Tenneco Announces Q2 Earnings
22 July 1997
Tenneco Announces Strong Second Quarter Earnings, As Automotive And Specialty Packaging Set Records
-- Earnings per share from continuing operations rose 17 percent to
61 cents from 52 cents a year earlier, excluding a one-time gain on a
1996 paperboard joint venture.
-- Revenues increased 12 percent to $1.9 billion from $1.7 billion.
-- Automotive set records in operating income, up 26 percent, and
revenues, up 12 percent.
-- Specialty packaging operating income was up 35 percent to a new high.
-- Overall Packaging revenues rose 11 percent exceeding billion dollar
mark for first time.
GREENWICH, Conn., July 22 -- Tenneco today
reported that earnings per share from continuing operations rose 17 percent in
the second quarter, to 61 cents per share from 52 cents a year ago, excluding
an 18 cents per share one-time gain from the sale of a portion of
paperboard mill operations to a joint venture with Caraustar Industries in the
1996 period.
Net income from continuing operations rose 18 percent to $104 million,
from $88 million a year ago, excluding the 1996 one-time gain. Automotive set
records in revenues and operating income.
Specialty packaging also reported record operating income and revenues led
by strong contributions from the foam products business that was acquired
last summer and the more recently acquired protective and flexible operations.
All results are restated to reflect a restructured Tenneco formed in
December 1996 following the spin-off of Newport News Shipbuilding and the
merger of Tenneco Energy with El Paso Energy. *
Quarterly operating income was $212 million, compared with $203 million
last year, excluding the 1996 one-time gain. Revenues increased 12 percent in
the quarter, to $1.9 billion from $1.7 billion.
"In the second quarter, two of our businesses, automotive and specialty
packaging, already industry leaders, set records for both earnings and
revenue, exceeding even our high expectations," said Dana G. Mead, Tenneco
chairman and chief executive officer. "In our other business, recent
improvements in containerboard industry conditions, notably pricing, combined
with our stringent cost-control measures, give us good reason to believe we
have turned the corner in that business."
Tenneco Automotive operating income rose 26 percent to $131 million from
$104 million a year ago. Revenues increased 12 percent to $873 million from
$780 million, setting a quarter-over-quarter record for the 15th straight
time. Overall the margin rate increased by 13 percent.
Tenneco Packaging recorded operating income of $82 million, on sales of
$1.02 billion. In the year ago quarter, operating income of $100 million,
excluding the $50 million gain from the paperboard mill joint venture, was
reported on sales of $916 million. Specialty packaging operating income
was up 35 percent and revenues grew 36 percent, led by contributions from the
acquisitions and strong volume growth.
For additional detail see Segment Analysis following the financial tables.
Tenneco is a $7 billion global manufacturing company headquartered in
Greenwich, Conn., with 50,000 employees worldwide. Tenneco Automotive is one
of the world's largest producers and marketers of ride control products and
exhaust systems, which are sold under the Monroe(R) and Walker(R) brand
names. Among its products are Sensa-Trac(R) and Rancho(R) shock absorbers,
Walker Advantage(R) mufflers and DynoMax(R) performance mufflers, and Monroe
Clevite(TM) vibration control components. Tenneco Packaging is among the
world's leading and most diversified packaging companies. Among its products
are Hefty(R) trash bags, Hefty OneZip(R) and Baggies(R) food storage bags, E-Z
Foil(R) single-use aluminum cookware and Diamond(R) tableware.
For more information about Tenneco, visit the Tenneco website at
http://www.tenneco.com.
*Please Note: For this reason, the more meaningful comparison for purposes
of analyzing quarter-to-quarter earnings is net income from continuing
operations. (See footnote (b) on following table.)
TENNECO CONSOLIDATED EARNINGS RESULTS
Unaudited
THREE MONTHS ENDED JUNE 30
1997 1996
Net sales and operating revenues:
Automotive $873,000,000 $ 780,000,000
Packaging 1,019,000,000 916,000,000
Other -- (2,000,000)
$1,892,000,000 $1,694,000,000
Operating income (loss):
Automotive $131,000,000 $104,000,000
Packaging 82,000,000 150,000,000 (a)
Other (1,000,000) (1,000,000)
212,000,000 253,000,000
Less:
Interest expense
(net of interest capitalized) 53,000,000 53,000,000
Income tax expense 49,000,000 77,000,000
Minority interest 6,000,000 5,000,000
Income from continuing operations 104,000,000 118,000,000 (a)
Income from discontinued operations -- 43,000,000 (b)
Net income 104,000,000 161,000,000
Preferred stock dividends -- 2,000,000
Net income to common stock $104,000,000 $159,000,000
Average common shares outstanding 169,900,000 170,300,000
Earnings per average common share:
Before gain on sale $.61 $.52
Gain on sale to joint venture -- .18
Continuing operations .61 .70 (a)
Discontinued operations -- .23 (b)
$.61 $.93
(a) Includes the 1996 pretax gain of $50 million on the sale of assets to
the joint venture with Caraustar, $30 million or $.18 per share on an
aftertax basis.
(b) Includes the discontinued operations of the energy business
($25 million or $.12 per share) and the shipbuilding business
($18 million or $.11 per share).
TENNECO CONSOLIDATED EARNINGS RESULTS
Unaudited
SIX MONTHS ENDED JUNE 30
1997 1996
Net sales and operating revenues:
Automotive $ 1,651,000,000 $ 1,463,000,000
Packaging 1,871,000,000 1,775,000,000
Other (1,000,000) (5,000,000)
$ 3,521,000,000 $ 3,233,000,000
Operating income (loss):
Automotive $ 211,000,000 $ 163,000,000
Packaging 162,000,000 (a) 256,000,000 (b)
Other (2,000,000) (5,000,000)
371,000,000 414,000,000
Less:
Interest expense
(net of interest capitalized) 98,000,000 100,000,000
Income tax expense 82,000,000 126,000,000
Minority interest 11,000,000 10,000,000
Income from continuing operations 180,000,000 (a) 178,000,000 (b)
Income from discontinued operations -- 478,000,000 (c)
Net income 180,000,000 656,000,000
Preferred stock dividends -- 5,000,000
Net income to common stock $ 180,000,000 $ 651,000,000
Average common shares outstanding 170,700,000 170,400,000
Earnings per average common share:
Before gains on refinancing
and sale $ .92 $ .86
Gain on mill lease
and refinancing .13 --
Gain on sale to joint venture -- .18
Continuing operations 1.05 (a) 1.04 (b)
Discontinued operations -- 2.78 (c)
$ 1.05 $ 3.82
(a) Includes pretax gain on refinancing of two containerboard mill leases
of $38 million, $23 million or $.13 per share on an aftertax basis.
(b) Includes the 1996 pretax gain of $50 million on the sale of assets
to the joint venture with Caraustar, $30 million or $.18 per share on
an aftertax basis.
(c) Includes the discontinued operations of the energy business
($102 million or $.57 per share); the shipbuilding business
($37 million or $.22 per share) and the gain from the sale of the
remaining stock of Case Corporation, along with equity in Case's loss
through the sale date ($339 million or $1.99 per share).
Segment Analysis & Corporate Initiatives
Automotive
Tenneco Automotive reported a record quarter for both revenues and
operating income. Operating income rose 26 percent to $131 million from
$104 million last year. Revenues increased 12 percent to $873 million from
$780 million in the second quarter last year, setting a quarter-over-quarter
record for the 15th straight time. Overall operating margins improved by more
than one-and-a-half percentage points, to 15 percent, despite a $5 million
unfavorable impact due to currency exchange rates and a $3 million impact
attributable to strikes at domestic automakers.
Revenues for the North American original equipment business rose
31 percent over the second quarter of 1996, driven by the integration of the
Clevite vibration control components business and strong sales of ride control
and exhaust system products for sport-utility vehicles, minivans, and
U.S.-made foreign transplant vehicles. Despite the unfavorable impact of a
stronger dollar, Tenneco Automotive's original equipment revenues in Europe
increased 9 percent over the same period last year, boosted by strong sales to
Mercedes, Opel, Ford and Peugeot.
Overall revenues in the North American aftermarket rose 2 percent compared
with the second quarter of last year, despite continuing soft market
conditions due in part to mild weather, while aftermarket revenues decreased
in Europe, primarily due to a stronger dollar. Tenneco Automotive's South
American operations, original equipment and aftermarket combined, recorded
a 143 percent improvement in revenues over the second quarter of 1996 due to
new business from the Ford Fiesta in Brazil, acquisitions of ride control and
exhaust system businesses in Argentina, and an improved sales mix of premium
products.
"The outlook for our automotive equipment business in North America
remains bright," Mead said. "Although passenger car sales have been somewhat
soft, sales of light trucks and sport utility vehicles are strong. Nearly 60
percent of Tenneco Automotive's North American original equipment sales come
from these vehicles. The bottom line is that we expect to continue to
generate record quarterly results for the second half of 1997."
The new Dodge Durango and Nissan Frontier trucks as well as the Volkswagen
Golf are equipped with Tenneco Automotive exhaust system products, while the
Isuzu Rodeo, GM 800/CK truck and Nissan Altima carry Monroe ride control
equipment.
Overall Packaging Results
Tenneco Packaging reported operating income of $82 million as revenues
climbed 11 percent to $1.02 billion in the second quarter. This is the first
time quarterly revenues have passed the billion dollar mark. In the year ago
quarter, earnings of $100 million were reported on sales of $916 million,
excluding the one-time gain from the sale of a portion of paperboard mill
operations to the Caraustar joint venture.
Specialty Packaging
In Specialty packaging, second quarter operating income rose 35 percent to
a record $88 million compared with $65 million in the year-ago period. The
increase in operating earnings was led by contributions from the foam products
and KNP protective and flexible packaging acquisitions, as well as strong
performance from the base aluminum and plastic business. These contributions
offset weak stretch film pricing and resin cost increases, which should be
recovered later this year. Revenues climbed to $647 million from $474 million
in the second quarter of 1996, a 36 percent increase.
Consumer products' unit sales growth showed particular strength, rising 11
percent, led by a better than 50 percent unit volume increase in Hefty OneZip
sales over the same period last year. Strong unit volume and market share
gains also were recorded in Hefty trash bags. Sales of clear plastic and foam
containers to supermarkets and the foodservice industry were up 11 percent
over the year-ago period.
"Tenneco Packaging's product offerings allow us to offer customers broader
and better packaging solutions," Mead said. "The outlook is extremely
encouraging. We are successfully implementing price increases on a number of
specialty products. That combined with a full year of ownership of the foam
business we acquired last summer and the rapid integration of the KNP BT
operations now well under way should set the stage for continued earnings
improvement in the second half of 1997."
Paperboard Packaging
Paperboard packaging operations, which include containerboard mills,
corrugated products and folding carton, recorded an operating earnings decline
due largely to weaker containerboard prices. Industry linerboard prices were
17 percent lower and medium prices were 26 percent lower compared with the
same period last year. Industry prices for linerboard and medium continued to
fall in the second quarter by 5 and 6 percent, respectively, from first
quarter levels.
Although containerboard prices weakened early in the quarter, paperboard
earnings for the second quarter remained unchanged compared with first quarter
results, excluding the one-time portion of a mill lease refinancing gain in
the earlier quarter, due to improved mill performance, cost reduction
initiatives and strong performance from corrugated products. The second
quarter loss was $6 million on revenues of $372 million. Second quarter 1996
earnings were $35 million, excluding a $50 million gain on the paperboard mill
joint venture, on revenues of $442 million.
Operating income from corrugated converting operations rose 27 percent
over the first quarter of 1997, driven by continued growth in enhanced
graphics, specialty corrugated products and value-added services.
The containerboard market appears poised for a significant recovery.
Tenneco Packaging's June $40 per ton increase for medium has been fully
implemented and the company's additional $40 per ton increase for medium and
linerboard announced for Aug. 1 is also expected to hold. In addition, June
inventories at mills and box plants dropped to 4.5 weeks of supply, the lowest
level since April 1995. Meanwhile, average weekly box shipments at the end of
the second quarter were up 3.8 percent compared with the same period a year
ago. Tenneco has announced a 12 percent box price increase effective with
August shipments.
Tenneco containerboard mill cost reductions and productivity improvements
exceeded expectations. More than $40 million of a two-year target of
$75 million in cost reductions is expected to be achieved in 1997.
Other Cost-Reduction Initiatives
Even with record results in most businesses, Tenneco continues to pursue
initiatives to improve customer focus, enhance global competitiveness and
reduce overhead costs. Those efforts made significant progress in the second
quarter.
Tenneco Automotive continued to progress in its worldwide organizational
transformation from a product-based to a customer-focused structure. In North
America, the restructuring effort is essentially complete. The restructuring
of European and South American operations also began in the second quarter.
The corporation's continuing program to improve processes in all business
activities, known as Cost of Quality, reduced failure costs by $50 million in
the second quarter, adding $35 million to operating income. Failure costs are
costs associated with inefficient manufacturing and administrative processes,
malfunctioning equipment, related downtime and other factors.
Tenneco also plans to continue reducing working capital on a percentage of
revenues basis, with the objective of generating the equivalent of an
additional $230 million in cash flow in 1997. During 1996, the first year of
the company's three-year initiative, working capital was reduced by 4.5
percentage points, which is equivalent to a $280 million increase in cash
flow. Improvement in Economic Value Added (EVA), which is net operating
profit after taxes minus the cost of capital, remains on target for 1997.
Other Recent Company Actions
In June, Tenneco Automotive announced it would acquire the manufacturing
operations of MICHEL, a Polish-based manufacturer of replacement market
exhaust systems for passenger cars built in Eastern Europe, with sales in
Poland, Hungary, the Czech Republic and Slovakia. The announcement was made
as Tenneco Automotive opened a new regional distribution center for Walker(R)
exhaust products in Rybnik, Poland where MICHEL manufacturing operations will
be co-located.
-- In May, Tenneco Automotive announced a joint venture with Armstrong
Holdings Limited, a subsidiary of Metair Investments Limited, to
manufacture and market ride control products for automobiles and light
commercial vehicles in South Africa. With 1996 sales of $30 million,
Armstrong has approximately 60 percent of South Africa's original
equipment market and more than 40 percent of the replacement market.
Passenger car and light commercial vehicle production in South Africa
is growing significantly to meet domestic demand, as well as that from
countries in southern and central Africa and Europe.
-- During the second quarter, Tenneco announced public offerings of
$600 million of long-term debt. The offering included $100 million of
10-year notes, $300 million of 20-year debentures, and $200 million of
30-year debentures. Proceeds from the debt securities were used to
reduce commercial paper borrowings. With the recapitalization
accomplished in late 1996 and these recent debt issues, Tenneco has now
completed a refinancing program which has resulted in reduced long-term
interest rates, significantly less reliance on short-term funding,
lower exposure to short-term rates, and a relatively level debt
maturity profile through the year 2027.
Several statements in this press release are forward-looking and are
identified by the use of the following forward-looking words and phrases, such
as: "good reason to believe," "outlook ... remains bright," "expect to,"
"shows signs of," "outlook ... is extremely encouraging," and "should set the
stage for," "plans to continue," "appears poised" "generating the equivalent
of ... in 1997," "is growing," "are expected to," "is expected to yield," and
"to be realized." These forward-looking statements are based on the company's
current expectations. Because forward-looking statements involve risks and
uncertainties, the company's actual results could differ materially. Among
the factors that could cause results to differ materially from current
expectations are: (i) the general political, economic and competitive
conditions in markets and countries where the company and its subsidiaries
operate; (ii) changes in capital availability or costs; (iii) decreases in
demand for company products and the resulting negative impact on the company's
revenues and margins from such products; (iv) the cost of compliance with
changes in regulations, including environmental regulations; (v) employee
workforce factors; (vi) increases in the costs of the company's raw materials;
(vii) the company's ability to integrate the operations of acquired businesses
quickly and in a cost-effective manner; and (viii) the timing and occurrence
(or nonoccurrence) of transactions and events, which may be subject to
circumstances beyond the company's control.
SOURCE Tenneco