Tenneco Inc. (Tenneco) has reported net sales and operating revenues of $0.97 billion for the first quarter of 2009, up 12%, compared with the net sales and operating revenues of $1.56 billion for the previous year quarter. It has also reported a net loss of $47 million, or $1.05 loss per diluted share, for the first quarter of 2009, compared with the net income $9 million, or $0.13 per diluted share, for the previous year quarter.

Adjusted for the items below, the net loss was $29 million, or 61-cents per diluted share, compared with adjusted net income of $10 million, or 20-cents per diluted share a year ago.

Earnings before interest, taxes and noncontrolling interests (EBIT) were a loss of $13 million, versus EBIT of $39 million the previous year. Adjusted EBIT was a loss of $10 million, versus adjusted EBIT of $43 million a year ago. EBIT was negatively impacted by significantly lower OE production volumes worldwide and manufacturing fixed cost absorption related to those volume declines, which together reduced EBIT by $100 million in the quarter. EBIT was also negatively impacted by $13 million related to unfavorable currency exchange rates compared to a year ago.

Tenneco partially offset the negative EBIT drivers with lower SGA&E spending, execution on restructuring actions, manufacturing efficiency improvements and customer recoveries.

EBITDA including noncontrolling interests (EBIT before depreciation and amortization) was $39 million compared with EBITDA of $94 million in first quarter 2008. Adjusted EBITDA including noncontrolling interests was $41 million, versus $98 million the prior year.

“This was a very challenging quarter as production volumes continued to decline to extremely low levels with no region of the world unaffected,” said Gregg Sherrill, chairman and chief executive officer, Tenneco. “However, restructuring actions and our employees’ concerted efforts to aggressively reduce costs and generate cash were instrumental in helping to offset the impact of this severe industry downturn.”

First quarter 2009 adjustments:

Restructuring and restructuring related expenses of $3 million pre-tax, or 5-cents per diluted share;

Non-cash tax charges of $18 million, or 39-cents per diluted share, primarily related to the impact of not benefiting tax losses in the US and certain foreign jurisdictions.

First quarter 2008 adjustments:

Restructuring and restructuring related expenses of $4 million pre-tax, or 6-cents per diluted share;

Non-cash tax adjustments of $1 million, or 1-cent per diluted share, mostly for changes in the company’s estimates for tax matters subject to audit.

First quarter revenue was $967 million, down 38% from $1.560 billion a year ago. The impact of unfavorable currency in the quarter was $175 million. Excluding the currency impact and substrate sales, revenue was $928 million, down 18% from $1.139 billion in first quarter 2008. The decline was due to lower year-over-year OE production volumes in every region.

Tenneco’s cash performance was solid in spite of a production climate that reduced EBITDA including noncontrolling interests by $55 million compared to a year ago, and despite a $45 million year-over-year reduction in cash flow from the sale of receivables. The company used $81 million in cash from operations in the quarter, compared with a use of $64 million in first quarter 2008. Inventory reductions and accounts receivable were the strongest drivers. Cash flow from accounts receivable improved year-over-year by $33 million. Additionally, a tight focus on controlling inventories generated a $77 million year-over-year improvement in cash flow this quarter. Cash flow from inventories was $34 million versus a use of $43 million in cash a year ago.

Tenneco’s efforts to conserve cash while continuing to invest in technology, capabilities and assets for future growth resulted in capital spending in the quarter of $25 million, a 52% decrease from $52 million in first quarter 2008.

“We are very pleased with our cash performance given the headwinds we faced this quarter,” said Sherrill. “We are executing on our cost reduction and cash management plans and managing liquidity through working capital improvements, significantly reducing capital expenditures and eliminating discretionary spending.”

At March 31, 2009, the company’s leverage ratio under its senior credit facility was 4.72, below the maximum level of 5.50. The interest coverage ratio was 2.91, above the minimum of 2.25. Tenneco amended its senior secured credit facility in the quarter in response to difficult industry conditions globally. The amended facility adjusts the debt covenant ratios through 2011. At the end of the quarter, Tenneco had an EBITDA cushion of $45 million and a debt cushion of $248 million against its tightest covenant.

At quarter-end, total debt was $1.587 billion, versus $1.463 billion the prior year. Cash balances were $113 million versus $161 million a year ago. Debt net of cash balances was $1.474 billion, compared with $1.302 billion at the end of first quarter 2008. Tenneco completed the quarter with $270 million in unused borrowing capacity under its $680 million revolving credit facility. At December 31, 2008, total debt was $1.451 billion; cash balances were $126 million and debt net of cash balances was $1.325 billion.

Gross margin as a percent of sales in the quarter was 14.5%, compared with 15.0% a year ago. The company minimized the negative impact from lower production volumes, manufacturing fixed cost absorption and unfavorable currency with cost reduction actions, customer recoveries and manufacturing efficiencies. Gross margin in the quarter included $2 million in restructuring costs and first quarter 2008 gross margin included $3 million in restructuring costs. In addition, this quarter’s gross margin performance was a sequential improvement over fourth quarter 2008 – despite 20% lower sales – and represents the strongest gross margin performance since second quarter 2008, reflecting the effectiveness of the company’s restructuring and operational cost reduction actions globally.

Tenneco’s aggressive cost reduction efforts – including restructuring, employee furloughs and customer engineering cost recoveries – lowered SGA&E (sales, general, administrative and engineering) expense in the quarter to $99 million from $141 million a year ago. SGA&E as a percent of sales increased to 10.2% from 9.0% due to lower year-over-year revenues.

Outlook:

Tenneco reiterated that cash generation and strict cost management remain its top near-term priorities in response to the global economic crisis. In addition to the cash and cost containment actions announced during the second half of 2008 and earlier this year, Tenneco also initiated plans globally to temporarily lower its salary costs for salaried employees by at least 10%, beginning April 1, 2009 to help counter the ongoing impact of low production volumes. These plans are being tailored to each of its markets and include salary cuts and work hour reduction programs. Executives at the most senior levels have taken larger salary reductions.

“As an organization, we are committed to taking the actions necessary to withstand this crisis and keep the company positioned and prepared to capitalize on an eventual recovery,” Sherrill said. “Despite current conditions, we continue to make targeted investments in technologies and the capabilities required to support upcoming customer launches, including regulatory driven emission control business for light and commercial vehicles that begin production as early as the end of 2009.”