Tenneco Reports Q2 Earnings
21 July 1998
Tenneco Second Quarter Earnings Rise 33 Percent - To 81 Cents Per Share - On Revenue Gains In Automotive Original Equipment and Packaging
GREENWICH, Conn., July 21 -- Tenneco today
reported second quarter net income of $137 million, or 81 cents per share,
compared to $104 million, or 61 cents per share in the second quarter of 1997,
an increase of 33 percent.* Tenneco also reported a 5 percent increase in
consolidated revenues to $2.0 billion, compared to the $1.9 billion reported
the previous year.
Tenneco's improved revenue and earnings were driven by strong performance
by Tenneco Automotive's North American and European original equipment (OE)
businesses and growth in the specialty and paperboard packaging businesses of
Tenneco Packaging.
Tenneco Packaging revenue increased from $1.0 billion to $1.1 billion.
Tenneco Packaging operating income grew 83 percent from $82 million to
$150 million for the second quarter of 1998, including a pretax $15 million
gain, or 5 cents per share, on the sale of Tenneco Packaging's remaining
20 percent interest in a recycled paperboard joint venture with Caraustar
Industries.
Specialty Packaging's revenue increased from $669 million to $731 million
and operating income increased from $90 million to $101 million. Operating
income in Specialty's consumer products group improved as a result of strong
consumer volume and improved consumer waste bag and stretch film margins.
Hefty OneZip(R) bag volume increased 18 percent over the 1997 quarter. The
flexible and protective packaging business of KNP BT, acquired last year,
contributed to the strong sales and profit results.
Paperboard packaging reported a 15 percent revenue increase to
$402 million from $350 million a year ago as operating income rose from a loss
of $8 million the previous year to $49 million, including the $15 million gain
from Caraustar. Revenue and operating income improvements resulted from
higher volume and improved year-over-year linerboard, medium and corrugated
box pricing.
Tenneco Automotive's overall revenue and operating income were essentially
equal to last year's record quarterly performance. Tenneco Automotive
reported $130 million in operating income on revenue of $864 million, compared
to $131 million on revenue of $873 million in the year-earlier period.
Original equipment business in North America and Europe recorded revenue
increases of 11 percent and 13 percent to $259 million and $196 million
respectively, helping overcome effects of the General Motors (GM) strike and
currency fluctuation. The economic slowdown in Asia and South America had a
negligible direct impact on earnings.
North American OE revenue and operating income improved as the business
placed its products in the fast-growing light truck market and successfully
implemented numerous new OE platform launches. Tenneco Automotive European OE
operating income climbed significantly with the successful launch of new
platforms, numerous full-system initiatives and increased content per launch.
Tenneco Automotive's North American aftermarket revenues declined
18 percent to $189 million from $230 million in the year earlier second
quarter, resulting in lower operating income, as Tenneco worked with its
customers to reduce their inventory levels and improve their cash management.
The effects of the inventory adjustment and increased service bay activity are
expected to result in volume and margin improvement going forward. While
European aftermarket sales declined 5 percent from $148 million to
$141 million, operating income increased. In Argentina, where Tenneco has a
leading position, aftermarket sales increased 15 percent.
"Tenneco's second quarter earnings demonstrate that our businesses have
the capacity to report consistent earnings despite uneven market conditions,"
said Dana G. Mead, Tenneco chairman and chief executive officer. "Tenneco
Automotive's OE performance largely offset the combined effects of inventory
corrections and weak demand in the North American aftermarket, the strike at
GM and currency fluctuations. Likewise, we produced strong results in
Specialty packaging and Paperboard. We expect Tenneco's top consumer brands
and strong market positions in both major businesses to continue providing
top-line growth and improved returns on a consistent basis."
For additional detail see Segment Analysis following financial tables.
Tenneco is an $8 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.
TENNECO CONSOLIDATED EARNINGS RESULTS
Unaudited
THREE MONTHS ENDED JUNE 30,
1998 1997
Net sales and operating
revenues:
Automotive $864,000,000 $873,000,000
Packaging 1,133,000,000 1,019,000,000
Other (1,000,000) --
$1,996,000,000 $1,892,000,000
Operating income (loss):
Automotive $130,000,000 $131,000,000
Packaging 150,000,000(a) 82,000,000
Other (4,000,000) (1,000,000)
276,000,000 212,000,000
Less:
Interest expense (net of
interest capitalized) 61,000,000 53,000,000
Income tax expense 70,000,000 49,000,000
Minority interest 8,000,000 6,000,000
Net income $137,000,000(a) $104,000,000
Average common shares
outstanding:
Basic 169,200,000 169,800,000
Diluted 169,900,000 170,200,000
Earnings per share of
common stock:
Basic $ .81(a) $ .61
Diluted $ .81(a) $ .61
(a) Includes a pretax gain of $15 million on the sale of Tenneco's
remaining interest in the joint venture with Caraustar, $9 million or
$.05 per share on an aftertax basis.
Segment Analysis
Overall Packaging Results
Tenneco Packaging revenues increased 11 percent to $1.1 billion in the second
quarter of 1998 from $1.0 billion in the previous year. Tenneco Packaging
operating income increased 83 percent from $82 million in the 1997 second
quarter to $150 million in the second quarter of 1998, including a one-time
gain from the sale of a joint venture interest.
Specialty Packaging
In Tenneco Packaging's Specialty business, revenues were $731 million in
the second quarter of 1998, compared to $669 million the previous year, and
operating income rose from $90 million to $101 million. In addition to the 18
percent volume increase in sales of the company's Hefty OneZip(R) bags, they
recently were selected for distribution in more than 200 Wal-Mart Sam's
stores. A successful national roll-out of Hefty Easy Flaps(TM) waste bags is
nearing completion. The company is testing a jumbo version (2.5 gallon size)
of the Hefty OneZip(R) bag in select multi-use markets. And sales of the
McDonald's Big Breakfast Deluxe foam container, which was launched in the
first quarter in Los Angeles, Chicago and Baltimore, have exceeded initial
expectations.
The successful market introduction of the Hefty(R) Slide Rite(TM) bag
closure system continued in the quarter. In addition, Medi-Zip(TM) medical
and laboratory bags using Slide-Rite(TM) bag closure technology were
introduced to the medical field during the second quarter with major shipments
scheduled to begin in August. An improved Hefty OneZip(R) bag also was
introduced during the quarter, featuring easier-moving, easier-gripping
sliders, color-coded with red for refrigerator and blue for freezer use.
Improved Hefty Handle Sak(TM) waste bags were shipped to customers in April.
The bags are thicker, stronger and easier to dispense than before.
Richter Manufacturing, a leading producer of protective packaging for the
western United States, which Tenneco acquired in May 1998, with 1997 sales of
$61 million, is rapidly being integrated with Tenneco Packaging's global
protective packaging operations.
Paperboard Packaging
In the second quarter of 1998, Tenneco Packaging's paperboard business
reported a 15 percent increase in revenue to $402 million, compared with
$350 million in 1997. Operating income improved to $34 million, excluding the
Caraustar gain, from a loss of $8 million in the second quarter last year.
Improved volume and linerboard, medium and corrugated box pricing contributed
to revenue and operating income improvements.
Paperboard packaging's initiative to produce more high performance
linerboard, including mottled white containerboard for internal use and clay
coated linerboard for rotogravure applications, is expected to improve
operating income by $10 million annually. Use of such products by Tenneco
Packaging's folding carton and graphics division is expected to further expand
the range of current product offerings.
The Paperboard business continues to focus on productivity and cost
reductions to improve profitability. Containerboard mill operations
eliminated about $18 million in costs in the first half of 1998, more than
offsetting inflation and higher fiber costs. Corrugated converting operations
also reduced conversion costs 3 percent in the first six months of 1998 versus
the same period a year ago.
Automotive
Tenneco Automotive reported operating income of $130 million on revenue of
$864 million in the quarter, compared to record operating income and revenue
of $131 million and $873 million a year earlier.
In North America, Tenneco Automotive's combined OE and aftermarket revenue
was $448 million, essentially even with last year, despite an 18 percent drop
in the aftermarket. North American OE revenue increased 11 percent over the
year earlier quarter.
Tenneco Automotive's global OE operating income increased 44 percent,
driven by record 1998 product launches and new business. When combined with
benefits from restructuring, the strength of the OE business more than offset
soft aftermarkets, currency effects in Europe and Asia and the GM strike
combined.
Tenneco Automotive's North American OE revenues and operating income grew
as a result of the company's ability to target and obtain contracts to supply
vehicles in the growing light truck and sport utility vehicle segment. In
addition, an array of cost management, efficiency and productivity gains
helped improve results. In the quarter, the company launched new business
with Ford, Chrysler and GM. For the first time the company began supplying
catalytic converter assemblies to Ford for the Mustang. Ford also awarded
Tenneco Automotive the contract to supply exhaust products for the high
profile Nastruck and Sport Truck. And the Ford F-Series truck was
launched with Tenneco supplying exhaust components from the Queretaro, Mexico,
facility.
Tenneco Automotive is conducting a major launch of GM's redesigned GMT800,
supplying muffler and pipe assemblies, bushings and the new monotube shock
absorbers, although production is temporarily halted during the strike.
Production is expected to reach one million vehicles annually, providing
Tenneco Automotive annual revenue of approximately $60 million. During the
second quarter, Tenneco Automotive also ramped up production of shock
absorbers for JX vehicles in Mexico.
The North American OE group received the largest-ever single order in
Tenneco Automotive's history with the award of the exhaust systems business
for GM's new mid-sized Epsilon platform. The project, which starts in year
2000, will encompass four continents (North America, South America, Europe and
Australia). Tenneco Automotive also expects to announce several significant
global OE business awards in the near future.
Tenneco Automotive's aftermarket business continues to operate in a
generally weak global environment where sales industry-wide are down an
estimated 8 to 10 percent. Second quarter revenue also was affected
substantially by an effort to help customers better balance their inventory
levels and stabilize their cash management positions. These actions are
expected to help improve margins and sales in the second half of the year.
The company is taking additional steps to counter aftermarket weakness.
The recent launches of the new Walker(R) Quiet-Flow(TM) premium muffler and
the Safetech(TM) update of the Monroe(R) Sensa-Trac(R) premium shock and strut
line progressed well, supported by extensive advertising and marketing
programs.
Quarterly revenues from Tenneco Automotive's combined European operations
increased 5 percent. An increase of 13 percent in European OE revenues
to $196 million and significant operating income improvement reflected
expanded business with Mercedes, Nissan, VW, Rover, Ford, Volvo, Toyota,
GM/Opel, BMW, and Porsche, as well as aggressive restructuring efforts in
Germany, the United Kingdom and France. European aftermarket operating income
increased 4 percent due to restructuring and inventory management, although
aftermarket revenues reflected an exchange rate impact and declined 5 percent
in the quarter to $141 million.
Tenneco Automotive's operating income in South America increased slightly
versus the same quarter last year, even though Tenneco Automotive South
American revenues declined 9 percent to $42 million in an overall market that
fell 16 percent. New OE and aftermarket business, especially in Argentina,
offset effects of the region's economic slowdown.
Outlook
"The combined operating performance of Tenneco Automotive and Tenneco
Packaging in the first half of 1998 and the most recent quarter are the result
of efforts to improve operations, reach customers with new products and build
on two excellent manufacturing businesses worldwide," Mead said.
"The outlook for Tenneco Automotive is good. Its OE business is growing
and our potential to provide systems integration and grow globally is great."
General industry forecasts call for stable production through the rest of
1998, although they do not include the effects of the GM strike.
"Ford, Chrysler and GM are expected to continue driving the light truck
segment while other producers gain ground in the passenger vehicle segment,"
Mead said. "Improving economic conditions in Mexico and Canada should further
increase North American vehicle demand. In the aftermarket, inventory
reductions and increased service bay activity are expected to improve results.
"In Europe, Tenneco Automotive is identifying new business, such as the
growing small car segment in Eastern Europe. In South America, recent
investments are expected to drive growth. And while the outlook for Asia and
the Pacific Rim remains soft due to the regional economic crisis, Tenneco
Automotive continues to adopt aggressive cost management practices, maintain
customer relationships and identify future opportunities.
"The outlook for Specialty packaging is strong as new volume and new,
higher-value-added consumer and industrial products add income growth," said
Mead. Successful integration of acquisitions continues to yield cost
advantages. Growth of 5 to 6 percent is expected in Specialty market segments
throughout the year as the group strengthens its product positions among
leading distributors and retailers.
"In Paperboard, inventories have not declined as quickly as forecast,
exacerbated by a steep decline in exports," Mead said. But a number of
producers have announced downtime in July, with some downtime characterized as
indefinite. "Longer term, most analysts predict improved supply and demand
balance, with no new major capacity projected. If their predictions
materialize, that would be very positive for our paperboard business."
Several statements in this press release are forward looking and are
identified by the use of forward looking words and phrases, such as
"continues," "continue," "scheduled to begin," "rapidly being integrated,"
"expect," "expects," "expected," "capacity to," "steps to counter," "will
encompass," "outlook," "is growing," "forecasts call," "should further
increase," "is building on," "will contribute," "potential is great,"
"analysts predict," and "if their predictions materialize." These forward
looking statements are based on the Company's current expectations. Because
forward looking statements involve risks and uncertainties, the Company's
plans, actions and actual results could differ materially. Among the factors
that could cause plans, actions and 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) governmental actions, including the
ability to receive regulatory approvals and the timing of such approvals;
(iii) changes in capital availability or costs; (iv) 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 (v); the cost of compliance with changes in regulations, including
environmental regulations; (vi) workforce factors such as strikes or labor
interruptions; (vii) material substitutions and increases in the costs of the
Company's raw materials; (viii) the Company's ability to integrate operations
of acquired businesses quickly and in a cost-effective manner; and (ix) the
timing and occurrence (or non-occurrence) of transactions and events which may
be subject to circumstances beyond the Company's control.
*All earnings per share in this release are reported on a diluted basis.