Third Quarter Earnings Conference Call October 26, 2018 NYSE: TEN - - PowerPoint PPT Presentation

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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


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SLIDE 1

NYSE: TEN

October 26, 2018

Third Quarter Earnings Conference Call

1

TENNECO INC. Q3 2018 EARNINGS

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SLIDE 2

Safe Harbor

2 This communication contains forward-looking statements. These forward-looking statements include, but are not limited to, (i) all statements,

  • ther than statements of historical fact, included in this communication that address activities, events or developments that we expect or

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

  • ther statements that describe Tenneco’s outlook, objectives, plans, intentions or goals, and any discussion of future operating or financial
  • performance. These forward-looking statements are included in various sections of this communication and the words “may,” “will,”

“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

  • perations; the potential diversion of Tenneco management’s attention resulting from the transaction; as well as the risk factors and

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

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SLIDE 3

Third Quarter Highlights

Brian Kesseler

Co-Chief Executive Officer

Segment Results & Financial Overview

Jason Hollar

Chief Financial Officer

Outlook

Brian Kesseler Roger Wood

Co-Chief Executive Officer

Q&A

Brian Kesseler Roger Wood Jason Hollar

Agenda

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.

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SLIDE 4

Third Quarter Highlights

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Delivered a solid Q3 with strong organic* revenue growth across all product applications

  • Record revenue of $2.4B, up 4% YoY, in constant currency up 7% --
  • utpacing industry production** by 9 percentage points

– Commercial truck and off-highway revenue up 27% – Light vehicle industry production down 2% globally

  • Value-Add Revenue up 1%, constant currency up 5%
  • Q3 VA adjusted EBIT margin of 8.4% -- consistent with outlook
  • Record adjusted EPS of $1.70

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.

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SLIDE 5

Industry Q3 Revenue Drivers

5

Strength of our diversified portfolio helps mitigate industry challenges

TENNECO INC. Q3 2018 EARNINGS

Macro Drivers TEN Q3 Position

  • China light vehicle slowdown; certain domestic

Chinese OEMs underperforming LV production

  • China exposure weighted towards global OEM

JVs and select domestic OEMs

  • Europe light vehicle WLTP production

disruptions and diesel declines

  • Impact from WLTP and diesel declines on our

platform mix is relatively neutral

  • Europe Clean Air ~85% VA revenue unaffected

by passenger car diesel mix

  • NA light vehicle production:

‒ passenger cars weak with YoY declines ‒ light trucks strong YoY growth

  • NA light vehicle revenue levered to strong mix

trend with > 80% pickups and SUVs

  • Commercial truck and off-highway volume

strength

  • CT volumes up in Europe, India and NA
  • OH volumes up in NA, Europe and Japan
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SLIDE 6

Q3 Value-add Revenue

6

Organic growth in all product applications; strong growth in commercial truck and off-highway

VALUE-ADD REVENUE $1,776M, up 5%* Clean Air 6%* Ride Performance 5%* Aftermarket 1%*

* 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

  • Q3 light vehicle production down 2%** YoY

**IHS light vehicle production forecast and Tenneco estimates

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SLIDE 7

Q3 Earnings

7

Q3 ADJUSTED EBIT $149M Q3 adjusted EBIT margin consistent with outlook; record EPS of $1.70

TENNECO INC. Q3 2018 EARNINGS

  • Revenue growth outpacing industry production, with growth in all product

applications (constant currency)

  • VA adjusted EBIT margin of 8.4% -- consistent with outlook
  • Adjusted EBIT / margin impacts

– Steel economics and tariff costs increased, 30bps impact on YoY margins – Currency a negative 20bps impact on YoY margins, primarily Argentina transactional Fx

ADJUSTED DILUTED EPS $1.70, up 3-cents

  • Q3 diluted share count of 51.4M

RECORD

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SLIDE 8

Q3 Commercial Highlights

  • 16 platform wins in China (majority

incremental), with leading global and domestic OEMs

  • 7 platform wins in India, including 4 BSVI

commercial truck programs

  • Won 2 hybrid programs in APAC in Q3 for a

YTD 2018 total of 9 hybrid program awards

Q3 Clean Air

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%*

  • North America +7%, outpace production of +2%
  • South America down slightly

EMEA

+ 3%*

  • Outpacing LV production of -5%
  • New content on recent launches with Daimler, BMW

and Ford. APAC

  • 8%*
  • China -4%, in-line with production
  • India double-digit growth, outpacing production +7%
  • Australia end of OE production impact -500bps

CTOH + 25%* VA Revenue $175M

Americas

+ 35%*

  • New CT business with Daimler Truck in North America
  • Off-highway up over 30% on higher volumes with CAT

and John Deere EMEA

+ 33%*

  • MAN and Deutz business launched late Q3 last year
  • Higher volumes with CAT and Daimler Truck

APAC

flat*

  • India ramp-up on BS IV reg.; China CT volumes -18%
  • Kubota volumes up over 10%

VA REVENUE $1,006M, up 6%*

  • Adj. EBIT $108M; VA Adj. EBIT Margin 10.7%

* In constant currency

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SLIDE 9

Q3 Ride Performance

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Light Vehicle + 3%* VA Revenue $394M

Americas

+ 7%*

  • Outpacing Americas LV production of +2%
  • Higher volumes on new programs with VW & FCA
  • NVH content growth on new BEV program

EMEA

  • 4%*
  • In-line with LV production of -5%

APAC

+ 5%*

  • China +1%, outpacing production of -4%
  • India +16%, outpacing production of +7%

LV Conventional 78% CTOH 15%

CTOH + 21%* VA Revenue $67M

Americas

+ 21%*

  • Higher volumes with Paccar, Daimler Truck

and Hendrickson EMEA

+ 16%*

  • Higher volumes including with Volvo Truck,

Paccar and Scania

* In constant currency

VA REVENUE $461M, up 5%*

TENNECO INC. Q3 2018 EARNINGS

VA REVENUE by product application Q3 2018

LV Intelligent Suspension 7%

  • Announced intention to realign North America manufacturing footprint

and close 2 plants -- expect savings of $20M to $25M by end of 2020

  • Increased steel economics and tariff costs, 90bps impact on YoY margins
  • Adj. EBIT $17M; VA Adj. EBIT Margin 3.7%

Q3 Commercial Highlights

  • 2 program wins for intelligent

suspension, 1 incremental

  • In Q3, 2 intelligent suspension

launches, 1 incremental

  • New program launches in China and

India continue to drive revenue growth above production growth

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SLIDE 10

Q3 Commercial Highlights

  • China added 18 new customers, 430 new

Monroe Installers, and expanded coverage with 120 new SKUs launched

  • North America continues expanding coverage

with 160 ride control SKUs launched

  • Winning new business in all regions, including

key distribution gains in South America and North America

Americas 74% EMEA 21%

Q3 Aftermarket

10

VA REVENUE $309M, up 1%*

TENNECO INC. Q3 2018 EARNINGS

VA REVENUE by region Q3 2018

AP 5%

Americas

+ 2%*

  • North America revenue about even YoY
  • North America out the door retail sales

continue to trend up through Q3

  • Double digit growth in South America

EMEA

  • 4%*
  • Customer warehouse consolidation

continues in established markets (Germany); Turkey economic issues weigh down revenue

APAC + 9%*

  • Double digit growth in both China and

India

  • Adj. EBIT $48M; VA Adj. EBIT Margin 15.5%

* In constant currency

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SLIDE 11

Q3 Adjustments

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  • Restructuring and related expense of $12M pre-tax, or 17-cents per

diluted share including

– 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

  • Costs related to Federal-Mogul acquisition of $16M pre-tax, or 22-cents

per diluted share

– $12M acquisition advisory costs – $4M structural cost reductions in advance of closing, primarily for salaried headcount reduction

  • Costs associated with litigation resolution of $10M pre-tax, or 15-cents

per diluted share

TENNECO INC. Q3 2018 EARNINGS

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SLIDE 12

Tax Expense

12

Continuing focus on global tax planning

TENNECO INC. Q3 2018 EARNINGS

Reported Q3 tax expense of $21M, includes

  • Tax benefits for adjusted items:

– $6M for acquisition-related costs – $2M for litigation settlement

  • Other discrete tax items (net expense) of $1M

Before those Q3 items, adjusted tax expense is $28M

  • Adjusted effective tax rate of 22% in the quarter and 23% year to date

– China high-tech designation secured in Q3 and benefitted the ETR in the quarter

Cash tax payments of $23M in Q3 Expectations for Q4 – combined with Federal-Mogul

  • Adjusted effective tax rate of 25% to 28%
  • Cash taxes in the range of $45M to $55M
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SLIDE 13

Cash Flow

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  • Cash used in operations of $41M

– Q3 results reflect investment in working capital to support revenue growth and cash payments for transaction costs

  • Capital expenditures of $77M in the quarter

– Q3 spending $15M lower compared to last year

  • Paid $14M in dividends, at $0.25/share in Q3

– 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

  • vs. dividends based on share price

Evaluating best allocation of capital to enhance shareholder value

TENNECO INC. Q3 2018 EARNINGS

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SLIDE 14

Debt and Cash Position

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  • Interest expense of $21M in the quarter
  • Net debt / Adjusted LTM EBITDA* ratio of 1.5x

$ 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

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SLIDE 15

Q4 2018 Outlook

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* 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

Organic revenue growth expected to outpace industry production Revenue Walk – Q4 Outlook

$2.4B +3%

  • 3%

~$1.9B ~$4.3B

Q4 2017 TEN Q4 2018 TEN Currency▲ Organic* Growth

  • Organic* revenue growth expected to outpace

industry production by 2 percentage points

‒ Organic* revenue growth +3% ‒ Industry production +1%**

Federal- Mogul Acquisition

TEN and FM Combined – Q4 Outlook

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SLIDE 16

Full Year 2018 Outlook

16

TENNECO INC. Q3 2018 EARNINGS

Raising 2018 organic revenue growth guidance to +6% Revenue Walk – 2018 Outlook

$9.3B +6%

Currency ~ neutral

~$1.9B ~$11.8B

2017 TEN 2018 TEN Federal- Mogul Acquisition Currency▲ Organic* Growth

  • Now expect organic* revenue

growth to outpace industry production by 5% (previous +3%)

‒ Organic* revenue growth +6% ‒ Industry production +1%**

  • Combined 2018 VA adjusted

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

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SLIDE 17

Financial Reporting Expectations

17

  • For the remainder of 2018, we will measure our results of operations

under the existing segmentation (adding the 2 FM businesses)

  • As part of our transition towards the spin, as of Q1 2019 we expect to

revise our segments to reflect how the business will be managed going forward

– Clean Air – Ride Performance – Aftermarket – FM Powertrain – FM Motorparts

  • Expect to give 2019 full year guidance as part of Q4 earnings in February

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

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SLIDE 18

Key Spin Milestones

18

  • Working towards spin to create two focused, industry-leading,

publicly traded companies

– Integration update – on track to achieve forecasted earnings and working capital synergies – Preliminary Form 10 – Financing for SpinCo

  • SpinCo – Aftermarket & Ride Performance company

– Brian Kesseler, Chairman & CEO – Senior leadership team established and named – SpinCo should be named by early 2019

  • New Tenneco – Powertrain Technologies company

– 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

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SLIDE 19

Appendix:

Industry Production – YoY% Change

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

  • 5%

0% 0%

China

  • 4%
  • 3%

0%

India

7% 3% 8%

Global LV Industry Production

  • 2%

1% 1%

Source: IHS Automotive October 2018 global light vehicle production forecast and Tenneco estimates. TENNECO INC. Q3 2018 EARNINGS

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SLIDE 20

Appendix:

Summary of Notes & New Credit Facility

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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

  • $1.5 billion undrawn

revolver as of October 1, 2018 (Federal-Mogul acquisition close)

  • Ample liquidity available

to the combined company under new credit facility

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SLIDE 21

Appendix:

Pension and OPEB

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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

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SLIDE 22

Appendix:

Financial Overview – Q3

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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

  • 3%

Adjusted EBIT † (% of VA Revenue) 8.4% 8.8%

  • 40 bps

Adjusted EBITDA *† 207 211

  • 2%

Adjusted Net Income † 88 88 flat Adjusted EPS ($) † $1.70 $1.67 2% Cash Flow From Operations

  • 41

25 NM Net Debt / Adjusted LTM EBITDA*† 1.5x 1.7x

  • 0.2x

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

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SLIDE 23

Appendix:

Tenneco Projections

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:

  • Projections are based on original equipment manufacturers’ programs that have been formally awarded to the company; programs

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.

  • Projections are based on the anticipated pricing of each program over its life.
  • Except as otherwise indicated, projections assume a fixed foreign currency value. This value is used to translate foreign business to

the U.S. dollar .

  • Projections are subject to increase or decrease due to changes in customer requirements, customer and consumer preferences,

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

  • f a margin calculation) due to variability in production rates and volatility of precious metal pricing in the substrates that we pass

through to our customers.

TENNECO INC. Q3 2018 EARNINGS