Tenneco (TEN) 8 May 202020 Q1 Earnings call transcript

Good day and welcome to Tenneco Incorporated First Quarter 2020 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note that the event’s being recorded.

I’d now like to turn the conference over to Linae Golla, Vice President of Investor Relations. Please go ahead ma'am.

you. Thank morning. Good we and morning, first XXXX quarter Earlier financial released information. results related earnings this our Presentation our section of corresponding the our on to website. prepared remarks available is Investor on discussion Please that today non-GAAP financial will be measures. our include aware information

All our release of attachments. in press which with measures reconciled are GAAP

constant we otherwise margin. When we XXXX margin release refers described measured value adjusted on EBITDA revenue, available refers year-over-year specifically means add comparisons revenue at our When we attachments adjusted and adjusted to rates, say value EBITDA. unless Revenue otherwise, are value EBITDA, website. are to earnings say EBITDA it unless mean currency specifically described added The margin. margin add

results our forward those will include from of our keep projected looking in some any in looking comments differ our could statements. of materially Please Additionally, actual forward statements. mind that

and in Over virtual Global & Materials the many Conference, three the Markets' to of Auto connecting look conferences with forward including Summit Deutsche be month Research Industrials we'll KeyBanc Capital Industry Conference. Basic the you. next Wolfe We Bank Global participating the Auto

outlook and make liquidity more with Trammell amendments. business taking we'll today color closing drill covenant into performance position Performance CEO, down and comments highlights Enterprise Kesseler CFO, a sheet, overview of giving starts the segment and our current COVID-XX QX agenda questions. and provide your Our our and bit on recent Interim our and liquidity balance will an review Brian response, then Ken before our will Brian

Brian. over to it turn will I Now,

healthy. Good safe I Thank hope morning, you, everyone and welcome. and staying Linae. everyone is

a Tenneco's team and in first for delivered the results and reported This on leadership we Interim to on who moment experience solid the to expertise have rejoined back call. extraordinary performance April take to X. truly begin, we Tenneco back welcome a business company pleased Before Ken like quarter his the on morning and environment. I'm to today's Trammell, him CFO as I'd have

turn to actions to on let's and summary Tenneco's a its response of start, the key taking three Page impact. focused we're of mitigate crisis COVID-XX some To the to on areas. X highlight We're

crisis the work. we on and and which wellness as we our a with live communities members, safety facilities, to distancing First, implemented health our critical, business essential where in our checks, of of response rigorous clean operations team many measures and began each all the social We've and at region. continued they supported protocols, of customers the focus

community. needed partner proud components support the by with medical We're increase to Motors also supplying of to production General ventilators to the

of mitigate with well of to these The were delivered widespread weeks this effort who our April Supporting company. are first and values of the as the three to a hospitals we after vital equipment ventilators lack help project week XX, the just began. aligns

our our of stages early and EMEA sites operating and work now centers Tenneco structure most suspending of the our of APAC by aggressively Tenneco's requirements we suspensions some in governmental of Second, the temporarily Americas, reducing or customers. flexed cost regions, and crisis, response the by to operations in taken were production the across near operating. all to are customers still our levels. in at centers and offices distribution pre-crisis Today, continued open demands facilities, the and OE safely distribution manufacturing and in aftermarket China meet who production

are the a up And operating plants company's April. week of distribution production, XX% week first the from May at XX% as the first of of of various of low approximately levels of during and globally centers

of health in government our the as we and to continue daily businesses safely they chain operations officials public supply globally. customers support coordination and with their We restore partners facilities our to restart as work customers, our our

the bottom financial our taken cash these flow. steps in structure detail. cost to order further liquidity have and I'll to But we our discuss Finally, action optimize preserve in improve greater ready available line estimates, to strong recovery. believe the we forecasts has and this, Tenneco are our based emerge the is current and industry downturn liquidity on weather for we adequate and

XXXX. annual targets run to as Turning end Program update beginning Page you capital on the cost Program million savings we by at a year-end recall, $XXX million initiatives, of now improvements The million track flow rate our X savings reduce generation. on year Accelerate costs run and by the initiated the achieve Accelerate $XXX rate to of improve $XXX working remain cost the Accelerate reduction XXXX. of of for operating to an further cash from We and

the the of and carryover For that combined synergy benefit we will calendar from expect $XXX benefits continue project Accelerate yield million XXXX, to improvement. cost

anticipate we in with metrics about incremental the we consistent to Further, adjust cost this improvements, our our COVID-XX outlook. China. beyond original year, targeted capital working capital also since expanded taken half structure our improvement Regarding its have achieving working reach steps

restructuring expected additional initiated to yield annualized actions have of We savings. $XX million

as margin spread expected across fraction On a The associated XXXX cost be back the these four small relatively corporate. global improve should and structural will our segments and to costs these of we mid business after production the benefit normalizes. performance basis, are of savings majority to added actions anticipate evenly long-term these actions and are

unpaid number We fees. have also to reduce furloughs temporary costs, and implemented decreasing a including actions reductions, of salary director

current in intend beyond the our but that year. will we business XXXX, not help they actions will These continue do support

However, remain and an to reevaluate demand environment the adjustments. time, make period for extended depressed of if would were appropriate the we

to cost cost XX% the materials the approximately variable, and ability point, flex accounting of As adjust giving demand labor a is goods reference for largely to the our with cost sold, us environment. of our base base company's to

balance few state Ken and required us the discuss about week, execute our our sheet believe terms environment. bank flexibility in our announced XXXX. a the offer amendment agreement volatile this position of update the on in a covenant plan Earlier liquidity debt and see group with give current on the and color we end X. the amendment the to additional terms our of the of completion Page of liquidity operating updated You'll through an will the minutes. We

At undrawn we've revolving billion year-over-year. capacity of of capital lowered liquidity, and quarter taken We facility. our XX% our actions a expenditure $XXX Operationally, had end, we million of to number of $XXX by target million on cash liquidity. hand $X.XX including our fortify on credit

spend $XXX plan is to million well to XXXX. current less the compared million than Our $XXX over in

specific deferring We a working inventory. emphasis we're high are flexing capital support our possible, Further, including outlays including programs. leveraging business on where reducing cash country

material a in As maturities any near-term our and XXXX. matures credit not do late we debt facility reminder, have

enhance leverage highlights a the Page we structure enterprise. January, leadership single quarter. team first strength performance I'd Now like discuss across for X, implemented to operational senior some and the of our streamlined In leadership business to of turning to the a

to on to significant add continue process, We progress the fresh make ongoing perspectives to which leadership and is board designed board. refreshment our

They Our leadership board Miziolek, as team. to entire Roy them the to working and ground experience I each members, directors hit board Armes business for continue running significant industry well Tenneco of better with newest and to the and look as and Aleks the Stevens, Chuck all have of success. bring forward position

the examples the in we long-term plan of April, execution of the tax benefit to on protect for good of assets, availability value first we region, our shareholders. In saw of all business during adapted the growth Across shareholder Tenneco's preserving a quarter. rights every strategies in addition,

across future, programs strengthen continues which industry. accolades launch new our We the continue portfolio recognition for to and product and to garner the and win

A few launching this program the a Technology win technology Ride XXXX. the include, Suspension new during examples in quarter, added addition an Performance programs team to Advanced the Kinetic advanced is XX

during business the win continued in $XX to Our Motorparts optimization securing key to North new and improve as continued quarter, profitability across group it than more and annual EMEA in portfolio categories. revenue complexity America product actions million

team Air captured and off bearing new China number PACE IROXX as business a for for the product innovation, drive programs launched once recognized when was were in again Clean of technology. India. highway new XXXX Commercial team and Automotive EMEA wins truck to the they and And CTOH News Award awarded a growth, continues in Powertrain

Awards successful earning had very Powertrain business with proud group has XXXX, history something pace Our of. we're a XX since

like global performance our Total were Page declined XX%. quarter. Value-add this currency year-over-year, million $X.X would down from while revenues $XX vehicle aftermarket was was X value-add markets OE billion commercial overview highway vehicle light of this and truck, and comes related off our just light XX% production. XX% excluding of and quarter out is industrial I revenue an point unfavorable billion. revenue $X.X that to and of to production is not

of on Our better revenue value-add crisis, $X.XX margin to estimate and diversified million, cost flexing Adjusted a in than impact or $XXX the loss Aggressive revenues. value-add of performance. delivered $XXX detrimental margin end a of the impact the a EPS million markets help X%. quarter per on was had negative share. was EBITDA which translated X.X% anticipated COVID-XX lessen we

the our the Ken, Now who sheet. balance to I'll will and turn call review segments over business

segment, estimate COVID a Air basis. declines Thanks constant the $XXX Brian. with out related we year-over-year on value-add start in almost and XX% this Air revenues on sales quarter. demand currency reduced were million by I'll XX. our million $XXX Clean decreased Clean Page In

global vehicle year-over-year. production by Light vehicle declined highway revenues light Commercial XXX points. basis XX% year-over-year revenues XX% off truck fell and other outperform and approximately and

the negatively Segment Clean XX% in significant of production XX% XXXX. a were decline versus approximately affected million, XX.X% profit the market Adjusted performance year first below has by $XXX margin in significant was prior was EBITDA Year-over-year period. quarter presence. Air was year-over-year EBITDA China,

developed the on North in year markets, quarter effect the negative margin in late America period. particularly versus our experienced downside a performance the prior Further had

estimate of by XX fell XX% production. sales Page currency. outperforming We global year-over-year vehicle Powertrain. light pressures Segment strongly million, COVID to million. Light a $XXX were review related demand vehicle constant see revenues down decrease Please XX%, $XX for revenues

our good less a segments therefore Powertrain consolidated quarter. portion by year-over-year On The a that the average affected contributed markets and basis quarter. outperformance representation regional was substantial the in decline has of this in below first mix China

Clean a profit well benefit margin $XX a team year-over-year the EBITDA XX was performance and million the quarter Air, EBITDA adjusted volatile impact versus Carryover negative benefited first decrease XXXX. backdrop. some of basis mitigated to volume SG&A business from about from declines. segments leadership Segment of of and managed points X%, against cost margin Similar the the was reductions

Turning segment, for pressures million. the $XX sales where Page now demand COVID Motorparts estimate XX by decrease to we related

sale at and the in X% product decisions quarter exit Strategic our decreased of the XXXX. revenue $XX wiper constant the line by comparison impacted of million first included product currency. First lines revenue to year-over-year quarter certain

was basis EBITDA points mitigate impact and and to control addition from adjusted XXX $XX In the savings helped synergy carryover down demand. cost segment the Tight EBITDA million was lower margin year-over-year. XX.X% negative

for details on Page to Ride Performance. turn Please XX

We in million. demand related quarter revenue million. First down constant was changes portfolio by pressures XX% currency, of $XX sales included COVID estimate year-over-year $XX decreased

off truck points which decline down and was was the Commercial XX%, revenue the XXX other global in revenue vehicle light was XX%. Light production in basis highway down better vehicle quarter. than

EBITDA on We're footprint has the now year. was four closing from progress one was manufacturing plants end million compared two plants reductions $XX margin America X.X% the X.X% pandemic in SG&A to helped capacity making ended some as closed with the to and of Operations the expected in be for year. impact. Segment last before Performance including performance Operating at in North reduction second of to our slated Ride of moving two. offset the

now on write before the term million of impairment impairments for decline. situation, impact updated tax, balance. precipitated pre-tax, of COVID-XX non-cash make driven entirely the were a million financials, Turning most Page our and to discuss by impacts goodwill liquidity downs XX $XXX A of I updates the and asset of we $XXX intangible covenant up charges half which of demand more after little related to near booked than key and couple

or terms businesses. these no current ratio, the and liquidity These position growth on our I'll commitment. updated prospects page, sheet we charges with strategic secured our view credit On of our lenders have debt starting covenant balance from value the impact items, this and leverage long-term

economic end our week facility four us this to net leverage provides current operate was of a basis our the credit earlier the headroom XX At we ratio times. to additional in with trailing QX secured environment. approximately senior total The month on amendment covenant

be measured to of leverage fourth leverage X.X using times will foreign secured senior aware debt. major QX debt, down secured unsecured in maximum the our net by you changes include, occurs The and and XXXX. ratio And steps at be allowed exclude times four quarter of notes ratio which will should senior our

covenant and QX quarter of threshold covenant ratio a back leverage first our the then to ratio, a effective in net revert X.XX net Starting decline leverage XXXX. will to with XXXX, X.XX commencing total times times

third declines XXXX to second of Our quarter ratio has with interest times changed of two X.X and beginning coverage for the been times XXXX. to the quarter

The stays XXXX second that interest level the X.XX coverage ratio is times at effective it tied of thereafter. with to and quarter

total million the XXXX. cash can we to effective until back $XXX quarter against maximum debt of addition, first apply allowance In million of XXXX. of our balance of drops the a That quarter fourth $XXX with

amendment, credit declines as In for long facility spread as net six ratio XX on leverage Term improves. the LIBOR and times. points to return Loan basis increases plus leverage the ratio consolidated spread XXX exceeds as our our The our A of

For reference details, please Form X. with on more the filed our X-K May SFC

unit we Next, the shows capital environment, current manage importantly maturities adequate XXXX. And liquidity debt and chart have we our support material more the to have on recovers. production through we when believe that right no low until the finally, requirements production working

further and $XXX drawing company's We bolster available At remaining the March $XXX available million credit position by under our had this facility. facility. cash amount revolving in the sheet, XX, balance liquidity credit million under the we on

turn second Brian to for our closing the in right. quarter on it I'll back and costs, views over Now

offering Please XX. and and Thanks to stabilizes. on early We guidance the the when Page in to uncertainty resuming guidance plan EBITDA revenue April. volatility Ken. Due financial the environment macro withdrew production we turn environment, our global in

you to in substantial sequential near about by how the business will production customers help are thinking However, or given meaningful compared QX. deterioration the our industry QX to incurred experience our vehicle EBITDA in and being we downtime we understand want believe revenue we light dynamics term

the in a vehicle forecasts conservative unit in a commercial production light a view O are decrease global more year-over-year to production but taking range the a decline out, industry EMEA in and basis, mid a XX% for on North and significantly year-over-year high activity IHS for in year-over-year to and We're global vehicle gradual decrease QX. planning light it's serve. bottomed currently major markets improve at will production appears XX% but month–to-month vehicle a production rate. aftermarket believe quarter, we do American We basis. have The down demand

improving seen demand anticipate have evolves. and quarter trends gradual since as mid-April We the improvement

actions in majority general, reduction cost during demand improve and carefully business in last and stand cost necessary. to contribute various trends XXXX. of QX, half Our with but many the downturn are unlike the year. soon, initiatives trends to ways second of In the ready In major monitoring take current XXXX realized we to start will the expect additional the is if benefits downturn the economic

challenges the the in similarities business are there today. However, facing

in our are employing implementing fortunate are through to the management the senior that we of industry. We each either businesses And here successfully from that through team business navigate environment. best downturn, managed member current and those previous the or somewhere practices experiences today, else playbooks

in in composition, While and global significant challenge, scale. there there overall are a similarities difference Tenneco's in current is this strength

operating profit industrial, vehicle, mix unlike our stronger diversification Each regional Highway, the and is the it operating and presence total versus has This and off 'XX experiences scale segment Tenneco. This the a and in crisis revenue the capitalize see to mix downturn. emerge higher markets environment and and in difference I aftermarket. Tenneco presence of current past We composition serves current light company our provides leverage strength group. a commercial a on this end scale, to in in from truck, key OEM, our many intend and and stronger 'XX, peer

open facing flexibility. confident we our to your will resiliency now before our support the like deliver unprecedented growth comments differentiators additional profitable in that provide Page the few I'd business Turning to questions. a XX, Despite and long-term the challenges I'm and to lineup of industry,

to the Tenneco and from diversification As New times, as are two generate business divisions, scale a the entity. benefit consolidated these us DRiV well value. benefit will believe current today, long-term I diversified we In of said, positioned we that both and

We're view we separation. Longer market term, market we focused potential alternatives once to the review our metrics industry will and of could of continue trends the demand highly In executed as as reducing with value a any forward before be recovers, we meantime, best shareholders. to opportunistically on stabilize. continue move that and proposition separation finance strategic the divisions the conditions all for and leverage cognizant

least, grateful company joining including for amid families, global provide morning our crisis Last, safely to I and certainly during to and thank to interest your considered toughness today's team to their environment. continued but and always, the maintain not you safety. that vital I'm for for members extraordinary and the and resiliency our products this take moment our health team And truly security, operations for services from as all like thank Tenneco. helping are efforts Tenneco in a public to call difficult want their the I'd

ready we're to your With take that questions.

you. Thank

begin the question Joseph first go our will RBC with come We now [Operator ahead. will Please And Instructions] Spak Markets. session. question-and-answer from Capital

or morning significant talk things do these maybe to or Thanks. footprint outsourced? a get on guess sort or And you going some areas to I everyone. program voice the start or done perspective opportunities? do or planning from of future for bit perspective what CapEx that that related little thought even you growth again. you mean tooling be to expected calls a a the or now that there's some cuts, on company's more maybe your Good Ken you which good about really to Can were significant. hear does is maybe were mentioned from to doesn't are

Joe Yeah, Brian. is this

That and the Let do me get start delays reduction I'll would with primarily would CapEx we Ken's in in thoughts be that after. one that future.

be XXX part less million initial we last as guide plan. our level that did remember million spending you to year plus If of anyway, were going that from we about $XXX

we or related perspective to it's that significant the program we've see stabilize choose so So it's don't can we later, projects. delays delayed to of of and/or some program of we programs, push items those out some really more delay until cancellations really there. something cut From not a and see

the on then cash balance if way got help could rest you is the sort a little quarters of the sort and cash in a goes Okay I free factors, little going be guess here. help working help but lower, particularly guess bit and down bit as just receivables, factor of My still us little could a flow other you with us be if maybe working cash free I coming over of is the more helpful. on and maybe capital receivable should maybe that'd flow, the that the bit

not Ken, to also, to outstanding too. factoring you again of at the so it's related really as the Joe, factoring factoring the those back. a liquidity. you talk June factoring have is will what are aftermarket. was later and they're of they'll had our as receivables end the facts month, dated factoring we this very The here, but program nice minor And And sources is of couple impact, Sure, know those Yeah, which and of about you programs and long opportunity come the impact, obviously, have short-term A half about production up it, the program. and will mentioned programs, to ramp remaining, significant. to our the timing begins the on customers into some July given year OE, one but

of that the like impact. it's feel So from be also revolver given significant a have don't long-term we and it'll impact. think we I production the a short-term the liquidity pattern

inventory. improving Brian the impact the On working significantly that's talk on heard our about you've mean, metrics capital I on and rest,

high of that on lot highly joined the inventory. was reduce inventory. by time the a in opportunity but focused to Very company, have We the very I

near production company there the at first before in to start with have available some to rapid quarter happened back ramps that use right certainly the to production up as has what replenish Given the is we decline that. of end a inventory

be again, of quarter, but a us, a for especially would the So inventory I expect in bit full tailwind as to here well. to second certainly the year

for Thanks the Great, thanks. color.

Our go Picariello KeyBanc. from James next come question with ahead. Please will

good Hey, guys. morning,

the rest sound quarter better quarter's and the little in year. year? as What the to how back driving the on through about the conversion, half. decrementals decrementals then quarter's in and would second thinking you were trend of key though and of rest might Just the solid the the the a does expect It be worse broadly factors performance

would be So any color helpful. there

me let and turn maybe to I'll then Yeah, Ken. start over it

had the So last year time. been we carryover talking completed from synergy ahead the benefit we work about obviously that of

us costs. China the at in quarter early And standpoint. ability the perspective so the flex first got team in The least a that obviously some from out comparison helped to of from our of

I will So is across the on operationally It's Yes, flex we down operationally cost be execution – good same where there. won't flexed. of decremental the that kind would have QX board and say performance.

and I volume of you lift that about the sharp to Ken would got think then If as had to a any thoughts – back. decrementals downturn, XX% probably other would the in would you say the mid come to with in that quarter-to-quarter, continues it want high start be to that? QX you on

what some No, said in certainly of quarter things as point, bit the we've you past of a certainly from first your to bit little mean, the were look comps. performance and make decrementals quarter. things last seen reiterate, better. like couple higher that supplier be unusual range, But a it second into I the the Brian. the back you a There in year with quarter bankruptcy in to certainly this like good think I the a maybe in will of well year-over-year just normal little helped move first

is pretty XX in additional just rate it Thank Got confirm, I helpful. you savings. to the actions much can based? then how this the dispersed segment? broad just How And million two maybe are it, you across year? cost that's think those So targeted do you. business units it regarding guess across achieve is or run And

of four XXXX. in expect our mentioned fiscal across little as be earlier, calendar going is corporate, that I portion realized that run of rate a would year well expect, going good groups and in majority forward. pretty evenly to we remain but – the a split in meaningful to business year It's bit we of And the the would

perspective, think control that going Accelerate performances with margin from program stage cost for $XXX pretty margin the coupled So the a sets and good million I forward.

flow Got on lower the restructuring two inputs, now That it be cash for say. CapEx us would D&A on color I to then cash what things year? given are give let's and kind you spend. free XXX you Can had the spend then be of incremental helpful. spend, about you outlined think how thinking this And year? million you in maybe cash just

So wonder changed if there. Thank I just anything you. has

to Yeah. cash Ken maybe want and hit flow the maybe free restructuring. you I'll talk about the

bet. Again, we said right. earlier, you Yeah, like

I depreciation I of that something would we forward, now, the think that will CapEx point move million that an with if estimate But pushed obviously guess depreciation what's to average, has assets. an right the impairments you on. all be will be think once by depreciation significant. by we lower allocated appropriate impairment don't we actually on I in I solid impacted of because the kind will out we that free very a annual of on hard the cash of basis sort to will to impact an individual really flow that going I $XX give as charges assets. on impact took get the the took be be that guess related there the down be would neighborhood

the payback faster at we look shuffled the deck we projects. as really James a prioritized a took talked we the savings that about, XX, bit little and incremental and Yeah

in be payback a queues back see the don't the bit. in put maybe we'll the we we this can XXX I that year the where original meaningfully stabilize longer than know some until higher little ones for environment So of

Thanks guys.

ahead. next Morgan question will - Our Stanley. come go Armintas Please from Sinkevicius

Great, thank the you question. taking for

terms, leverage for you previously New if and leverage was that. to the it able the covenant X.X spin, to Assuming to there are those were just changes any on Tenneco? a when changes First, renegotiate side any wondering times

Yeah. to No that. changes

from those standpoint, you given have have on here? have strategic guessing of the or if I'm discussions you to continued evaluate continue sort then And hold transactions, a been environment put to

way I started this on the you think, the I right Well, that with now. mean, going environment

our I until think pause on button everybody's strategic hit way any see this. assessments alternative the through we

Okay.

great. appreciate Okay, the I questions.

come with The ahead. Alcentra. will question go next Please Clark Orsky from

Yeah, facilities, any change those to just facilities? terms of circling back any the on factoring those on

because either a first that know But spread few on anything, changes fairly No, the costs impact. basis minor there points, be of talking in went quarter I their would there in up, were not those changes facilities. a a funding that in couple significant we're terms, were the

then you. have rate and other savings run for you the did salary SG&A? And Thank missed I may the it, in cost made you quantify adjustments

perspective. we just until to of lot into obviously up from No, temporary a but a see don't and the we through, definition, not By still production carry we factored as QX tend did don't hard ones. so here ramp that we're flexing mid-April coming

Thank you.

This today. our question-and-answer as well concludes our session as conference attending today's presentation. call for Thank you for

disconnect. now may You