Tenneco (TEN) 7 Aug 202020 Q2 Earnings call transcript

Good morning and welcome to the Second Quarter 2020 Tenneco Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Rich Kwas, Vice President, Investor Relations. ahead. go Please

the it specifically When means our in good release and include quarter we press earnings and A comparisons today, say materials other released all materials. measured our value-add currency EBITDA, are available margin release EBITDA. we corresponding with Please which XXXX GAAP measures earnings our The Thank to aware are of are adjusted on be earnings other morning. non-GAAP results attachments EBITDA year-over-year second that described on Revenue is remarks constant XXXX our earnings today on margin. information. section and available refers website. and our adjusted at rates. of otherwise, to website. will Unless our you discussion prepared Earlier Investors information related reconciled presentation measures, financial financial

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

the be many forward the weeks, Conference. Laguna Global look three Virtual and the virtually XXXX, connecting the in we'll Stanley Conference, Morgan Industrial participating several Auto Conference including RBC JPMorgan We conferences, of XXXX virtual you. to with For next Virtual

views on QX additional priorities. and current starts prepared performance color our review sheet agenda of our liquidity leadership on our position. team, provide Kesseler, segment end balance CFO, summary our and Our Brian on business our today with and giving Interim for Trammell, our and and enterprise QX a QX Brian our remarks with a strategic liquidity. will CEO, an will performance update summary Ken of

Brian. over Brian? it turn I'll to Now,

to and and Rich. everyone hope Please to remain Good morning, turn welcome. I Thank four. page you, safe healthy. everyone, continues

areas me with on challenging a few quarter. start key focus some a we of as navigated comments Let

attention in adapt safety the we all onset protocols continually to health global of to and priority strict of the team improve worked at with needed. distancing in how healthy China and functional a and set America members team with member From including the themselves facilities social and first families North offices and workplace Our pandemic, and following their operations the continues of outside May our quarter. our operational community. and We're and mind, Europe safety of cleaning, be our also team. Since when fully home June, the for health to and steadily standpoint, ramped seeking medical informing business during the was in keep an

team the revenue really as all improved segments value-add across the resiliency through came of our our sequentially throughout Second, quarter.

In addition, quarter. adjusted our in both cost the positive and us temporary enabled EBITDA achieve actions, structural, to

to decremental Our basis cost was temporary significant. our second basis points In be performance to have reductions margin to the QX been anticipated our would XXX a XXX taken Had temporary basis margin higher. year, we actions decremental our cost points more of structural are half actions, see the year-over-year will moderate, XX%. but on not we start

liquidity June as from modestly of our down Third, QX. billion $X.XX XXth, was

inventory meaningful this our normalize. we We call. as manage to in lower sales later ability reductions and the business addition to rates capital increase our will quarter. in as the more confident achieved working In rates capital Ken are production spending, in discuss detail recognize pressures the faces in

reduction initiatives. five page update to on now for Turning an cost our

momentum. cost structural actions continue to Our build

savings anticipate $XXX million savings to $XXX million end expectation We rate our achieve the end by of rate. run XXXX, XXXX. By a of we reaffirmed the run of of have cost

our salary XXXX, performance were liquidity. achieve cost preserve For to meaningful, at to temporary remain expected QX, helping including furloughs reductions benefiting to $XXX and are our costs In our million. and actions,

team period. our for soon that fully to made leadership begun cost sacrifice and conditions our team difficult have added permit. team. during and benefits this six, QX, families have actions our restoring to I forward members they you'll in their page two to see On thank senior look as to new I want as temporary members salary the to members we business moderate have Our and

smooth next recently organization We appointed months. experience join forward at again to While Matti us have the they week at had Ken earlier executive the us a at call will conferences Matti as Kevin CFO in the given he expect of Tenneco of and comes experience has and part Kevin today, and has his position. President over Recall, some of in his next CEO. end manufacturing CFO. finance a leadership I career. deep August look equity with as operations, Kevin roles leadership through Ken Guardian Matti manufacturing experience of the are He subsidiary that legacy in Federal-Mogul the our his our our and team, and comes Glass, to Industries welcome to not reestablished transition, has stepping thank and companies, finance his organization. hearing automotive several you early be for automotive to Also, last of Baird Trammell contributions. and on from broad in will private Tenneco the has background. week. to on has familiarity Kevin from working joined will he back organization Superior Industries, to and forward I we call. them as as operations and we was the where historically, want Masanovich COO. look to served Koch company served and upcoming ensure COO from quarter's this where the stay strong a with a

page to seven. Turning

end COVID-XX this a $X.XX level. were that and EPS quarter and in impact $X compared worth operating $X.XX billion, revenues the in high significantly a adjusted It is on a from was to and noting of value-add on down billion of QX performance year-over-year discuss XXXX. Let's market results were to attributable diversification $X.X Adjusted developed largely of share QX the ago. our earnings year our volatile per of geographic slightly revenues benefited the major Total economies. our a at decline time. was quarter The in during the decline basis. loss a positive EBITDA negative XX% was

Our revenue. QX equipment value-add our XX% of Geographically, our our XX% service almost strong comprised of aftermarket sales China QX and original details quarter value-add was more sales. exceeded and the shows our throughout total about Page performance. eight business

the some discuss it negative benefit balance from and temporary actions billion revenues mentioned, pace to volume. over revenues. mitigate $X.X and position. CTOH programs we from of impact to QX aggressive now light were moderate results revenues vehicle business down quarter. than million more in production segment $XXX $X of lower in year. and Ken? to us saw to cost as Volume positive light There expected lower in million at are lost With our a EBITDA approximately the approximately the mix temporary the cost was declined XX%, compared our and billion the flexing vehicle Adjusted allowed As Ken the were value-add to sheet quarter. The decline to of in our be aftermarket the turn $X reductions OES XXXX. quarter I'll balance

a product with see I'll the this winning execution we Even new for few the continue strategies, share strong examples including review our as Brian. on strengthening portfolio challenges to launching the faced programs Thanks, we the future. segment business in of our and we quarter, and results.

other geographic significant truck, Clean EBITDA the to in Light revenues and [Technical environment substantially $XXX fell room they from and as off-highway to operate page XX% mix light revenues XX% revenues was a what are million, production more XX% a OE changed service XX. Air and constant quarter. with were negative Clean basis. declined the revenues decreased down now Commercial year-over-year XX%. value-add XX% $XX than global we vehicle Difficulty] approximately on experiencing Turning vehicle year million this Air period. today. on prior decreased currency Segment of

Now, back the Brian? and I comments. for turn third on to closing will over quarter it Brian views

turn Thanks, page XX. Ken. to Please

not the a in slight are visibility, for we uncertainty XXXX added said, continued quarter production improvement financial the That third with providing Given providing revenue environment, value-add on full global the year guidance. in color will some be we quarter.

expect improvement North year-over-year QX. rates still Note decline lower forecasted down revenue OE the that similar percentage in is we we based our Europe. expectations in production what substantial than to in QX, value-add year-over-year, currently sequential saw but QX, we both saw on in to compared what IHS America For are by and

anticipate decline aftermarket also year-over-year, outside to will America. North XX% We mostly XX% revenue

ease to we taking the from than the those half the we Near second actions third from the we continue are the program took Accelerate+ will reductions in we benefit from savings cost quarter XXXX momentum build structural hold, and believe see term, more last as replace our the XXXX. into this and temporary cost actions expect Accelerate+ quarter. benefit program of lost in Our

sequentially of structure; margin a in preserve strategy second liquidity half The consistent from XXXX. into healthier as account we improve and operations we stronger our taken Tenneco performance to be have the and to the track to through We actions of with improve the flow also to expect expect further company. year-over-year on cash execution of cost is ensure emerge our QX QX. decremental our success Taking

Turning the before a additional line XX. open to provide comments page your now questions. to we for I'd like few

we and targeted XXXX, driving we ultimately will and believe, look expansion build value improvement stronger and we on commitment, half As investments. second cash Tenneco of towards optimize growth the reduction This debt flow through are shareholder actions. focused a margin

would our that shareholders. generation accelerating cash into expect debt reduction holders value enterprise We debt in improvement on our and from the to our focus deploying shift

debt per example, generate achieve value share shareholders. For of for could each of million $XXX we $XX reduction our

drive impact that clear value, are shareholder concentrating To this four main areas. may our equity path to see focus on as factors other we a we value. actual end, While

of structural to to have part are look Accelerate+ as to as focused for opportunities reducing program, more we our overall we improve previously costs continue margins structural First, our will on lower costs, discussed, returns. I and and

and standpoint. both Second, aim to working lower expenditure intensity we capital capital for our capital

have capital as capital we expenditure target. improvement and XXXX Ken Accelerate+ improving As lowered deliver we expect capital our to forecast working mentioned, the working on continue turns

Third, to we will portfolio. business continue line our optimize

margin a complexity a and capital further the and as enhance business process instituted and This investing in determine those on optimization demonstrated lines most area targets. simplification across our grow as assesses value our every to markets. of elimination. These stream [ph] areas using whose value faster surrounds their higher value fourth The underlying growth one or to capability that have prioritized those performance can each through cash focus the operation creating We our we return analytics. are well XX%/XX% have than

plan and a North markets; three part is top the Europe Motorparts see can You America, large in our of growth China.

with together solutions We have technologies, and Intelligent formed this Ride suspension we Suspension, differentiate in an improve which and as business deliver we advanced OEMs market. Performance increasingly characteristics brought help vehicle Ohlins Monroe year ride seen handling the competitive to

Materials business, business continues new electric Our battery NVH with particularly vehicles. win Performance to

difficult played than ability significant stronger resilience public in emerge commercial for industrial are Despite and to times and humbled this during entered. similar their safety. see environment. to the considered in call to in and the facing vital services like I'd in their the and North closing, weather Tenneco's health confident current of space, Tenneco. the the what the members come the and powertrains Lastly, our critical large always, for I work Europe. have team products global challenging take in to I'd to our Tenneco With we In as more role safely crisis a by a your in industry, we're maintain when security, opportunity you and thank remain regulation and team to I thank ready truck engine America have joining our operations we continued to like of economic such extraordinary hard your am in we families, allowing provide questions. downturn interest those morning seen and for primarily who efforts And Asia-Pacific under organization to that, region, that as off-highway our

Instructions] The ahead. James [Operator KeyBanc We Please question go Picariello begin comes from the Markets. Capital will first now session. question-and-answer of

you're this Could light for and guys. the morning to good of into vehicle is that based and of Maybe the expectations much what during resiliency your that attributed up Clean what decremental China? both is And from a break Hey, by revenue in remainder are the commercial we dig Air's year vehicle strength and quarter, standpoint? on how seeing?

the I JV That's quarter. bit on. of their Powertrain performance, think Performance from team India higher. driven that know consolidate we Turkey primarily similar that have. to Ride revenue with JVs a show obviously income Clean and Air all primarily was And in decremental the margins don't margin decremental that I that the the we out That's

from lower they're that the but big rest range both the all and And do we America did QX is or Europe down think playing probably Powertrain million down adjust a nice of in quarter, the and trucks, of also. part of is the Ken, all of flexing we the I businesses right JV industry them. But perspective of light North America. outlook we -- maintain of in -- truck, still the to for Motorparts commercial China to in you from on see off-highway -- group pretty mid-XX% and job XX% add Air. in $XX kind up the quarter looks of and in same of mentioned, holding and North to year-over-year, on Europe. If markets, cost to temporary want the the perspective, obviously hard around at beginning that production vehicle a Clean China. income, what vehicle Commercial that? its anything range at actions From right as year-over-year we're that conservative bit you more big expect light similar we're looking and kind production obviously, estimates a an benefited OE be

Air the just and I The say, only the because think mean, quarter was for in strong commercial in China keyed right. that particularly in in was going it I Yes. XX% truck down quarter. the on in was and to off-highway you Clean I commercial quarter, truck James, was

on just maybe content put are regulatory backdrop emissions nice And China the in getting an the update I based that that's there. through for know on a because Tenneco opportunity

an might what that Just on be? update the timing benefit and

build. mentioned implementation there. segment, Yes. VI and starting to the his continuing this update come VI the India benefit in We're is now as with China to Ken now seeing on And Bharat

and China pleased we're progress it's the better than the with there market So been. the in is enforcement traditionally

second for Got from improved are you cash the half flow, guidance just year one flow finish can final how about it. one maybe the And on or we Based full think for free cash free me. do thinking that? sequential positively

on depend up. to lot a got how shapes QX That's

generally, As you -- cyclicality. know, there's strong lot normal automotive-based a we're of in the suppliers, a other like flow QX, cash

continue late everything of if the goal. if we we expect. our holds steady, see I would on it's So to that's of add into you with market, want pretty to QX. hold that where too one? anything that think what But obviously we expect kind Ken, even The call build do September rates to early uncertainty the might

think you I Brian. well, pretty it covered

guys. Thanks

Capital question Spak next RBC of Please Joe from The Markets. comes ahead. go

Thanks. Good everyone. morning,

different break-even for EBITDA June about look, than April. a the but lot quarter, So clearly looked

the June help us profitability recovery where even of you what maybe or like could sort maybe continued. into July So with sort in looked of really

temporary to actions expected and is performance actions. to for QX gave decremental or that gain be similar worse down cost really QX. QX, was whole in worse than But effect take inside there. our savings June. costs obviously, cost temporary common that those margins see being inside why was at levels actions we about it's April The then our Yes. levels comfortable started those as cadence QX decremental that's we're of and really where stayed and to quarter, to driving May the than about cost I structural the When effect maintaining QX with margin And or far through at talked temporary as replaced, in the would -- structural the ratcheting quarter, momentum time and we actions maintained kind May momentum.

but assume know -- where a a into closer is are maybe time-frame quarter? first So, it it fair and this lot normalized, got and of of as there takes, puts it is sort I volumes the to that something bit more little you are looked to July June,

been changing all smooth, because the I point it patterns first would only the fact would The the volumes. the the of see right, of we're Certainly, out members I'll else and be in certainly us working that don't. to also that there of tell a that sometimes that number it of sort have the us given people on I or us wasn't some were fact closer mix quarantine, so levels terms stuff. rates the was simply in suppliers, that happy to but some good. something was keep that shifts. of that working our keep to number right? that We I safe. response sure ramp-up included, increase you and has that they're No, in are hard thing production of quarter. has try a make And say the and production to we to OEs ups And in And smooth, very and there's hard downs shift may team sometimes

it's So, reasonably quarter you increase. a hard happy and looks to so but third said, the like our are see QX, and least looked bit where September good still to say I is. returns like estimates staying although strong, that are at early relatively August And certainly July, for think IHS we're And the still well. it below generalize as are far,

not the does that much actions, just under control, $XXX temporary how the million, on Tenneco well? of, was And the as quarter programs? sort of stay government the I third like Okay. that into guess, And

adjustments. into that around and we of actions government mix on The the took world programs salary down That the QX. it was temporary between stepped

through Tenneco a program down control fairly of more the it temporary $XXX the half the yes. but The so small away, think the versus then on maybe QX, Joe. actions on percentage government control, programs were in saw that we government than QX to about take year way best million, what think of stepping I benefit maybe and is in to

sort Clean is near-mid-XXs; just Okay, the but was there's a third Last of know it's up proportion I should this the been of substrate quarter? housekeeping, great. been price of one, Air -- there, I mostly low-XXs. increases for and as of know is think sort percent a but that lot at we about

I mix than precious lot engine on drives commercial that it's solution significant -- metals, a in light There's off-highway but the vehicle with content also forward, truck, it. that the substrate increase, the obviously pricing will more traditional drive think a larger going solution.

you. Thank

The next open Brinkman, of end. on it is your go JPMorgan. line side? question comes muted this Okay. Ryan Is from Please Mr. your ahead. Brinkman accidentally on

you your question. maybe unmuted So go line. with your Please ahead

Okay. case, to we questioner. from of that next In excuse next Morgan Instructions] go Armintas ahead. question me, will Stanley. Please go [Operator Sinkevicius, comes The

cost great actions give you regards Great. how the those will some for morning. second on it's consistent mentioned to Good Thank maybe and Accelerate year-end. taking Accelerate a know But where are and you be I on into commentary made. decremental the then temporary you back sense those ramps -- One, with you with can bit program, margins how with half-weighted, question. how quarter, us a that the and

much of in Yes. we on beginning with pretty year, million at of added the to the we Listen, track run Remember, the rate. quarter, hit Armintas, first $XXX And about another beginning had we're what $XX million. expected year. of the we talked at the

just call ago, in replaced come with on actions back So much the coming third maybe roughly cost on-track. of $XXX quarter, rate a that the million temporary percentage in. run out said most the of the those decent quarter Brian pretty run that, Accelerate+ of a rate fourth a like by of more it the And minute is little by end half, bit

Okay.

costs, imply million annual from So in on to million million $XX $XXX you million of if rate? the Accelerate. goes say temporary you get that and run kind $XXX $XX Doesn't get a coming -- let's

we -- time Well, run remember, it's $XXX rate so XXXX, get million to right? by the

Yes, sense. that makes That sense. makes

it there? given that been mind at one Okay. can Or environment, hold this update the you're here? is for how Has all but just you thinking about And here, now? isn't maybe top Any the last guessing the the on moment then just I'm discussions completely at us separation. on put of

the and whole standpoint. been obviously capital portfolio a looking we're with always environment at seeing today structure our what of market from Well, it's as on the strategic market we're in kind put hold,

pause In opportunity fact mid-flight it we with had -- a to hit. as we had to that meaningful pandemic this --

debt looking that putting the margin time. and and the pick right any in be the be reestablish position debt with We've accelerating think right concentrated pay to down to we'll including focus need where accelerating is back on we any generation decision-making But -- targeted got that's on the we businesses. the So work cash critical at the to to to it get down. conversation make strategic make to now right -- investments, and that's of sure we get going that we our that be that options, profile value. up But separating on of

Yes.

the question. great. Okay, taking Thank you for

And from question ahead, go have Ryan Morgan. next Please we sir. Brinkman from JP

in, half Hey, flows about earnings versus the in Is that. a back of fitting first? you primarily the capital the the how back better back and to just it in you for Could talk year? sorry improved would working visibility half capital the expenditures into thanks of track me expect function or about cash

Yes.

to up from happy more we little But $XXX a about Again, flows, and factoring, halfway into going as production. receivables from spend receivables from also know, CapEx headwind, we're under in second the we're increasing that. well some the the That's there for in So visibility you certainly into see to cash think And ramp come into we'll the year. I we're is We'll more a recovery a head as million see headwind the year. that. of half have.

in come to would of rest half the you the here the that So year. second expect of

in actually well. we that sales, through helps profits second actually the -- increasing as from well. to went as we've right, certainly like And And production come that'll then half said, got fact that'll the increasing you -- as the money so make the to on

year in back flow, quarter believe, minus. we'll usage pattern. the business be see, of because year, or cash, quarter better working plus should You of had say oscillates, the as exception, years here. quarter first a flow simply and or usually, same this usually, is quarter the then flow a always source a third I standpoint, quarter and looks this I levels, what from is for past. And the that's as for say production know, fourth like should assuming, know, saw of, in quarter there's shouldn't returning year thing pattern It is stretches to you we many small cash I seasonal sort should of cash cash XXXX. be, will good like usually, the third this well cash than production strong capital a said, always, Brian from an a second Ryan, We And of us. source be very

of are divestitures, Okay, you your realized business thoughts conscious, lines. I discontinuation separation, current current environment non-core backdrop until like in Does want the What proceeds? rebounding feel -- cause price divestitures helpful. don't a to, just etcetera? the accelerate XXXX your you’re I you better or the of thanks. to business you about differently allow could I know, asked about to divestiture more divestiture, were liquidity your but And allows lines smaller about for maybe facilitate That's wait to wipers, industry if leverage you ask to maybe along

on. look any of where mid-flight, we’ll kind get halted at we'll we get the non-core COVID-XX it I going we're we a we not it. from do when we know, standpoint. what then value, assets the one, that but, believe as most a right one assets sale not know, for all mode we're the value you mentioned, make anybody, them situation, the at a what sense at If take make with I for and can is right for multiple higher of sure a from we're at think say time. we're fire we may But Ryan, those of trading, currently latter. look a opportunity can -- that to you But, is comfortable would course, in sense, it's And continue the -- we'll liquidity all. We're focused we're at be to more

of stronger options in And so Tenneco -- keep that's we’ll us as make company. -- get to front -- and continue the that debt paid what keep get stronger down and

don't I think mean, right certainly, now. to I EBITDA, hope anybody right somebody the is if well, Brian said it do on willing I right. that multiple pay expecting normalized but to

good wait we're until in place So certainly and a value to is good there a the appropriate?

of taking year think when this incrementals year? quarter the revenue to think typical in for helpful next just too. generating question. that back cuts return that what cost which that's beginning means though, Should incrementals? you that given Okay, just color, provided some austerity are contain second measures, last you do the does No, then decrementals, outlook and growth half, of And you the for the margin presumably we than about curious, higher decremental temporary, you're

that's here this several the next bag think and establish a that going of quarters to as I Yes, lap kind mixed new for be normal. we

away. temporary hope, forward cost actions, they're fast QX, go just into those Let's to going

we've plans laid downturn, Now, out. those go contingency if we get Right, can in. back right so they got into another

So of kind as year as be, a it's quarter-to-quarter to our structural through cost lap of going ramp. reductions we kind I next think QX

to As temporary we into kind stabilize lumpy. QX. of QX, cost would get QX and little hopefully we when Coming the lap I more through be reductions, it a think

we opposed I the have QX Ryan, -- are as half, qX out out back only the -- we margins just the right we for for guidance gave there want point to for don't anything And just decremental estimates gave we don't to one thing, now.

All right. Thank very you much.

to back over to session. Rich remarks. the This turn concludes conference I any like Kwas closing question-and-answer our would for

today's call. in everyone you, participating for Thank

feel If investor to to you great relations weeks. the to look in have speaking free a to Have any coming team. follow reach up day. you questions, We please the forward out

concluded. for presentation. Thank now attending has you conference The today's

You now disconnect. may