Tenneco Reports Second Quarter 1999 Earnings
27 July 1999
Tenneco Reports Second Quarter 1999 Earnings Driven by Strong North American Original Equipment and Steady Packaging Growth
GREENWICH, Conn.--July 27, 1999--Tenneco today reported second quarter 1999 net income of $92 million, or 55 cents per share,(a) including 5 cents per share from discontinued paperboard operations. Income from continuing operations in the second quarter of 1998 was 67 cents per share. Revenue in the period was unchanged at $1.6 billion.Second quarter results reflected strong Tenneco Automotive North American original equipment (OE) business and steady growth in Tenneco Packaging's specialty and protective packaging businesses. These were offset by weakness in the worldwide automotive aftermarket business, and higher overhead costs from the separation of the paperboard business, which occurred in early April. The North American automotive aftermarket business continued its recovery, showing income improvement over the previous two quarters.
"Tenneco Automotive continues to place its products on new high volume vehicle launches in North America and Europe, and the North American OE business showed substantial margin improvement," said Dana G. Mead, Tenneco chairman and chief executive officer. "Tenneco Packaging is on track to achieve record revenue of $3 billion in 1999 as it continues to expand its core businesses and improve margins in high growth markets."
(a): All earnings per share in this release are reported on a diluted basis.
Packaging
"We are finalizing the organization and fine-tuning the strategy that will enable us to continue profitable growth both internally and through strategic acquisitions," said Tenneco Packaging President and newly designated Chief Executive Officer Richard L. Wambold. He said the second quarter showed "consistent growth with a strong focus on our imminent launch as an independent company and one of the world's pre-eminent specialty and protective packaging companies."
Revenues for the packaging business rose 1 percent to $738 million in the quarter. Quarter to quarter, product prices declined along with resin prices. Unit volumes in total were up almost 6 percent. Packaging's operating income was $107 million, an increase of $6 million over last year, despite $3 million of overhead costs related to the separation of the paperboard business and $3 million of non-recurring Y2K remediation expense. Adjusting for these items, Packaging operating income improved by 12 percent.
This improvement was driven by strong unit volume growth in key North American segments, ongoing cost reduction initiatives and restructuring of the United Kingdom plastics business, all of which more than offset weakness in European operations. Unit volume of plastic foodservice containers and disposable tableware grew 7 percent, fueled by growing demand for home meal replacement packaging and increased sales to strategic accounts. Unit sales volume of aluminum foodservice and industrial products at strategic accounts increased 19 percent. Ovenable container unit volume grew 38 percent, primarily due to the acquisition of the Oven Champ(R) business completed in the third quarter last year.
North American protective packaging revenue grew 10 percent based equally on continuing strong market demand and the Sentinel Products acquisition. Hefty OneZip(R) bag volume increased 25 percent due to a combination of increased sales to mass merchandisers and warehouse clubs and international expansion. Favorable weather and a strong domestic economy also fueled a 13 percent gain in building products unit volume.
Tenneco Packaging further leveraged its innovative product development and design capabilities to introduce or market test a variety of new products. The company placed additional ActiveTech(TM) packaging systems at key veal, beef and pork producers. Hefty Elegantware(R) plates, launched earlier this year, achieved significant retail distribution during the second quarter. With an octagonal shape, high gloss finish and larger eating surface, Hefty Elegantware(R) plates offer the consumer exceptional value. The introduction of a new sandwich size Hefty OneZip(R) bag is on schedule and should contribute to future income growth.
Among other initiatives, Tenneco Packaging announced in the quarter the $72 million expansion of its Temple, Texas, facility in order to meet the strong demand for Hefty(R) tableware and trash bags, as well as plastic foodservice containers and tableware.
Looking at the second half of 1999, Wambold said he did not anticipate any major changes in the business environment. "We believe sales volume outside of Europe will continue to track at an overall growth rate of 5 to 6 percent," he said. "Europe, which is down year over year, will be slow to recover. Our earnings growth rate should be at the lower end of our targeted range of 10 to 12 percent.
"We are completing our preparation for Y2K and feel positive about our systems overall. We have been working with our customers to understand their ordering patterns related to Y2K and believe that fourth quarter 1999 could show somewhat heavier volume and first quarter 2000 somewhat lighter volume than normal. We plan to build some inventories to allow for this temporary dislocation."
Regarding the spin-off, Wambold said Packaging continues to focus on staffing and building the internal processes necessary to support the business after the spin, and on removing overhead expenses that will remain after the sale of Packaging Corporation of America and the closure of Tenneco's corporate headquarters.
Automotive
"Tenneco Automotive is aggressively pursuing its strategy of strengthening its advanced technology position to provide premier products and services to both its original equipment and aftermarket customers," said Tenneco Automotive President and newly designated Chief Executive Officer Mark P. Frissora. "We are extremely excited about the prospects of our new Kinetic roll control technology and are actively showcasing this system to our global OE and aftermarket customers. Our new management team also is focused on improving the technology linkage between OE and aftermarket with a goal of increasing the number of new aftermarket product introductions from one every two years to five each year in both our ride control and exhaust product lines," he added.
Tenneco Automotive's second quarter 1999 global revenue was $868 million, up from $864 million reported in the second quarter of 1998. Global automotive operating income declined 24 percent to $99 million, primarily due to soft worldwide aftermarkets and increased research and development investment in the European original equipment business. Combined North American profitability (OE and aftermarket) was up 25 percent, driven by OE market share improvements and aftermarket restructuring efforts. South American and European results reflected continued difficult economic conditions in the emerging markets and the impact of a strengthening dollar against worldwide currencies.
Tenneco Automotive's worldwide OE revenue increased 10 percent over the prior year's second quarter. North American OE revenues were up 18 percent with substantial improvement in margins and increased market share. A strong vehicle build, especially in the light truck segment, combined with aggressive cost take-outs in operations, contributed to the solid North American OE results. Also, European OE revenues improved 3 percent over last year. Europe's year-over-year results were offset, however, by increased research and development expenditures in 1999 and changes in the mix of its OE volumes to lower margin business.
In the second quarter, the company's ride control or exhaust products were featured on 20 new vehicle launches worldwide. In Europe, the company participated in 10 launches and began supplying ride control products for the Nedcar Volvo V/S40 and the Nissan Primera and exhaust products for the Citroen Xantia and Mercedes E Class, S Class and Coupe vehicles. Tenneco Automotive launched production on nine North American vehicles, including exhaust products for the Dodge Dakota and Durango, the Ram Van and Truck, and the Chrysler LH Concorde/Intrepid. In addition, Tenneco ride control and exhaust products are featured on Ford's new Lincoln luxury LS vehicle.
Continuing to expand its book of future OE business in the second quarter, the company added exhaust systems for a new joint global program between Isuzu and General Motors, ride control products for Nissan's Altima TK platform, stabilizer bar bushings for General Motors' GMT360 platform (Blazer/Bravada/Jimmy), and elastomers for Ford's Crown Victoria platform. Since the beginning of the 1999 model year, Tenneco Automotive has been awarded $235 million in new incremental business.
Tenneco Automotive global aftermarket revenue declined 12 percent and global aftermarket operating income declined 42 percent in the second quarter compared to a year earlier. North American aftermarket revenue and operating income, however, improved over the previous two quarters as inventories returned to more normal seasonal levels. As a result of restructuring in the North American aftermarket, Tenneco Automotive is on target to reduce structural costs by $25 million annually. European aftermarket revenue and operating income were lower due to high customer inventories and economic weakness in Eastern Europe.
Tenneco Automotive continued to expand its aftermarket product offering with the second quarter launch of the Gas Magnum Cab Shocks(R), developed specifically for heavy-duty tractors. The company will launch other heavy-duty and recreational vehicle products throughout the remainder of the year, expanding business in these profitable niche markets.
As part of the company's strategy to bring out new aftermarket products at a more rapid pace, Tenneco Automotive is preparing to launch the next generation of Monroe premium line shocks and struts for both passenger cars and light trucks later this year. The new patented technology takes Sensa-Trac(R) to a new level with Acceleration Sensitive Damping (ASD). ASD features a revolutionary technology that results in significantly improved handling and safety.
During the first half of 1999, Tenneco Automotive has progressed in its strategy of leveraging alliances, joint ventures and acquisitions to enhance its advanced technology position in both exhaust and ride control. Recent strategic actions include the purchase of Kinetic Ltd., in Australia; a strategic alliance with Siemens to develop electronically controlled advanced ride control systems; a global technical agreement with Ohlins to develop advanced electronically controlled damping systems; and a licensing agreement with Draftex of France to manufacture and sell elastomeric products.
Strong North American and European builds combined with Tenneco Automotive's premier technology leadership position are expected to provide continued growth for both OE ride control and exhaust.
"Kinetic will enable our company to expand its modular and systems capabilities, leading to increased OE revenues in 2000 and beyond," said Frissora. "We anticipate continued softness in the aftermarket in North America and Europe, but focus on our premier brands and the introduction of new products later in the year are expected to offset this impact. The launch of these new products will allow us to reposition our product offerings to all channels and open up new opportunities for Tenneco Automotive in the global aftermarket."
Despite the difficult outlook for the remainder of the year in South America, the economy has improved slightly over the first quarter. Tenneco Automotive continues to find ways to reduce costs in this region. In Asia, economic conditions have improved and new ventures in Shanghai, India and Thailand reflect our confidence in further growth opportunities in the region.
Tenneco is a $6 billion manufacturing company headquartered in Greenwich, Conn., with 38,000 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.
Several statements in this press release are forward-looking and are identified by the use of forward-looking words and phrases such as "continues," "on track," "will," "should," "on schedule," "anticipate," "believe," "looking at the second half," "plan," "goal," "to be produced," "on target," and "expected." These forward-looking statements are based on the current expectations of the Company and its subsidiaries. Because forward-looking statements involve risks and uncertainties, the 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: 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; governmental actions, including the ability to receive regulatory approvals and the timing of such approvals; changes in capital availability or costs; results of analysis regarding strategic alternatives; changes in consumer demand and prices, including decreases in demand for products and the resulting negative impact on revenues and margins from such products; the cost of compliance with changes in regulations, including environmental regulations; workforce factors such as strikes or labor interruptions; material substitutions and increases in the costs of raw materials; the ability to integrate operations of acquired businesses quickly and in a cost-effective manner; new technologies; the ability of the Company and its subsidiaries and those with whom they conduct business to timely resolve the Year 2000 issue (relating to potential equipment and computer failures by or at the change of the century), unanticipated costs of, problems with, or delays in resolving the Year 2000 issue, and the costs and impacts if the Year 2000 issue is not timely resolved; changes by the Financing Accounting Standards Board or other accounting regulatory bodies of authoritative generally accepted accounting principles or policies; and the timing and occurrence (or non-occurrence) of transactions and events which may be subject to circumstances beyond the control of the Company and its subsidiaries.
TENNECO CONSOLIDATED EARNINGS RESULTS
Unaudited
---------
THREE MONTHS ENDED JUNE 30,
1999 1998
------------------ ----------------
Net sales and operating revenues:
Automotive $ 868,000,000 $ 864,000,000
Specialty Packaging 738,000,000 731,000,000
Other - 7,000,000
------------------- ----------------
$ 1,606,000,000 $ 1,602,000,000
=================== ================
Operating income (loss):
Automotive $ 99,000,000 $ 130,000,000
Specialty Packaging 107,000,000 101,000,000
Other (10,000,000) (3,000,000)
------------------ -----------------
196,000,000 228,000,000
Less:
Interest expense (net of
interest capitalized) 54,000,000 51,000,000
Income tax expense (benefit) 51,000,000 55,000,000
Minority interest 8,000,000 8,000,000
------------------ -----------------
Income (loss) from continuing
Operations 83,000,000 114,000,000
Income (loss) from discontinued
operations, net of income tax 9,000,000 23,000,000
Extraordinary Loss, net of income
Tax - -
Cumulative effect of change in
accounting principle, net of
income tax - -
------------------ -----------------
Net income (loss) $ 92,000,000 $ 137,000,000
================== =================
Average common shares
outstanding:
Basic 167,100,000 169,200,000
================== =================
Diluted 167,500,000 169,900,000
================== =================
Earnings (loss) per share
of common stock:
Basic-
Continuing operations $ .50 $ .67
Discontinued operations .05 .14
Extraordinary loss - -
Cumulative effect of change
in accounting principle - -
------------------ -----------------
$ .55 $ .81
================== =================
Diluted-
Continuing operations $ .50 $ .67
Discontinued operations .05 .14
Extraordinary loss - -
Cumulative effect of change
in accounting principle - -
------------------ -----------------
$ .55 $ .81
================== =================
TENNECO CONSOLIDATED EARNINGS RESULTS
Unaudited
---------
SIX MONTHS ENDED JUNE 30,
1999 1998
-----------------------------------
Net sales and operating revenues:
Automotive $ 1,657,000,000 $ 1,664,000,000
Specialty Packaging 1,404,000,000 1,361,000,000
Other - 10,000,000
----------------- -----------------
$ 3,061,000,000 $ 3,035,000,000
================= =================
Operating income (loss):
Automotive $ 156,000,000 $ 219,000,000
Specialty Packaging 190,000,000 175,000,000
Other (50,000,000)(a) (14,000,000)
-------------------- --------------
296,000,000 380,000,000
Less:
Interest expense (net of
interest capitalized) 109,000,000 97,000,000
Income tax expense (benefit) 68,000,000 92,000,000
Minority interest 14,000,000 16,000,000
----------------- -----------------
Income (loss) from continuing
Operations 105,000,000 (a) 175,000,000
Income (loss) from discontinued
operations, net of income tax (163,000,000) 37,000,000
Extraordinary Loss, net of income
Tax (7,000,000)(b) -
Cumulative effect of change in
accounting principle, net of
income tax (134,000,000)(c) -
-------------------- --------------
Net income (loss) $ (199,000,000) $ 212,000,000
================= =================
Average common shares outstanding:
Basic 166,900,000 169,300,000
================= =================
Diluted 167,300,000 169,900,000
================= =================
Earnings (loss) per share of common stock:
Basic-
Continuing operations $ .63 (a) $ 1.03
Discontinued operations (.98) .22
Extraordinary loss (.04)(b) -
Cumulative effect of change
in accounting principle (.80)(c) -
-------------------- --------------
$ (1.19) $ 1.25
================= =================
Diluted-
Continuing operations $ .63 (a) $ 1.03
Discontinued operations (.98) .22
Extraordinary loss (.04)(b) -
Cumulative effect of change
in accounting principle (.80)(c) -
-------------------- --------------
$ (1.19) $ 1.25
================= =================
a) Includes charges related to realigning Tenneco's headquarters
functions of $29 million, $17 million or $.10 per share on an
after-tax basis. Before this charge, EPS from continuing
operations was 73 cents. b) Loss on early retirement of debt used to finance a Containerboard
facility. c) Change in accounting principle related to costs of start-up
activities of $102 million or $.61 per share pursuant to AICPA
Statement of Position 98-05 and change in accounting principle
related to costs to acquire new aftermarket customer contracts of
$32 million or $.19 per share.