Tenneco Announces Q3 Earnings
21 October 1997
Tenneco Announces Strong Third Quarter Earnings, As Automotive and Specialty Packaging Set Records
-- Earnings per share from continuing operations rose 38 percent to
62 cents from 45 cents a year earlier.
-- Revenues increased 11 percent to $1.83 billion from $1.65 billion.
-- Automotive operating income increased 46 percent on record third
quarter revenues.
-- Packaging operating income rose 26 percent, while revenues rose
17 percent.
GREENWICH, Conn., Oct. 21 -- Tenneco today
reported that earnings per share from continuing operations rose 38 percent in
the third quarter, to 62 cents per share from 45 cents a year ago.
Net income from continuing operations rose 38 percent to $105 million,
from $76 million a year ago. Automotive once again set quarterly records in
operating income and revenue. These results came from new business growth,
aggressive global market expansion and successful acquisition integration.
Specialty packaging also reported record third quarter operating income and
revenues led by strong contributions from the foam products business that was
acquired in 1996 and the more recently acquired protective and flexible
packaging operations. Paperboard packaging accomplished the turnaround that
had been projected, due to improved industry fundamentals, aggressive cost
control and higher-margin products.
Last year's 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 $226 million, compared with $171 million
last year. Revenues increased 11 percent in the quarter, to $1.83 billion
from $1.65 billion.
Tenneco Automotive operating income rose 46 percent to a third quarter
record of $119 million from $82 million a year ago. Revenues increased
3 percent to $785 million from $760 million, setting a quarter-over-quarter
record for the 16th straight time. Overall the operating margin increased by
more than 4 percentage points.
Tenneco Packaging operating income increased 26 percent to $107 million
from $85 million a year ago on sales of $1.05 billion. Revenues increased
17 percent in the quarter, exceeding the $1 billion mark for the second time.
Specialty packaging operating income was up 26 percent and revenues grew
33 percent.
"Our continuing objective is to build a track record of consistent income
and revenue growth through operating performance, cost control, strategic
acquisitions and global expansion," said Dana G. Mead, Tenneco chairman and
chief executive officer. "Our record third quarter earnings were the result
of achieving our goals in each of these areas."
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
Quiet-Flow(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 and
E-Z Foil(R) single-use aluminum cookware.
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 (a) following Consolidated
Earnings Results for Three Months Ended September 30.)
TENNECO
Consolidated Earnings Results
Unaudited
Three Months Ended September 30
1997 1996
Net sales and
operating revenues:
Automotive $785,000,000 $760,000,000
Packaging $1,045,000,000 896,000,000
Other 1,000,000 (3,000,000)
$1,831,000,000 $1,653,000,000
Operating
income (loss):
Automotive $119,000,000 $82,000,000
Packaging 107,000,000 85,000,000
Other -- 4,000,000
226,000,000 171,000,000
Less:
Interest expense(net
of interest capitalized) 59,000,000 45,000,000
Income tax expense 56,000,000 45,000,000
Minority interest 6,000,000 5,000,000
Income from continuing
operations 105,000,000 76,000,000
Income from discontinued
operations -- 40,000,000(a)
Extraordinary loss,
net of income tax -- (1,000,000)
Net income 105,000,000 115,000,000
Preferred stock dividends -- 2,000,000
Net income to
common stock $105,000,000 $113,000,000
Average common shares
outstanding 170,100,000 170,400,000
Earnings(loss)per
average common share:
Continuing operations $.62 $.45
Discontinued operations -- .22(a)
Extraordinary loss -- (.01)
$.62 $.66
(a) Includes the discontinued operations of the energy business
($25 million or $.13 per share) and the shipbuilding business
($15 million or $.09 per share).
TENNECO
Consolidated Earnings Results
Unaudited
Nine Months Ended September 30
1997 1996
Net sales and operating
revenues:
Automotive $2,436,000,000 $2,223,000,000
Packaging 2,916,000,000 2,671,000,000
Other -- (8,000,000)
$5,352,000,000 $4,886,000,000
Operating income
(loss):
Automotive $330,000,000 $245,000,000
Packaging 269,000,000(a) 341,000,000(b)
Other (2,000,000) (1,000,000)
597,000,000 585,000,000
Less:
Interest expense
(net of interest
capitalized) 157,000,000 145,000,000
Income tax expense 138,000,000 171,000,000
Minority interest 17,000,000 15,000,000
Income from continuing
operations 285,000,000(a) 254,000,000(b)
Income from discontinued
operations -- 518,000,000(c)
Extraordinary loss,
net of income tax -- (1,000,000)
Net income 285,000,000 771,000,000
Preferred stock dividends -- 7,000,000
Net income to common stock $285,000,000 $764,000,000
Average common shares
outstanding 170,500,000 170,400,000
Earnings (loss) per
average common share:
Before gains on sale
and refinancing $1.54 $1.31
Gain on mill lease
and refinancing .13 --
Gain on sale to joint
venture -- .18
Continuing operations 1.67(a) 1.49(b)
Discontinued operations -- 3.00(c)
Extraordinary loss -- (.01)
$1.67 $4.48
(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
($127 million or $.70 per share); the shipbuilding business
($52 million or $.31 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
Automotive
Tenneco Automotive reported a record quarter for operating income, up
46 percent to $119 million from $82 million last year. Revenues increased
3 percent to $785 million from $760 million in the third quarter last year,
setting a quarter-over-quarter record for the 16th consecutive time. Overall
operating margins improved by more than four percentage points to
15.2 percent, despite the continued unfavorable impact of the strong dollar in
Europe and softness in the North American aftermarket. The impact of the
strong dollar reduced operating income by $7.4 million in the third quarter.
However, this was offset by favorable resolution of a legal action that
increased income by $9.7 million. Lower than anticipated costs for
Automotive's reorganization, which has proceeded more rapidly and efficiently
than planned, resulted in a $4 million benefit.
Revenues for the North American original equipment business rose 4 percent
over the third quarter of 1996, driven by the company's strong position in the
popular light truck segment.
North American aftermarket revenue rose 7 percent compared with the third
quarter of last year, due to new business, acquisitions, pricing, and strong
marketing programs in an industry market that was down more than 8 percent.
Aftermarket revenues decreased 9 percent in Europe, solely due to exchange
rates. Tenneco Automotive's South American revenues, original equipment and
aftermarket combined, nearly tripled over the third quarter of 1996 due to a
combination of internal growth and acquisitions of ride control and exhaust
system businesses.
"The outlook for our automotive businesses in North America remains
positive for the remainder of the year and into 1998," Mead said. "Sales of
light trucks and sport utility vehicles are especially strong. These vehicles
represent more than 60 percent of Tenneco Automotive's North American original
equipment sales. In fact, Tenneco products are on all of the top 10 selling
light trucks."
New original equipment exhaust system business coming on line for the
remainder of 1997 includes the Dodge Durango and Nissan Frontier trucks as
well as the Volkswagen Golf and Toyota Sienna. New ride control original
equipment business includes the Isuzu Rodeo and Nissan Altima.
Overall Packaging Results
Tenneco Packaging reported operating income of $107 million as revenues
climbed 17 percent to $1.05 billion in the third quarter. This marks the
second consecutive quarter that revenues have passed the billion dollar level.
In the year ago quarter, earnings of $85 million were reported on sales of
$896 million.
Specialty Packaging
In Specialty packaging, operating income rose 26 percent to a third
quarter record of $84 million compared with $67 million in the year-ago
period. The increase in operating earnings was led by strong performance from
foam products; the recently acquired protective and flexible packaging
operations; significant unit volume growth in consumer, foam and clear plastic
products; and successful new product introductions. Stretch film margins,
which have been depressed, benefited from better pricing and lower material
costs, compared with the first half of the year. Revenues climbed to
$679 million from $509 million in the third quarter of 1996, a 33 percent
increase.
Consumer products showed particular strength, up 11 percent in volume over
last year, led by a 50 percent increase in Hefty OneZip(R) food storage bag
sales over the same period last year. Sales of clear plastic and foam
containers to supermarkets and the foodservice industry were up 7 percent over
the year-ago period. The new MealMaster(TM) rigid container line has found
wide acceptance in the supermarket and foodservice channels, while the
extremely strong reception for the new FastPak(TM) supermarket deli bags using
the OneZip(R) closure is resulting in the addition of capacity.
"The integration into Tenneco Packaging of the protective and flexible
packaging operations of KNP is ahead of plan," Mead said. "The combination of
our Hexacomb business and KNP's protective division, Astro-Valcour, has given
us an excellent platform for further expansion in protective packaging. Our
European flexible business also is reaping the benefits of this integration.
We have identified synergies in purchasing, manufacturing processes and
technology, all of which should translate into higher earnings growth going
forward."
Paperboard Packaging
Paperboard packaging operations, which include containerboard mills,
corrugated products and folding carton, recorded operating income of
$23 million, up 24 percent from the year-ago period. These results represent
a $31 million improvement from a second quarter 1997 loss of $8 million.
This business demonstrated strong improvement over the second quarter.
Price increases in linerboard and medium contributed $13 million to the
earnings recovery; while the company's aggressive cost reduction and product
mix improvements added $10 million. A timberland management transaction
contributed another $4.5 million.
Average industry prices for linerboard and medium increased over the
second quarter by $32 per ton and $43 per ton, respectively. The industry-
wide box price increases of 10 to 12 percent announced by a number of
producers in August are being implemented. Tenneco Packaging has announced an
additional 12 percent increase effective in November.
Operational improvements continued in the company's four containerboard
mills. By the end of the year, more than $46 million of a two-year
$75 million cost reduction effort should be achieved. Shifting existing
production capacity to higher value board grades should generate another
$15 million in earnings improvements in 1998. Earnings from corrugated
converting operations rose 7 percent over the second quarter, driven by growth
in higher priced, value added products.
Containerboard industry fundamentals continue to improve. Inventories at
box plants and mills dropped to 4.1 weeks supply at the end of September, the
lowest level since January 1995, while average week box shipments through the
end of that month were up 2.9 percent. October medium and linerboard price
increases have been announced by most suppliers.
Continuing Cost-Reduction Initiatives
Tenneco's commitment to improving customer focus, enhancing global
competitiveness and reducing overhead costs made significant progress in the
third quarter. Tenneco Automotive continued to transform its worldwide
organization from product-based to customer-focused. The restructuring of the
North American aftermarket business unit was completed in the quarter while
the restructuring of European operations was accelerated. More than
$80 million in annual savings is expected from the Automotive reorganization
and rationalization.
The corporation's continuing program to improve processes in all business
activities, known as Cost of Quality, reduced failure costs by $82 million in
the third quarter, adding $47 million to operating income. Failure costs are
costs associated with inefficient manufacturing and administrative processes,
malfunctioning equipment, related downtime and other factors.
Tenneco has expanded its Economic Value Added (EVA *) program to a
Managing for Value strategy to ensure that management processes and incentive
structures are aligned with increasing total shareowner returns. The Managing
for Value strategy establishes targets for annual increases in EVA that will
create consistently superior shareowner returns. Earlier this year, Tenneco
implemented a long-term performance plan that linked executive compensation to
targeted increases in EVA from 1997 to 2000.
* EVA is a registered trademark of Stern Stewart & Co.
Recent Company News
In August, Tenneco Automotive announced the purchase of Autocan, a Mexican
catalytic converter and exhaust pipe assembly manufacturer. Located in
Puebla, Mexico, Autocan currently supplies Volkswagen, the largest passenger
car producer in that country, as well as for Chrysler and BMW. With
250 employees and 1996 sales of $25 million, Autocan operates a 60,000-square-
foot facility that opened in 1993. Autocan is the most recent of
18 acquisitions and joint ventures Tenneco Automotive has completed in the
last three years.
In September, Tenneco Automotive introduced the all-new Quiet-Flow(TM)
premium muffler line, which is the first of a generation of Walker replacement
mufflers that deliver improved sound quality and, on average, 35 percent less
exhaust backpressure resulting in better vehicle performance. The Walker
Quiet-Flow(TM) muffler will be available to the public in the first quarter of
1998.
On Oct. 16, IndustryWeek announced the selection of Tenneco Automotive's
plant in Paragould, Ark., as one of the Ten Best Plants in the United States.
The Paragould facility manufactures Monroe(R) shock absorbers and struts
mainly for the aftermarket. This is the second "Best Plants" award for
Tenneco. Tenneco Packaging's Counce, Tenn., containerboard mill achieved this
distinction in 1996. During the third quarter, IndustryWeek magazine had
named Tenneco one of the World's 100 Best-Managed Companies. This is the
second year the magazine has conducted this competition and the second year
Tenneco has been so honored. Companies were evaluated based on their
achievements in 12 areas including financial performance, global strategy,
human resources and corporate citizenship.
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: "outlook... remains positive," "coming on line," "should translate,"
"should be achieved," "should generate," "continue to improve," "is expected,"
and "will be available." 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 non-occurrence) of transactions and events, which may be subject to
circumstances beyond the company's control.
SOURCE Tenneco