be paid in December for $20M ($0.25 x 81M shares outstanding) – Will evaluate future return of capital to shareholders via share repurchases
Evaluating best allocation of capital to enhance shareholder value
TENNECO INC. Q3 2018 EARNINGS
14
$ Millions
September 30, 2018 2017
Total Debt
$1,544 $1,681
Cash Balances(1)
203 279
Net Debt
$1,341 $1,402
TENNECO INC. Q3 2018 EARNINGS * Including noncontrolling interests.
(1) Includes restricted cash
15
* Organic revenue growth is measured at 2017 constant currency rates
and excludes acquisitions and divestitures.
▲ At 9/30/2018 currency rates for Q4
** IHS October 2018 global light vehicle production and Tenneco estimates. *** Excluding discrete tax items
† Including noncontrolling interests
See slide 23 for Tenneco Projections
TENNECO INC. Q3 2018 EARNINGS
VA adjusted EBITDA† margin 11.0% - 11.4% Capital expenditures $260M - $280M Interest expense $72M - $76M Effective tax rate*** 25% - 28% Cash tax payments $45M - $55M Noncontrolling interests $18M - $22M
$2.4B +3%
~$1.9B ~$4.3B
Q4 2017 TEN Q4 2018 TEN Currency▲ Organic* Growth
industry production by 2 percentage points
‒ Organic* revenue growth +3% ‒ Industry production +1%**
Federal- Mogul Acquisition
TEN and FM Combined – Q4 Outlook
16
TENNECO INC. Q3 2018 EARNINGS
$9.3B +6%
Currency ~ neutral
~$1.9B ~$11.8B
2017 TEN 2018 TEN Federal- Mogul Acquisition Currency▲ Organic* Growth
growth to outpace industry production by 5% (previous +3%)
‒ Organic* revenue growth +6% ‒ Industry production +1%**
EBITDA† margin of 11.3% - 11.5%
‒ Legacy TEN VA adjusted EBIT margin at ~8.5%, which is within the previous guidance range
* Organic revenue growth is measured at 2017 constant currency rates
and excludes acquisitions and divestitures.
▲ At 9/30/2018 currency rates for Q4
** IHS October 2018 global light vehicle production and Tenneco estimates.
† Including noncontrolling interests
See slide 23 for Tenneco Projections
17
– Clean Air – Ride Performance – Aftermarket – FM Powertrain – FM Motorparts
Establishing expectations for reporting new companies during the transition period
TENNECO INC. Q3 2018 EARNINGS
– Clean Air – Powertrain – Aftermarket – Original Equipment Legacy TEN Legacy FM SpinCo New Tenneco
Q4 2018 Reporting Q1 2019 Reporting
18
– Integration update – on track to achieve forecasted earnings and working capital synergies – Preliminary Form 10 – Financing for SpinCo
– Brian Kesseler, Chairman & CEO – Senior leadership team established and named – SpinCo should be named by early 2019
– Roger Wood, Chairman & CEO – Both division leaders and HR leader named – Remaining leadership to be named by early 2019
Separation into two publicly traded companies expected to be complete late 2019
TENNECO INC. Q3 2018 EARNINGS
19
Global 2018 light vehicle production now forecast up 1% YoY; largest 3 regions flat
Major Regions Q3 ’ 18 Q4 ’ 18 FY ’ 18
North America
2% 3% 0%
South America
2% 7% 7%
Europe
0% 0%
China
0%
India
7% 3% 8%
Global LV Industry Production
1% 1%
Source: IHS Automotive October 2018 global light vehicle production forecast and Tenneco estimates. TENNECO INC. Q3 2018 EARNINGS
20
TENNECO INC. Q3 2018 EARNINGS
(Amounts in $millions)
Coupon/Spread Maturity Date $1,500 Revolving Credit Facility* (New) LIB + 175 bps 10/01/2023 $1,700 Term Loan A (New) LIB + 175 bps 10/01/2023 $1,700 Term Loan B (New) LIB + 275 bps 10/01/2025 €415 Notes due 2022 (FM) 4.875% 04/15/2022 €300 Floating Notes due 2024 (FM) 4.875% 04/15/2024 €350 Notes due 2024 (FM) 5% 07/15/2024 $225 Notes due 2024 5.375% 12/15/2024 $500 Notes due 2026 5% 07/15/2026
$102 $102 $145 $685 $1,250 $1,022 $1,598 $500
400 800 1,200 1,600 2,000 2,400 2019 2020 2021 2022 2023 2024 2025 2026
$mm
TLA TLB Notes due 2022 (FM) Floating Notes due 2024 (FM) Notes due 2024 (FM) Notes due 2024 (TEN) Notes due 2026 (TEN)
*Available revolver
As of October 1, 2018
revolver as of October 1, 2018 (Federal-Mogul acquisition close)
to the combined company under new credit facility
21
Pension Q3 ’ 18
Tenneco only
Q4 ’ 18
Combined
Defined Benefit Expense* $4 $7 Defined Benefit Contributions $3 $16 OPEB Q3 ’ 18
Tenneco only
Q4 ’ 18
Combined
Expense $4 $6 Cash Payments $2 $9
* Does not include settlement or curtailment amounts. .
$ Millions
TENNECO INC. Q3 2018 EARNINGS
22
Q3 ’ 18 Q3 ’ 17 Change Total Revenue 2,372 2,274 4% Value-add Revenue
Δ
1,776 1,752 1% Adjusted EBIT † 149 154
Adjusted EBIT † (% of VA Revenue) 8.4% 8.8%
Adjusted EBITDA *† 207 211
Adjusted Net Income † 88 88 flat Adjusted EPS ($) † $1.70 $1.67 2% Cash Flow From Operations
25 NM Net Debt / Adjusted LTM EBITDA*† 1.5x 1.7x
Δ Value-add Revenue is total revenue less substrate sales. * Including noncontrolling interests. † See the tables that reconcile GAAP results with non-GAAP results in Tenneco’s financial results press release.
$ Millions, except as noted
TENNECO INC. Q3 2018 EARNINGS
23 Tenneco’s revenue outlook for Q4 2018 is as of October 2018. Revenue assumptions are based on projected customer production schedules, IHS Automotive October 2018 forecasts, Power Systems Research October 2018 forecasts and Tenneco estimates. In addition to the information set forth on slides 15 and 16, Tenneco’s projections are based on the type of information set forth under “Outlook” in Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as set forth in Tenneco’s Annual Report on Form 10-K for the year ended December 31, 2017. Please see that disclosure for further information. Key additional assumptions and limitations described in that disclosure include:
where the company is highly confident that it will be awarded business based on informal customer indications consistent with past practices; and Tenneco’s status as supplier for the existing program and its relationship with the customer.
the U.S. dollar .
the number of vehicles actually produced by our customers, and pricing. Certain elements of the restructuring and related expenses, legal settlements and other unusual charges we incur from time to time cannot be forecasted accurately. In this respect, we are not able to forecast EBIT or EBITDA (and the related margins) on a forward- looking basis without unreasonable efforts on account of these factors and the difficulty in predicting GAAP revenues (for purposes
through to our customers.
TENNECO INC. Q3 2018 EARNINGS