TEN - Earnings call transcript Q3 2017

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Operator

Good day, and welcome to the Tenneco Third Quarter 2017 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Linae Golla. Please go ahead.

Linae Golla

Thank you. morning. Good released XXXX we financial and third information. our morning earnings quarter related This today, through Chief take Brian our to On call you Executive and Kesseler, Officer, the Ken Officer. Trammell, Financial Chief are results, section to related are the prepared The of slides website. our our available comments on Investors comments, open our call for up After the we questions. will

release non-GAAP release GAAP please of which all attachments be begin, discussion measures we on measures, our that our our earnings today reconciled financial with attachments. will are available Before aware include and in press information The on website. are

call comments some of could include Additionally, projected forward-looking will keep Please over in from the with materially that our in results to will actual Brian. And forward-looking of our I statements. statements. our any those mind that, differ turn

Brian Kesseler

for call. and Thanks, morning, Linae. Good joining our thanks

and you including the points. OEM in in growth third in markets this quarter our positive on highest leadership, in we X, and trends in on gains opportunities quarter four both industry continued Tenneco's lines. leveraging Slide ever product in see As Tenneco's lines production delivered by we all outpacing and capturing technology as percentage capitalizing revenue strong the organic We highlighted regions by and high-growth all market serve markets industry both outgrew the capability product

platforms. dependent lines stream. highlighted helps of being continues As diversification and product end one the business on diversification risk and competitive financial customers This any revenue strong portfolio our before, two across and our applications, advantage mitigate we've gives us overly to with a to performance market bolster regions,

strategic an reflects increase per Tenneco's on earnings growth, rate. global planning more improve effective record repurchases strong share and tax tax to in was tax adjusted The we second this quarter which our performance due at rate highlight a favorable a focus share to topline EPS $X.XX XX% delivered a

balancing outcome of payments. and and Third returns. quarter the the of creating allocation strategy through we investments repurchases while returns to million $XX capital These share our that business on the in returned dividend disciplined value growing focuses shareholders in shareholder shareholder

closer product a value constant X% Clean taking ride both X% add solid in lines on X, Air in Now increasing Slide up including with at a revenue growth and performance X%. currency look very grew revenue

you and streams platform chart Slide vehicle and vehicle, Air each on growth see suspension As technologies can position market globally in on opportunities end demand we strong for light Tenneco's the and applications drivers increased content advanced our and X, take on commercial effective as global multiple product pie with driven have and across regulatory and systems revenue truck including off-highway sustainable rate Clean these aftermarket. increases, equipment strong a light

revenue platform Looking in the our best on selling outpaced by vehicle vehicles. regions at up growth. X% end content light many all revenue was industry industry global with position We market X% of strength the on versus applications, of

by also higher driven in performance of we in benefited content and and up had to off-highway. continue volumes commercial IV India. ramp regulations Performance Stage was strong at commercial We Bharat truck We XX and platform regions in The both all truck programs increase emissions very a revenue XX% and launches. Air roughly Ride the from in Clean from revenue new incremental the

leading of these with in position we driven advantage excellent are regulatory so an have well-positioned take We opportunities. to truck customers India growth

North the programs recovers recovery constant XX% of double-digit as on In and increases in in Europe very North week currency, solid was volumes current see America, to off-highway our the conditions industry our up revenue off-highway Japan. continue America. from strength particularly We with in

our market and than hurricanes some expected from global in the to due North revenues were for America. conditions the impact in aftermarket market regions Finally, with products lower soft bottom certain line but

region that we side, positive and growth in very generated South customers America quarter. the On strong added the new in

Turning $XXX was X.X%. million now and margin on On earnings was EBIT Slide X. basis adjusted an to

light recoveries driven and light America lastly, results globally, Air continue commercial EBIT in where This a double-digit was to America of by Asia initiatives Ride productivity due work improved truck impact new strong and and in Pacific reduction in Ride cost the margins Clean were EBIT. us increases despite headwind. off-highway And vehicle quarter and other margin million most $XX basis on North Air revenues Performance improve volumes relatively off-highway. revenue vehicle evident with a revenue. offsets The steel third and in Our points and part continued favorable program our Europe to had timing North to in higher and launches Clean Air XX against Clean in flat also Performance

margin Our in the is into a timing businesses customer issue quarter exposure these next with reduce future we fourth ranges steps progress recovery are help and to expect our good this beginning commodity the in negotiations to to for of in teams are first taking making we quarter pricing. normal year. the swings our Again, and be still and

full this We year. of to expect to these fully as cost versus impact significantly in We programs launching also new an Clean customer to last number had decrease Air programs higher ramp up related production. increase in launch Europe to cost

and outstanding hard our I growth, and in team They have thank turn Ken, our driving work quarter. revenue I global call been the Before for their want increases consistently each opportunities executing strong over to to dedication.

remains margin that, on With their In improvement addition topline, call cash and focused the growth the over generation. to converting Ken. turn team the to I'll to growing

Kenneth Trammell

Thanks Brian.

all revenue a quick we segment that detail, numbers at the As constant look more and results currency. in are in value add just reminder

industry up Ride Slide with was with on all outpacing X% production. X, Performance revenue three beginning regions Now

Volvo. EBIT Ford with quarter, with America Peugeot, with to and in about Hendrickson with on Rover, and platforms revenues Ride VW. stronger North strong in higher vehicle, Scania Performance Ride shift conventional from content Performance volumes SVW, as on expected. delivered truck revenue Jaguar benefited new programs Ride growth due The XX a was growth PACCAR. the driven advanced reflects Suspension by programs overall. applications. was vehicle strengthening Ford, Volkswagen existing business on bit NVH line North and was EBIT to with in In light America revenue In in [indiscernible] SGM and Globally addition quarter OE had results and growth higher weaker margin this and revenue mix last conventional content Opal, a with economic revenue this volumes product light Ride our Europe demonstrated balance with and in truck of technologies were America South market was highest X% Jeep, we year. strong also driven In Performance and Europe and by timing million and recoveries Daimler, with we well as business new in America also high which and aftermarket a in launches commercial South the commercial even production economy steel light Land than were Chrysler revenue vehicle and North driven solutions Europe Fiat conditions aftermarket and and China, growth the existing was Monroe adjusted on platforms, volumes Intelligent higher America Performance from In the headwinds systems by where

and key heavily in light that's platform and with Clean benefited Slide existing as segments. In which deliver strong North increased our position China, year-over-year revenue SGM, We consistent the we've we Air this light vehicle, America, Clean programs. a position was was double production. leading we strong and with towards where on platforms and from versus production weak number roughly more volumes higher Daimler, help SVW, a industry Range existing SUVs, environment. also mentioned, trucks Europe, of to weighted quarter Volvo. revenue vehicle In a growth to recently leverage OEMs driver. with on launched outpaced results year. Brian in new growth platform and all light X% up Air in our last The due increases X. on to now several launches In revenue Turning platforms, three the Rover And

roughly Incremental EBIT increase both by a America, in Deutz strong commercial of new India in higher $X also our And In with North our had year. America, Air with in Kubota in Europe, launches customer in growth. EBIT the commercial in volumes volumes million outpacing million in businesses meet Asia-Pacific up to a had continue impact IV up versus Higher was to John regions. MAN vehicle revenue off-highway and in driven was to quarter up strong drove Clean and revenue Europe. regulations margins. for on points growth also higher volumes Higher our a North revenue. ramp steel and business the drove was due off-highway off-highway gain. and basis medium-duty significantly sequentially. in Clean Europe, recoveries as Air current Clean last increases Caterpillar China, lot increases in margin platforms $XXX margins The year-over-year South revenue driven Europe. in new and Clean revenue contributed volume business year higher and regulatory volumes, the growth new the North Europe, was Air economic and industry Deere driven So and launches stronger quarter. launch with quarter from higher of in in growth up Bharat very volumes to In last contributed we segment. Clean content. and the timing to Asia-Pacific revenue the and Stage XX versus on and Air commercial to Air all America stronger adjusted improve Clean on-road program in occurred the on-road Air volumes ramping and revenue had in by revenue new significant now truck on truck growth added gains XX.X% program showed the costs truck an in strong We and light were heavy Asia-Pacific programs America

to the Slide affect expenses We've XX of in Now comparability. operations the which told complete there right vehicle you year-over-year closure Air of recorded and Clean last related moving we production in of Australia. in and as the the and quarter adjustments to million, downsize that plant on our $XX Toyota million related $X about Motors restructuring General charges to on Australia performance

to cost estimates. tax million had And of we related in to to we prior initiatives. non-recurring improvement Additionally, cost related adjustments incurred the year quarter adjustments $X

XX. Slide on expense tax to turn let's Now

expense million plan. Excluding quarter tax of in Year-to-date, to a global and our and year the between tax expect adjustments, rate the taxes result effective XX%, now XX% the rate tax $XXX range for XX%. million. of of rate $XX impact tax we effective the an XXXX We in effective on continued $XX million our tax is focus direct to a tax cash XX% quarter, expect full was third

points of benefit tech the reminder, As one at tech full locations. high of would tax XXXX A the rate we the quarter. does ruling include the The a the around on basis effective our to designation China high application our expect result global designation in tax decision year new effective XXX the expired improvement at not of end rate. and during fourth favorable

Slide would operations Cash flow without XX. the million quarter. generated $XX been antitrust cash on I to related from million the million have $XX to last Turning paid and was that mentioned $XX

invested $XXX of $XX in be high million, for expenditures working quarter year, end range. we about an We for expenditures trade the also and incremental current million the expect were capital. million capital guidance the at $XX the Capital will

will area. required of We begin we plant our first Beijing complete accelerate anticipate performance by be drive of the Beijing move end quarter. the of outside As to move the this a

inventory cost $XXX million. is of expect shares opportunistically million. with buyback also to repurchased we year. this move. $XX.XX. we brought $XX on we additional quarter, million carry to an through some levels for third the shareholders In Year-to-date, shares million average X.X this and included for in cost customer million protect the the quarter, higher incur $XX of dividend at the we million, left beginning deliveries Returns connection to X.X first authorization We payments that have of quarter the $XXX will at announced There

call quarter third continue Our to debt on year Interest Brian. with and approximately the we million. interest are XX. to expect I'll that, Slide consistent and the $XX With $XX levels expense second million, was full quarter expense expense of turn cash back positions in

Brian Kesseler

Ken. Thanks,

which fourth the Turning our X% to outlook now light global expect in the Slide X% growth quarter revenue currency, of we to constant grow vehicle In XX. for on industry outpace or quarter, will X%. fourth

growth for revenue with and year. vehicle We expect light digit in about double even off-highway, aftermarket truck line global industry and the with commercial revenue revenue last

with which X% We expect growth revenue constant add the the fourth X% currency, consistent in quarter value revenue, fourth quarter. same resulted in up in or

the We Clean The moderate quarter, steel versus programs and segments expect up. impacted year CTOH will new improvement in roughly and fourth quarter margins to begin even reporting with will quarter. show will launch Air economics begin up by last ramp impact Europe be customer third the sequentially as in to fourth

For expect to revenue are growth or opportunities in X% a outpacing up with full growth, production year all vehicle constant the XX. growth, four we X%. summarized but year areas as XXXX, deliver accelerate currency, really revenue full of strong of Slide consistent year excites core organic us we are light X% strong of initiatives industry about to Clearly, around key in on what growth

sweet the building the park coverage, for Monroe manufacturing parts. are The and first we with spot the be distribution positioned car developing to as China, aftermarket. expanding product In and brands replacement the ages footprint global Walker reaches our and our and well

global part excellent between growth where we nearly the doubles China most and of reminder, presence. in unprecedented establishing a have made XXXX car that with in As our XXXX progress

various demand Intelligence models. performance. increasing Technologies handling differentiate ride technologies within is that from right the and vehicle the Installation Monroe Suspension new and customers are as Second, increasing, demand content rates

we won versus last with Daimler, digits increased and two revenues This year. quarter double by programs new

programs be Looking are area By third These into Tenneco. the regulation which for Air. in in for to powertrains Clean today featuring a more are in required strong launch truck region. moving expect particularly the higher ahead, A is content commercial accelerate XXXX, technologies growth driver than opportunity for will new regulations planned Asia-Pacific regulated this we growth XX with off-highway and XXXX. these

in We both continue established markets the to growth regions. our customer and base, grow high

expected very light announced growth, in vehicle China. of region joint light I continue in would market for of across around over vehicles. assures applications. which we just This manufacturer we quarter footprint. our that drive to Dongfeng be pie impacted highlight a full in in continue the world, supply DFAC, diverse we to the Year-to-date the product years. This Daimler will MAN new a battery electric also light the under where in is and industry manufacturing business to nearly Truck America, with engineering, long-term revenue next value chart be production every and on to Asia-Pacific migration Fourth, with Slide North XX% venture on XX to the like Europe vehicle we serve with competitive chain by growth any end major XX, capitalize powertrains XX% add

and expect to streams. to we evolve We opportunities capitalize that revenue lower as overtime on other continue invest in our portfolio and

vehicles grow have in powertrains engineering we unique also expected creates is growth XXXX. solutions offer handling projected for similar growth. of have requirements drivers regulatory in X powertrains production XX% see CAGR thermal for can to value-add clean light increasing Performance and suspension went to drive ride ICE the Furthermore, vehicles characteristics. driving hybrids content XX% vehicles, driven number management. electrified and expected content our a through keeps increase Slide engines. you future off-highway by that signature to content. regulated As on strong a autonomous truck hybrid packaging Air, for Customer Tenneco, light for XX additional accelerating advanced technologies through majority with and models, new growth a and XX, of Clean regulatory Electrification as opportunities the opportunity to in and demand in These XX% powertrain at the for and opportunity In industry Ride addition the as the the the mobility the push from to content well XXXX, tremendous we XX%, are of acoustics to products variations electric in Plug-in commercial per number very on hybrids. The to is trends X.XX. vehicle increase with to the CAGR Euro to an

ride, noise In that deliver addition, trends, reduced aligns and as solutions well very and with handling, lighter components. our product for autonomous existing look smoother portfolio weight our manufacturers vehicle electrification better

growth are models in Tenneco's we demands closing, will usage to Aftermarket more and new addition China, confident for aftermarket In very in future. greater strong create position in today opportunities our vehicle mobility in products. Finally drive and

and Our trajectory flexibility Aftermarket, growth and capitalize Clean continue on give diversification us and regardless Ride products, Performance the our to between of our capabilities trends mix industry Air.

will on continuing things and maximize strategic we to can performance Slide future cash more we the balls outpace X% become so mixer best that success to build and to As and you agnostic financial that expansion see priorities XX, as flexibility. drive strength improving clear margin X percent flow by like have plus continuing powertrain vehicle production by industry driving and

to growth to value. committed With delivering profitable for the accelerating continuing questions. these shareholder call We that on are enhance we’ll priorities, open and

Operator

[Operator from Langan go comes question Instructions] with And UBS. our Colin first ahead. Please

Colin Langan

drivers then flat margin margins really I the second Any last was further year-over-year QX. guidance in believe and half, your the recover on color What are outlook. the be weaker QX as will in

Now it in QX. and then was in flat QX down

recoveries it? the what, just been surprise third to worst are pullover the it then it costs side? longer and taking is through? bit got So steel Is worst, the has on Really come are margin launch

Brian Kesseler

Probably you had. three of two contributors, which

of are good we a equal sequential rate predicting in than then being seeing Aftermarket expected. perspective. marginal a bit QX, and and QX as recoveries types what revenue improvement larger little from are as we a than other the the the quarter You conditions the we more in slower aren't fourth costs know little ramps expected. and over little bit spilling our bit steel Aftermarket, in the things Launch had markets lower coming bit higher expected. our to QX market as back those And with to With still are high

Colin Langan

come that? year, think margins should half the does with might we of you that of first just how the through when in recoveries, recoveries outsize mean those And next

Kenneth Trammell

be those I prospective recoveries, so don’t to mostly with position think payouts. up will think I in are going we catch to be So Colin a the

to to margins opposed the outsized about. margins that thinking see would So I as as normal return you're

Colin Langan

guidance you think And is QX for on for there what X% when segment coming big I sales the then in in adjust FX, the to X% FX QX?

Brian Kesseler

year-over-year, the versus The significantly is fourth change Euro biggest quarter up rate year. the exchange last obviously in here

Colin Langan

of how is it hope tailend? thought negative? as it it, interpreting but the remember Euro I I much drag the now at Is I

Kenneth Trammell

adjust when for you just currency. It's the

we it's find So your this look when that that Then a had currency just same currency the... quarter. that - currency but it's quarter to put them headwind, this did you explain gives it’s last simply adjusted, on the not constant at not versus I you quite very well

Colin Langan

got I it.

Brian Kesseler

All right. explaining I it it am glad because well. wasn’t you got I

Kenneth Trammell

X.XX, We year. are last is somewhere today. where around X.XX, running we are X.XX X.XX

So see either currency. we that currency what's revenue have good But take changes. will constant you percentage the the then increase got out when of you from piece

Colin Langan

I Just with it lastly, you term you think thinking Investor AVN, you at how mean the potentially is touched on any thinking how additional that mean are for particularly shift about the clear the derisk you Clean around risk. the you wouldn’t add the, through - EV Day were pretty for long around I third Air.

Brian Kesseler

take When four and we good in Hybrids think news us are the risk, it’s hybrid about vehicles. to electric around even go the really for as we again it’s plug-in EV risk. fact battery

Further because diversifier business vehicle vehicle, our our investments per business, against Off-Highway great vehicle So battery a worldwide. Powertrain our in the Ride four those space Commercial is four we see and the or light technologies NVH expanding pick battery to space. continues up Electric electric that from our Control there. content Trucks increasing

And see to in continuing future. we working grow at lower opportunities in mix in four the three Clean product light centric North very Air for potentials in mix and then will lower Aftermarket are lines We to other look to business that continue vehicle our to our our It’s things revenue in much evolve really those point. portfolio. this America including

Kenneth Trammell

Air Colin, the of and in because to XX growth vehicle we But years. vehicles over still of growth simply going growth light be course on in to just clear the to next see regulations Clean also XX are

Operator

go next Wells with Fargo Rich ahead. Our Please question from Securities. comes Kwas

Rich Kwas

and how business think you of part light commercial strong it? terms quantify the much can this leverage is Light at that Vehicle really in vehicle. deal delineate of vehicle to saw steel lot delineate versus your the It that the commercial side trying this related growth, recovery just about of quarter you to in impacted least leverage So but what the seems there anyway light versus in just growth essentially vehicle

Brian Kesseler

all Let coming XX% me Light Truck we then year-on-year are tackle they steel related, Off-Highway the in are can related. and And Truck the are improvement Commercial starting question The steel first. XX% question see the headwind not you Commercial on, the facing through. and they then the segments Vehicle

speak. got that things One launch, in of three Truck we is impacting Euro as so programs Commercial the the launching major Europe we

some impact of in that load so our on that’s seeing Europe. we And the launch are

Kenneth Trammell

I would behind would take North America to this to straight tell you on that point of Highway us. got I this as the line hesitate but sort really stuff will

strong Commercial Then increase North So saw Truck Clean well. there you incremental very and production America pretty strong in Off-Highway in as Air.

Rich Kwas

So the like in were incrementals Vehicle. That’s is bit in good side, Light they they really well. better have This of Commercial Truck that? America drag a performed little North a Europe. sound fairly of summary than general on

Kenneth Trammell

think way fair That’s about a it. to

Rich Kwas

is any for think there to the Aftermarket, and you about now there And growth rate the Chinese we over this few meaningful years. sales right how on then next adding do then

just distribution the there we translates do talked Just just actually differs know But from, cetera. you into how opportunity on investments the but about et know huge channels curious progression you two Where there, certainly something. and you is there. opportunity I infrastructure think - where are positioning?

just for think trying So timing to you. about

Kenneth Trammell

what grow. X years continues first Tier the us distributor in this development X is and n the cities, the us alignment, cities. investing conversations, the And X China in car the line Day product be see focusing XX% sales years. obviously for also chain, core our And our between closer now are now the and the Getting but X.X Tier that in between why, you about in on the we in by in brand going is coverage XXXX for replacement Monroe the needs category around somewhere coverage coverage, park making X.X of car to about as spot coverage to age the the will X comes where meaningful product If are our right Meaningful sweet talked to construct but from faster, Investor is you years, aftermarket the And in think aftermarket. to X and between point. right is of vehicles in right average the and manufacturing, in park the distributor is market as X where somewhere XX% we being car they some the doing subsequent winning supply vehicles sure got park in X age of to and Tier The and distribution, not of our of that at very important. is major product time age the China comes. one then the that’s years, also

are in XXs.By we the currently We that will XX% XX% range. XXXX into time to get be we high to

So and up. getting that’s building the the really the chain supply fortifying building distributors the lined coverage, about brand,

Brian Kesseler

that period rapid. is between key, time really XXXX car when XXXX China XXXX very XXXX- part is and ages because

Rich Kwas

Ken me just then last on inventory. for okay. the one Right, And

least to to we from inventory that of, it off think facility entirely order increase for on move the $XX this really that sequentially. I $XX like the it QX something So going in at in sequential is Normally sequentially, QX.Should much terms your but that million kind to million looks China be most or related of increase, in that most move of it? doesn’t is

Kenneth Trammell

Overall, aftermarket related but you because of a We they through sales did as And third inventory sales high of Hurricanes. some third end we outstanding enough. year-over-year day that only We protect our couple up the in thing the carries got I to more increases China. customer of there have nearly sort things, Revenues, that we're aren't than of at, in quarter here inventory is got decline couple would because within wish China, of mentioned at have bit would days. we've the high some will of it while expected. revenues always into right. quarter in the the But the like the

days, there So up of day an that to the but that little in a around number sales of They're sort a is we’ll always factors back. of get and trying contributing outstanding, something get but bit couple

continue carry will way the the inventory quarter. first to China we additional So the the for through all move,

Operator

next Spak Our Joseph from ahead. go comes question RBC. Please with

Joseph Spak

on you. spring up the been Air those guess just I and of am Just first launches. assuming Europe sort I surprise Clean

clear, So just a to be in differently was of anticipated? bit than became something that sort little there of the execution those launches you

Brian Kesseler

expenses year We’ve have been doesn’t the right, had higher little and year. that that up expected surprise. little last are and been ramps You this of a Joe, the than roughly in Launch the get a slower. come it look double our launches the we half second

And in kind QX strong to discussion had and that And contributed margins about we QX And now earnings our so really prior as year. kind that call. into. discussions that of that's contribute came of in into be as

Joseph Spak

continues getting of incremental think of perform? stuff as I'm at commercially commercially $XX $X the mean Clean .Is really up higher that I incremental about to million then America on in right we it if should finally off-highway the flip had increase the better side, assuming basically North I margin million revenue, look level on we the value gone utilization that’s guess so we added strong And that increase some profit margins. Air, and in that

Brian Kesseler

business A little bit, a lot of that. And the coming majority the off-highway in. of that was

wanted as some that that there weren't program year customers at going significant pretty there launches last QX remember you with two were including As as to truck the on point. well everybody

America we bit North still have of but strong are activity the perspective, So we year-on-year little some also. in from lift launch a

QX little utilization. launch QX bit and that coming So good to revenue difference on driving this but last, between then year in of versus off-highways the the portion was

Joseph Spak

pretty needs thinking the good get to from know of should a like items the on be had a still you like we Ken number pretty cash free cash free million flow, Is I flow in good sort specifically it I $XX just know flow anything it fourth in And breakeven. quarter that’s there free number, but some about the be And seems ops to walk? fourth quarter seasonally is cash there cash that antitrust.

Kenneth Trammell

you might still is that it We’ve fourth that the should trends, out the is anything mean strong Joe, good should and expect that strongest think quarter fourth There right, pretty quarter the the not our we always where in related be taking absolutely quarter. case. I improvement. some changed antitrust. again I to nothing

Joseph Spak

unforeseen So for cash year buying any positive additional is settlements? flow the free

Kenneth Trammell

were at, hand we I couple the don’t negative, going or specifically off of like days and but of say have we you If capital a am traditionally. some give I should fourth the you, we will get forecast a we just talking about Since look metrics, working that again certainly do strong to third back. see that in or I to like not reach, quarter, quarter, to positive days back on turn

bit, well. fourth quarter day outstanding we that get are little Our sales back as should up a the in

Joseph Spak

volatility. commodity then And on the know I lastly, just

contract contractual there us aside anything are a imagine to? point you could from there something way mentioned mean, that do reduce the I I at actions You to that, or are? the on of you specific looking sort is you some thing is could

Kenneth Trammell

Obviously on the in the have performance getting is progress moving North in to Europe couple a And a we here. not and off of reductions the and good as on not there. made side, probably right that if America teams instances the that’s performance then more are there less customers there. steel Air, traditionally really the There steel the that. China who different price couple runs that of toward to method this commodity region of So line in Clean indexing. work met product indexed indexing right we on the In continue over those get an product there lot industry preferred to is index line, not

major continue with there, see working the those working drive we’re that around all correlate steel to and do with We index are discussions. an customers to customers individual body the to we

Operator

ahead. go Please Barclays. with Johnson Brian from comes question next Our

Brian Johnson

its were but these as And just of guidance, steel to used in I well what into of horizon? we that? early costs other could [indiscernible] the launch just how a for XXXX?And to roll on about began start dissipates and thinking cost some know want of that's terms should there I how sense as XXXX pressures get

Brian Kesseler

'XX Detroit, industry Well production. our 'XX as to the Detroit and 'XX guidance guided of light our Show. or update the we at X% we'll We'll part give vehicle the revenue that above the to production, industry X%

that From fourth same perspective, of as mentioned cost come and So our in we a first hanging deal quarter quarter Clean our beginning the out about to is are performance for steel margin into we for us for and starting still performance ranges pressure quarter with coming a alloy the right in the Air. was and industry. steel big see level, surcharges the which alloy staying consistency. The we right normalizing into first the

And is there into that indexing course. and some year, are so North at the that looks those all volatility and neutral Europe. obviously in And arrangement coming America this in contractual but point be will under like of

and then capacity should launch for the in on filling the be customer of those things costs, our So us. the news and good lapping ramp

Brian Johnson

are. there So

dissipate just costs in that worrying XQ issue what Another major XH should So saying 'XX are linger? the that when in launch you start launches during you about?

Brian Kesseler

the planning as will normal than Monroe technologies QX heavier got the and back next in launch come half mentioned is our I But happen this in will QX at we area. XX new as through effect Usually Suspension and year have that XXXX. beginning we launches Intelligent earlier, into our look which

Operator

Andrew go ahead. comes question next with Crespo Please SIG. Our from

Matt Stover

This Stover. is Matt

to part second or Just should the that in and meaningful in half I for fourth a quarter follow impact about Beijing the rather had be changes, a first a of and the expect on? year we question next then

Brian Kesseler

out We’re up plant move the location expecting in the and first complete QX. into new and this running and the of be part to Beijing of

to member we're supply a thankfully we’ll from that. enough close us will of going our inventory to as to that team that have from of large bringing don't We position a So high and move the Ken move. we obviously in a pick we be all as customers lingering part standpoint base costs anticipate up mentioned and be majority with protect then turnover. anticipate as And place

our and inventory the move around the positions and obviously the is quality to really customers. to a protect customers it’s the supply and to So to intent our our

Kenneth Trammell

Matt quarter it what and quarter the as impact some see guys on one but increase have cost you will and what of is to first out because the predict be is but about - you will we will think difficult that much Beijing can clearing the we fourth we the move. perfect that give right accelerated, you call its its sure for how sure

Brian Kesseler

to move there related – Ken occur in QX there of mentioned we our other move that because And that the guidance expenditures some as QX. will will more capital be high-end carry capital to some that earlier moved in and

Matt Stover

then encourage challenge and that China we of just you it's the of so But maturing the mathematical suffer how year-over-year. relative the very a if business? lot would that And impact about profitability high, of at of sort on think down very just it's that follow to look you still profitability it’s about just of high I think absolutely If from us year-to-year the to market comp. the

Brian Kesseler

steel difference a Ride been $X look quarters Air between of there. couple take we’ve comparison last by and have quarter-to-quarter margins - The of under a you as by million a that’s be Performance been equivalent from Ride performance to issue look that Clean quick impacted the QX Air. discussing. commodity that Clean to Let’s QX business

great doesn’t last a have we rounding - business take perspective air when it into its I QX So overall opportunities to it's side. to get necessary year cost there, but what to conversion not look get that's From from an much. it call we of into wouldn’t our still that back

cost see we have We got be going venture But looking think a don’t as a competitive. think room grow we a we get perspective, enough expanding but there we’re little and more and to I I the go. don’t way those side so it to at that think hold market the right pressures relationships recognize pricing greatly. from mature from great margins there margins we've of that's probably - our opportunistically joint the is intent

Operator

[Operator with ahead. comes our KeyBanc. question go [indiscernible] from And next Instructions] Please

Unidentified Analyst

that Can and if you how are rate to were a you considering to this cost and your there progress the one, recoup like do it three also this level and the you was venues where you tell endeavor reductions to to on potentially confidence into progress months actions steel in were are there just recoveries the the success in some progress different from for so you cost, negotiations some gauge wondering number were SG&A we SG&A XXXX. looks us Question of adjustments of with also compared were ago. where customers in

Brian Kesseler

a see to planned drive Operational believe with see from we believe in improvement we and Europe, in we of or continue cost different faced America opportunities exist, implement business the a and and and side as on in to not. costs with. to at continue that the confidence make side Obviously, to our still those QX in to we discussions from North dealing look in and come we’re with at year-on-year the there commercial we’re good out. the those it SG&A levers our that lot and improvement typical transportation we’re have on to progress incremental level QX. cost we’ll costs recover at going continue Well expectations to added of in then everybody commodity around on negotiation the indexing level expectations commodity starting customer the gotten a for ready is we regardless will fronts customers they're market look look improvement through to at where plant that all will versus

on fronts. all progress making we're So

Unidentified Analyst

to that mainly would the XXXX is XQ half of first And in that maybe relative to still your prior expectations but the you begin in start figured most cadence? of

Brian Kesseler

Yes.

Unidentified Analyst

And vehicle well what the seeing imply and hearing above that plans competitors of other headwind a last are from in digits in increases of to space in exposure or segment is that commercial the efficiencies tailwind? similar or double on growth Is kind players terms within does there the lot question the we what XX% you’re into off-highway year-over-year. a

Brian Kesseler

new and the QX. some incurring on will highway with capacity a maybe truck we're up see strong little It now, again tailwind, to customers in our XX%, mean XX% we’re running higher of QX that be a commercial for full rates continue and increases we in covering launches space, we and double-digit a XX% we’re QX XX% I were in our our right utilization bit about from

Kenneth Trammell

are really at business Japan both as look well. in strong and America on Deere what Just Europe of can come we’re North as a our sales they’re reminder on out the indicator in you their off-highway business as Caterpillar, us for seeing [indiscernible] and

Operator

And this the like Golla Linae I remarks. would back for concludes session. to our any conference to turn over question-and-answer closing

Linae Golla

about our call. will hour. available Thank you. audio This replay be in our concludes An on website an

You you call by of can America, playback may this access XXX-XXX-XXXX. reach recording at also North a the telephone. In

joining XXX-XXX-XXXX. access you XXXXXXXX. America, in those information us press playback The the This North number release. Thank is replay code is for For outside our is today. available

Operator

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

You may now disconnect.

Tenneco (TEN) 27 Oct 172017 Q3 Earnings call transcript