Tenneco Reports Q1 1998 Earnings
21 April 1998
Tenneco Reports First Quarter 1998 Earnings of 44 Cents Per Share on Strong Tenneco Automotive Earnings and Tenneco Packaging Rebound
GREENWICH, Conn., April 21 -- Tenneco today
reported first quarter net income from operations of $75 million, or 44 cents
per share,* compared to $53 million, or 31 cents per share in the first
quarter of 1997, excluding a $23 million one-time gain in 1997 from a mill
lease refinancing. This is an increase of 42 percent quarter-to-quarter in
earnings per share.
Tenneco's improved results were driven by gains at both Tenneco Packaging
and Tenneco Automotive. Tenneco Packaging registered solid volume and profit
growth in its Specialty business, particularly in the consumer and protective
packaging segments. Paperboard Packaging volume and prices rebounded, also
contributing to the strong results. Tenneco Automotive posted record earnings
in the quarter, with particularly strong performance in its worldwide original
equipment (OE) business.
Tenneco's combined revenues for the first quarter 1998 were $1.9 billion
compared to $1.6 billion in the 1997 first quarter, an increase of 14 percent.
Excluding the one-time gain in 1997, Tenneco Packaging's operating income
improved from $42 million to $108 million on a 24 percent revenue increase to
$1.1 billion from $852 million.
Tenneco Packaging's revenue and earnings increases resulted from rapid
expansion of its Hefty OneZip(R) brand and sales of products for the home meal
replacement market; the integration and growth of the protective and flexible
packaging business acquired in April 1997 from KNP BT; and improved pricing,
increased volume and cost reductions in Paperboard.
Paperboard Packaging operating income increased $41 million, excluding the
one time gain from a mill lease refinancing in the first quarter of 1997, to
$34 million from a $7 million loss. Revenues rose 15 percent to $400 million
from $348 million in the prior year first quarter.
Tenneco Automotive's margins improved as operating income increased
11 percent on revenue growth of 3 percent. Tenneco Automotive earned
$89 million on revenues of $800 million in the first quarter of 1998 compared
to earnings of $80 million on revenues of $778 million a year earlier.
Tenneco Automotive's improved results were due to strong original
equipment sales growth worldwide, the successful integration of acquisitions,
and continuing progress in company-wide restructuring. Recent product
introductions of the Quiet-Flow(TM) muffler and Sensa-Trac(R) with
Safe-Tech(TM) shock absorber contributed to a higher value product mix.
Tenneco Automotive Europe also posted strong results. Despite weakness in
Asian and South American markets, Tenneco Automotive income was up slightly in
both regions.
Tenneco's Cost of Quality initiatives to improve processes and reduce
expenses cut the company's costs by $68 million in the quarter. Automotive's
global restructuring and Packaging's paperboard mill cost reduction
initiatives, each designed to improve competitiveness and remove unnecessary
expense, together delivered $24 million in savings for the quarter.
"The results posted today were the product of a concentrated focus on
internal growth, new product introductions, strategic acquisitions and cost
leadership," said Dana G. Mead, Tenneco chairman and chief executive officer.
"These earnings also demonstrate the ability of our businesses to provide
excellent returns on a consistent basis. With top consumer brands, strong
market positions and well-targeted global operations, Tenneco Automotive and
Tenneco Packaging are competing successfully around the world. We intend to
build on these results going forward."
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 and exhaust
systems and products, which are sold under the Monroe(R) and Walker(R) global
brand names. Among its products are Sensa-Trac(R) shocks and struts,
Rancho(R) shock absorbers, Walker(R) Quiet-Flow(TM) mufflers and DynoMax(TM)
performance exhaust products, and Monroe(R) 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 Hexacomb(R) paper honeycomb products.
For more information about Tenneco, visit the Tenneco website at
http://www.tenneco.com.
* All earnings per share in this release are reported on a diluted basis.
TENNECO CONSOLIDATED EARNINGS RESULTS
Unaudited
QUARTER ENDED MARCH 31
1998 1997
Net sales and operating revenues:
Automotive $800,000,000 $778,000,000
Packaging 1,056,000,000 852,000,000
Other -- (1,000,000)
$1,856,000,000 $1,629,000,000
Operating income (loss):
Automotive $89,000,000 $80,000,000
Packaging 108,000,000 80,000,000(b)
Other (11,000,000)(a) (1,000,000)
186,000,000 159,000,000
Less:
Interest expense (net of
interest capitalized) 56,000,000 45,000,000
Income tax expense 47,000,000 33,000,000
Minority interest 8,000,000 5,000,000
Net income $75,000,000 $76,000,000(b)
Average common shares outstanding:
Basic 169,500,000 171,300,000
Diluted 170,100,000 171,400,000
Earnings per share of common stock:
Basic $.44 $.44(b)
Diluted $.44 $.44(b)
a) Includes $7 million in costs incurred related to new data center
designed to consolidate existing data centers and transition away from
systems associated with recent acquisitions.
b) Includes operating income gain of $38 million on refinancing of two
containerboard mill leases which had a net income impact of $23 million
or $.13 per share.
Segment Analysis
Automotive
Tenneco Automotive's first quarter 1998 revenues rose to $800 million from
$778 million in the same quarter a year ago. First quarter operating income
increased to $89 million, compared to $80 million in the year-ago quarter.
Quarterly operating income for Tenneco Automotive's combined North
American aftermarket and original equipment businesses was $43 million, up
10 percent from $39 million in the first quarter 1997. These results reflect
the continuing positive benefit of providing ride control and exhaust systems
for the strong selling light truck and sport utility vehicle (SUV) market.
A decline in North American aftermarket revenues reflected market softness
but was partially offset by new business and higher value product sales. New
product introductions of the Quiet Flow(TM) muffler and the Sensa-Trac(R) with
Safe-Tech(TM) shock absorber are on-stream in the market according to plan.
Tenneco Automotive continued to gain share in the North American aftermarket
in 1997, further strengthening its position as the leading branded supplier of
exhaust and ride control products.
Quarterly revenues from Tenneco Automotive's combined European operations
increased 3 percent. An increase of 10 percent in original equipment revenue
in Europe reflected business growth with Mercedes, Nissan, Volvo, Volkswagen,
GM/Opel, BMW/Rover, and Toyota. European aftermarket operating income
improved, as restructuring initiatives, supply chain management and
productivity improvements added to better performance overall in Tenneco's
European automotive markets.
In South America, Tenneco Automotive operating income remained steady.
Increased OE and aftermarket business in Argentina and Brazil helped overcome
effects of what appears to be a short-term economic slowdown, resulting in
temporarily curtailed auto production and government austerity programs in
Brazil. In Argentina, Tenneco Automotive increased its share of the
aftermarket to an all-time high.
Tenneco Automotive's profitability increased in Australia and the Pacific
Rim. Despite unfavorable economic conditions in the region, operating income
rose as a result of aggressive marketing and total cost control management.
Among factors contributing to Tenneco Automotive's success, the company
continues to place its products on all 10 of the best-selling light trucks in
North America; both its exhaust and ride control products are on all three of
the best-selling vehicles in the world (Ford Escort, Toyota Corolla and
VW Golf); and one or both products are on 11 of the top 15 best-selling
vehicles in the world.
During the quarter, Tenneco Automotive products were introduced on 18 new
vehicle launches, among the total of 44 new vehicle launches featuring Tenneco
products that are scheduled for 1998. The company began exporting springs to
Japan for the Mazda 323. Tenneco received new contracts to supply a number of
sport utility vehicles (SUVs) and light trucks, including the next generation
Chrysler minivans, the year 2001 Toyota SUV, and the GM Blazer, Bravada and
Jimmy models. For the first time, Tenneco Automotive will supply the North
American two-wheel market, selling exhaust components to a major U.S.
manufacturer of motorcycles.
In 1997, Tenneco Automotive began its worldwide reorganization in order to
better focus its business on OE and aftermarket customers. These actions are
expected to improve the company's global operating efficiency and provide
nearly $40 million in additional cost reductions for the full-year 1998.
Overall Packaging Results
Tenneco Packaging's revenues increased 24 percent in the first quarter of
1998 to $1.1 billion, compared with $852 million in the first quarter of 1997.
Operating income increased from $42 million to $108 million
quarter-to-quarter, excluding the 1997 one-time mill lease refinancing gain.
Specialty Packaging
First quarter 1998 Specialty Packaging revenues grew 30 percent to
$656 million from $504 million in the first quarter 1997, and operating income
increased 52 percent from $49 million to $74 million.
Consumer volume was strong, led by a 40 percent increase in Hefty
OneZip(R) food bags and an 8 percent increase in foam tableware volumes. The
roll-out of Hefty Fast-Pak(R) deli bags using the Hefty OneZip(R) closure
began across the United States.
Protective and flexible packaging in Europe and North America performed
well as the integration of the acquisition of these KNP BT businesses
continued. This business, acquired in April 1997, contributed $121 million in
sales for the quarter, and added earnings of $12 million. Overall, margins
improved to 10 percent during the seasonally slow first quarter.
Excluding KNP's results, Specialty margins improved by 2 full percentage
points, to nearly 12 percent.
In March, Tenneco Packaging announced the acquisition of Richter
Manufacturing, a leading supplier of protective packaging in the western U.S.
With 1997 sales of approximately $61 million, Richter will give Tenneco
protective packaging both brand and product extension coast-to-coast. The
acquisition will be accretive to earnings in 1998. Richter has three
manufacturing plants in California and Washington and produces a variety of
protective packaging for the electronics, automotive parts, furniture and
agricultural packaging industries. Richter and Tenneco's other protective
businesses combined offer significant potential for future profitable growth.
New product introductions and new business processes helped improve
Packaging's overall results. Specialty Packaging launched eight new products
in the first quarter, including a new McDonald's breakfast package -- the Big
Breakfast Deluxe; three stretch films, two labeled MaxTech(R), serving the
steel and paper businesses, and PalleTech(R) X serving the pallet market.
Specialty Packaging also began implementing Customer-Linked Manufacturing
(CLM), a system-wide reengineering project which improves customer response
and reduces working capital through improved inventory management, system
scheduling and integration from order entry through manufacturing and final
distribution of the product.
Paperboard Packaging
Tenneco's Paperboard Packaging business reported revenues of $400 million
compared to $348 million in the first quarter of 1997. Operating income
improved from a loss of $7 million excluding the benefit from the mill lease
refinancing in the year ago quarter, to $34 million in the first quarter of
1998. The increase in revenue was fueled by higher volumes and improved
linerboard, medium and box pricing. Mill productivity improvements also
lowered unit costs.
Tenneco continues to emphasize cost reduction to improve profitability in
the containerboard business. Tenneco Packaging removed $9 million in costs
from mill operations in the first quarter of 1998 alone and introduced two new
products in the first quarter for internal use. The Counce, Tenn., mill
initiated annual production of 60,000 tons of mottled white linerboard and the
Waco, Texas, facility began production of clay-coated linerboard, for use by
folding carton divisions as substitutes for higher-priced bleached board.
Combined, these two products are expected to improve annual operating income
by approximately $7 million.
Outlook
"The operating performance of Tenneco Automotive and Packaging in the
first quarter, and the quality earnings they have reported are the result of
consistently improving operations, introducing new products and expanding the
worldwide reach of these two global manufacturing businesses," Mead said.
"The outlook for Specialty Packaging is robust, as volume growth, mix
management, new consumer and industrial products, and cost reductions are
expected to provide continued income improvement. Tenneco continues to build
on strategies that take advantage of the strong growth in the home meal
replacement market and that meet growing demand from consumers for product
protection, security, convenience and communication.
"The Paperboard outlook is positive. Box shipments continue to increase
and consumption is strong as containerboard inventory levels continue to
decline, albeit more slowly than originally projected. Mill maintenance
shutdowns and the beginning of the seasonally heavy demand periods are
expected to contribute further to the inventory drawdown," Mead said.
"Tenneco Automotive's OE business remains strong. General industry
forecasts call for steady 1998 North American automobile production and
increasing sales of light trucks and sport utility vehicles. Tenneco
Automotive is well-positioned for new growth, with 60 percent of its U.S.
OE sales in the expanding light truck and SUV market. While the North
American aftermarket continues to be soft, Tenneco Automotive expects to
further increase market share and margins through new product introductions
and strong marketing and advertising programs to support them. Tenneco
Automotive is well-positioned to take advantage of the upcoming period of
seasonally stronger aftermarket demand. In South America, Tenneco
Automotive's key customers inform us that they plan to continue new product
launches as scheduled."
European vehicle production is expected to remain relatively strong, as
European economies continue to exhibit recovery. In the aftermarket, Tenneco
Automotive will continue to pursue the branded product strategies that have
enabled it to increase revenue, margin and market share.
"Based on our performance to date and the opportunities we see ahead this
year, Tenneco is poised to achieve greater growth and value for our
shareholders as we continue to aggressively implement our strategies in each
business," said Mead.
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: "intend," "according to plan," "expects," "expected," "will be accretive,"
"offer significant potential," "which will improve customer response and
reduced working capital," "outlook is...," "forecasts call for," "is well-
positioned to," "is well positioned for," "plan to continue," and "poised to
achieve." 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 including currency fluctuations and other risks associated with
operating in foreign countries; (ii) changes in capital availability or costs;
(iii) changes in consumer demand and prices, including 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) material substitutions and 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