TEN - Earnings call transcript Q2 2019

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Operator

Good day, and welcome to the Tenneco Incorporated Second Quarter 2019 Earnings Conference Call. All participants will be in a 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 of Investor Relations. ahead. go Please,

Rich Kwas

Investors morning results This attachments our quarter under second presentation Thank related we financial earnings the website our and available release information. XXXX are you. on released section. The and earnings

currency Before at are will financial information and today prior our all rates include Also, GAAP with forma please XXXX measures we are of press on pro which note Federal-Mogul release be attachments. begin, the all that acquisition discussion aware periods. measures, constant reconciled non-GAAP measured in comparisons include our that in

pro We refers will discuss forma margin. year-over-year basis. adjusted value-add specifically comparisons margin on otherwise, a described EBITDA Unless to

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

co-CEO, agenda. guidance DRiV. the and outlook. enterprise Brian business and your and and point Co-CEO, our provide discuss financial before summary take review segment segment will thoughts, and DRiV's Kesseler Brian performance; as Tenneco's New Hundzinski, and Tenneco's highlights QX review for performance EVP, enterprise to New Ron performance updated Roger then on At will will guide updated Now that enterprise updated CFO, we well. provide Hollar, Wood, Jason questions. will provide Roger offer will

that of I'll the turn way, it With out over to Brian.

Brian Kesseler

morning, Thanks, and Rich. everyone Good welcome.

And the our I'm in and last strengthening year importance for integration making talked pleased we capturing synergies progress, solid expectations earnings report in achieving fundamentals month-by-month. was quarter, long-term streams. both. of our that Tenneco and we sequential achieved reach to the strategies the identified the about work mid-point As both in day-by-day of this quarter our improvement We business and

I and DRiV outlook. united distinct continue Tenneco's remain spinoff, As in and Roger divisions in the strategy these commitment and our preparation deliver for the to New operating Tenneco teams

which currency this was company's we year-over-year, quarter. Tenneco the the of $X.X at highlights by growth revenue, outlook of a represented on of quarter, the second provided second generated basis, four. constant billion performance In industry some X% the vehicle in midpoint quarter review last production Let's X%. light page outpacing On

Second prior even the effectiveness revenues and increased a QX, the Considering margin synergy this points management relatively which the from with EBITDA quarter notable sequentially XXX demonstration was efforts. year. QX XX.X%, cost flat to of adjusted to basis capture is our of

featured package quarter, our announcement the we across the our the driving for through our electric include business. suspension quality model During continued Öhlins all-new to and that commitment the Polestar brand. all-electric performance vehicle growth on Highlights a Volvo's will be X, advanced innovation, technology performance new from first

In signed Carzone, retail a light-duty diesel and Corvette cooperation America, a evident won visible and China. Air a valve with our service agreement China highly Motorparts GM exhaust July. team aftermarket pickup North mid-engine business launch technology expand business June, was leading strategic In during in the first conquest automaker company, Clean leading of our global our channel in with new further to we New the

outlook X% pro Jason, for constant to to that pertains as in and and year. today's DRiV enterprise of growth third the Ron the billion on businesses the specifically. Later Roger This of $X.X enterprise billion. of revenue Starting at New $X.X forma the provided with quarter, midpoint year-over-year the expect the slide revenue On Tenneco and represent in range call, we outlook it third currency. would range more our provide five, we that around will quarter details and full

mid-XXXX million the points with confident of year-over-year We our track and on will and In of complete New DRiV DRiV that around terms to anticipate the profitability, of range basis both for improvement divisions. EBITDA value in XXX adjusted shareholders. the create to $XXX million be Tenneco we remain in significant are in the margin separation spin $XXX of

divisions, end clear to targets the QX We we physical of separation XXXX. have anticipate and achieved by systems the be a year-end. the that of by continue with path in are Operationally, internal leverage and to progress at our X.X making two to processes separating and times the

accelerate As performance businesses. focused keenly of to we on reduce are we also to leverage the alternatives operating further evaluate driving continue improvements, additional separation and the

to As our wipers continue shareholders. look to options business, leverage reduce and we consider we'll not are you that last will quarter businesses to for strategic for create with the opportunities saw for our portfolio, and value core

to XXXX XXXX, outlook, up a our take expected outpacing adjusting now industry conditions. a $XX.X the and X% enterprise currency billion look by in We X%. between $XX.X for year are which on market strongly year-over-year billion the basis we Let's constant reflect full vehicle growth light full-year at revenue achieving anticipate

XX.X% margin revenue million EBITDA the end range from range adjusted this On we value-added outlook, dollar $X,XXX. to of EBITDA adjusted tightens That the to given XX.X%. for expect the or year the previous $X,XXX to at higher

In are outlook low improving interest guidance of previously expenditures capital the end and ranges. to for addition, given we our expense

I of customers, For to improve create XX,XXX passion and value to quality Tenneco the commitment every work bring this members satisfy hardworking business, new our to the we've to our progress efficiency ultimately grow team made the around find for and our processes the the They day their quarter want shareholders. and year-to-date, and world. thank ways

and Total the with overview for results acquisition, turning and and division sale which closed the page EBITDA the revenue beginning was the an in adjusted business the segments. quarter. the for X% of two of This lower both Öhlins during Now year-over-year to wiper for first DRiV DRiV DRiV's of six, revenue on compares includes quarter.

Performance points, advanced higher outpaced portfolio Excluding lower and suspension production X revenues and was to revenue changes, DRiV X% Ride revenue. the due percentage NVH solutions industry by mainly

beginning second the North in see aftermarket the higher year-over-year America. of China we're to as the revenues were in North In by aftermarket. India America, lower the Europe sales and in as year offset Motorparts segment, stabilization in well In half

EBITDA second improvement, basis the in in for strong the year-over-year earnings expanding XXX headline DRiV's in segment, margin and rate positive adjusted is quarter to dollars with resulting EBITDA up The X.X%. each points total

was benefit improvement acceleration control effective driven This and from the of synergy actions. the by cost

on by are run to now implemented in end have our of XXXX. synergy the rate annually of full the million savings earnings track $XXX We

Our a core growth drivers technologies, remain and strong, continue unique satisfy and of to to set customers' we services needs. deliver brands our

customers quarter Performance suspension drive new in our continue Some technologies the the new highlights aftermarket advanced team win in capitalize products to we of new all launching on gaining regions. the Ride to business And to new and continues business wins. include:

quarter, announce suspension intelligent to be technology BMW well that our the second X GR XXXX new the Coupe. as available during the were Toyota pleased fact Sports CVSAe Supra as will In on we Series

Jason to to the take us in like I'd and detail. Performance Motorparts results through Ride a little Now invite more

Jason Hollar

Thanks, Brian.

this and main of retail and America showing Turning were look by revenue, results pro segment Europe. the to chart right QX the closer volume conditions Starting adjustments soft to in Motorparts two included quarter forma the XXXX for the the at Western customers with mix mainly QX market inventory walk page on X with drivers North the from and overall in a actuals. XXXX

deliver did both As call, regions. we we from mentioned on sequential QX a quarter's last growth for

and delivered in with region growth large and aftermarket, accounts. good In another India. e-commerce growth national China continued China quarter Asia customers Pacific from

XXX in new presence continue new Monroe We the earnings our in installers said, brake and improvement. quarter. Brian here But adding shock China expand key installers is XXX the takeaway the to as

by in achievement, than In with earnings to of improvements. first quarter, XXXX year-over-year the performance adjusted synergy higher earnings the driven EBITDA margin half XX.X% second cost higher XXX half the the was was XXXX. mainly quarter, other EBITDA and performance our up for first points second basis adjusted margin operating basis points control of XX With

Ride production ramp-up in electric Revenue in America. X% X. second results market lower currency Light global are that declined vehicle of last customer materials outpaced on North light versus year. an strongly segment suspension, Performance NVH and constant performance content business X% quarter on the revenues driven vehicle vehicle by with was the basis, outpacing advanced system a page

points slightly up actions was Ride second recoveries. of operational customer timing the adjusted performance margin and EBITDA in synergy in included basis quarter. million and benefit to Improvements adjusted revenues truck XXX Performance certain year-over-year the Commercial EBITDA rate of improved were $XX X.X%.

outlook around $X.X on with of North make wrap to beginning conflict in comments new X. the like America to business term. up continues good aftermarket revenue that wins in expect lower constant or to resecuring North X% DRiV offset the page business Starting on the channel around in with with progress I'd America billion quarter year's revenue, previous third team losses. currency we medium

exit America, lower over due additional Performance program new Ride while in low-margin programs next of benefit that planned launches quarters. from volumes several the rationalization to North managing in the will China,

constant $X.X For billion the anticipate to lower X% be revenue X% in of to billion, $X.X the in currency. by we full-year, range to

adjusted of profitability, the points around we margin points XXX basis year. of of terms XX for in third full XX improvement and quarter In to an the year-over-year anticipate improvement basis EBITDA

dollars year is the this our of at EBITDA guidance. midpoint, with In terms full consistent prior

quarter half the disciplined focus and be improvement on our driven cost We earnings expect maintaining by management the and in ramp-up the synergy continuing actions. second on third of to year

to the of In by synergy the fact, now achieve full rate expect XXXX. we run end

lower which to $XXX for be range million, $XXX we Finally, to in range. improvement expect end CapEx the the the previous of of to full-year, million an is

the turn to over call Roger. I'll With that,

Roger Wood

Thank on down Please XX. year-over-year QX, of turn you, X% New constant revenue, Jason. currency to generated a In billion Tenneco page value-added $X.X basis.

X% revenues modestly basis. on business. in outperformed New global realized a good production a than CTOH the to and light vehicle headwind year-over-year growth FX more represented Tenneco

Adjusted million versus performance. which Air propelled year in in point The a bit. a had basis margin margin prior XXX a basis little sequential our XXX XX.X% for On guidance strong and and points operating that expanded was our quarter division increase. Clean EBITDA basis, EBITDA value-added XX% group was on More exceeded the period. $XXX adjusted

division, basis the looking than and XX%. target to continue at long-term, year-over-year margin was of decremental incremental and significantly our performance approximately excluding QX our we back for corporate decremental business. than which was XX%, a intermediate step a FX win range to better better our Taking new On costs and

to record customer. won preserve as we're content Air platform capitalizing for we second is into emissions with a into quoting other that significant XXXX for intend QX, markets for of light-duty term, opportunities well launches the customer business focused the business In programs beyond. truck a the conquest business and and in During executing we The half diesel North future. move our in on major Clean China above-market pickup number flawlessly we growth into on and a nearer America and

a over turn to I'll New review it Ron? Ron for segments. of Now, Tenneco

Ron Hundzinski

Air Clean everyone. of segment delivered good page begin of and turn to On Please Air Tenneco increased constant year-over-year. you, performance. and morning review to value-added will X% revenues XX our down Roger, a The revenues New billion value-add currency Clean Thank $X.XX X%. segment we basis,

year-over-year slight adjusted increased value-add XX%, application X% and margin vehicle flat an offset year-over-year. and America million and of EMEA which Adjusted year-over-year. Value-add increased EBITDA $XXX On represented declines XX increased in APAC. North expansion year-over-year. revenues was than revenues CTOH basis were basis, more and light approximated modestly EBITDA points

EBITDA to currency a basis $X Clean at contributed of us margin recoveries year-over-year benefit in step-up which in an growth against increase constant the million EBITDA developed enabled labor improved XX%. outpace On incremental Air and a efficiencies from target business in the a $XX sales engineering nicely markets million

X% period. down sales to organic declines X% OEM volume to QX page mix year diesel Powertrain basis volume a were prior currency and the Now $X.XX the decline. XX. turning lower including declined from in On year-over-year. contributors unfavorable sales constant were billion

decremental about XXXX. XX.X% points EBITDA million measured of constant a Adjusted On Adjusted we basis XX%. year-over-year, from million XXX did $XXX was points and of currency a $XXX XX% XX year-over-year experienced basis down but basis, margin in EBITDA increase fell sequentially. QX margin

performance year-over-year sales in a QX sales which in China year. headwind light profit and impacted continuous to also mix the last was versus vehicle our margin decline Powertrain experienced products, quarter. declined diesel

first year-over-year inflation lower to second benefit half relative half the and margin our actions EBITDA actual. restructuring expect adjusted performance headwinds to We

have forecast. New introduced year page QX updated and a On Tenneco's we XX, guidance full

a New XXX a -- estimate XX we We QX, on revenues points sequentially. to year-over-year. margin EBITDA increase about X% currency constant represents QX basis. expand on This negative value-added be year-over-year to in a margin For approximately range adjusted basis performance basis basis Tenneco's value-added a versus points estimate of to X% plus

value-add the currency year-over-year full negative year, flat our the previous be from For we constant our to reduced guide midpoint. X% revenue of growth to X% at

Our revision incremental Europe by last vehicle China declines update. our is driven light since and production in

has estimate revenue increased to mix substrate changes. Our business due

slightly basis our previously. XX points we points basis year-over-year front, compared value-added XX to reduced On points basis year-over-year decline of adjusted points forecast XX the a basis to to margin EBITDA margin to XX decrease

have our We trimmed compared our $XX million forecast guidance. to by prior CapEx

it to turn I'll a Roger for now over And summary. Roger?

Roger Wood

Ron. Thanks,

XX page key the here takeaways to enterprise. Turning for the are

margin First, QX lift we are from Synergy meaningful to revenues. more impactful without and becoming actions results. in increased a cost our

our demand Second, structure continue environment. about we manage good changing our we'll second and half feel cost a carefully in to outlook

Third, and diligently. preparing we're committed to spin the

be ready plan the working of divisions the best operationally by We end We're put possible ahead spin. XXXX. balance the the position to in sheet to of

additional As leverage Brian and separation to mentioned, reduce alternatives to of accelerate evaluate the further we continue the businesses.

year and decline and onetime approximating our $XXX incurring that half next costs benefit in XXXX flow. million about are We cash should by

performance meaningful integration our flow spending a improvement and believe XXXX. improvement year We provide our executing to lower coupled with cash will transaction in free next margin plan

your morning. And us for that ready you questions. interest take Tenneco Thank in we're your this for joining with to continued and

Operator

Thank you.

We first come Colin our Instructions] today Langan will from question-and-answer now session. go question [Operator begin ahead. UBS. Our Please will with

Colin Langan

color the what half. second we've Thanks overall drivers helping What Great. seen flattish? broad are relatively taking margins think Any of I -- my continuation for or mean improve this just are to additional quarter, I sales of the expected anything in the look questions.

Brian Kesseler

Colin Yeah, is Brian. this

the will I coming you think continued is cash of the see synergy, through. what cadence are

year the on to run other fully end As fully we're cost the we been doing. that mentioned get that run the our -- of management we've rate the side and and items our -- target by DRiV into rate into expecting

of And has our the around, some some then, rationalizing margins we've which -- obviously, portfolio to too. lift been of begun

know it differently. a So you combination don't I things. of bunch see of if different Roger,

Roger Wood

Yes. around the same Much side Tenneco the New Colin.

realized year. fully implemented, some and implemented been were that but and actions goes when on haven't they time And second get more first through of the the more as the quarter were cost realized they throughout

more things to have that's we in come expectations half. of and achieve more those as that So helping the second the us

Colin Langan

only that's lot look And Powertrain. at the think down one when I I I that's obviously, -- mean, I What a the of the segment, year-over-year diesel. is believe

in and year? operational issues of some -- there those were Europe think issues. you said past we recover operational affect in power and the seeing issues that the by start I should end Are the

Ron Hundzinski

is this Ron. Colin

it business the in of the in down the Clean is sales Air. I the think half in second year, growth the Powertrain than more is

of they're So we've this volumes getting like some it XX%. It's the the slightly really a function XX% the in believe in are quarter. the still is we half where point. second was. of not decrementals it's year. taken And restructuring I what at They're but to activities high the

shown where from. decline the has that's I the the while of line business second it's coming a slightly seeing So more half flattish year. is little some Clean Powertrain think The Air growth still business or top in

Roger Wood

talking throughout meaningful the about the to Yeah. were quarter. you were continue to a in believe The To we quarter actions taking operational of we second The is that the largely and this were second bit, that going year. us rest complement help the issues we're they're to Colin throughout that Ron results the Roger. had little accomplished

Clean Air the Powertrain quarter. the said Ron as over second first in and on The greatly side came the strong improved quarter

them getting they're improve They job to quarter first front. the recall you that were higher. on of continuing more a great did working still but line decrementals much If in on

So resolved us. are for those issues European getting

Colin Langan

lastly outlook, actually rest anticipated? Is Air Got the was that or it. emissions helping the from And in of benefit just any your China Clean pull-forward? that

Roger Wood

business. with content beginning and higher of content increase side both is a Light vehicle that. commercial. the in the we the is this that. side -- the light and vehicle vehicle the real into is than XX% light in seeing and commercial -- There a following light comes the But is that vehicle vehicle benefit vehicle next is us per helping about the to In Commercial significantly we're story starting in so Yeah. year. start year that per

Colin Langan

taking Thanks my question. it. Got for

Operator

ahead. Our Research. from Lache next come Rod go question Please Wolfe with will

Rod Lache

a achieve a you which half just -- you the decline of repeat of Could questions, first. you next could presumably I costs, housekeeping advisory Good the leakage costs couple synergies and that just morning had mentioned are just one-time to would by those Roger those tax everybody. and what numbers year. remind couple were?

Roger Wood

would the I you that think for -- that spend we about year's I'll presentation, half felt give but the that I'll I let answer specific what let run Jason part last we the of by rate numbers, Jason mention the about they from this in was. would drop details. But did where

Jason Hollar

Yeah.

one-time costs, be the the work as transaction well costs are that to to overall the the is year $XXX transaction approximately on it are million. going So synergy the as weighted fees synergies more to of This inclusive achieve specific streams.

in of some highlighted activities. we the As pulling ahead prepared remarks, that we're synergy

associated our little normally So we're than spending a the restructuring anticipated. bit earlier, we what dollars activity, with

so going more And of in a bit pull that. to little we're

-- the next being leakage And some spin year. tax costs likewise, we timing with XXXX, deferred we've the of the until of in

it's this heavily associated costs. will with the So more primarily the the tax year, it work. weighted and remaining, be next transaction synergy linkage separations. entity year, legal towards actual And And

Rod Lache

Okay.

year XXX about it's for XXX. and So this

sounds Just like around CapEx taxes next minus different this your it interest like for like. enterprise and year just And in million. clarify cash sources EBITDA sounds to $XXX it in EBITDA the --

$XX this And million. brings around then so year, it friction you costs have that down these

$XXX that synergies that, million this achieving some you're Next of those plus, year. up of by would year, go rollover the

Jason Hollar

second our year, run Yeah. of little threw $XXX million. rate for on But as out. numbers a the is, lost you the I the of this quarter synergies got terms in

original from the quarter. So we of of end expectation forward the being third pull that

by the this rate of end the $XXX run million. We million at to million, correctly, $XXX that I recall year. $XXX anticipate going the if year, we And started about

the we year. And that of into full next get so the rate then, effect of that, effect anniversary run

Roger Wood

But what asked flow. you Yeah. is around specifically cash

-- margin the million I So plus the said like the improvements. $XX million $XX

and costs performance, cash we improve out will all costs have other So the after free those transaction flow of way.

Jason Hollar

Right.

Rod Lache

you're just of a sheets' to you're leverage. in And by reduce each division, balance you Could little talk Okay. for the about, that spin? bit execute you lastly, us to alternatives terms leverage, thinking evaluating, realistic what guys you mentioned just time the further

thinking be so, around because, pretty we different, And scenarios? what decrementals how this point, at this XX%, high for sensitivity? Powertrain Just macro how the downside Motorparts looked we should -- about and at the should sensitize

Brian Kesseler

Yeah.

I think business. if you look overall the at

I and target Ron where the Roger XX%, think decrementals, incrementals the XXs. decrementals highlighted the in at

Jason Hollar

XXs.

Brian Kesseler

that. it, Our Ride to probably with those and just close XXs, difference of on two the downside business XX% into the something start the the Performance in lines. would would on Motorparts front with business something profitability because Incrementals be a product on of then

there pieces matter in assessment, a matter From parts and more. matter of is, of rank an our portfolio overall portfolios in order, that some each less,

As take prioritize we much in find wipers the the business that it, like very CapEx as a a we capital that, our we long-term owner for better allocation. there's look if at and

we're I'll for have shareholder decision. the Then who that increment accepting right to want the we coming look obviously, in. would to make at, those at value, those sure people out or putting look it's

get But parts I there's where of we're date. don't at. to mid-XXXX we looking spin that a be have And to mind for in we're specific we like continuing know moving that that lot at. leverage. number a we'd Because

Roger Wood

Yeah.

that key terms We're think really just that's the this key complement direction on, said. a that Roger. That's right that mid-XXXX I in what date in on. Brian we're -- of now, we're -- confident headed is spin it's to

in evaluate what in we situation business make in but to given it that. of sure But to has we're always be on that do that we're the need be at business to said, be merit pieces sure good to portfolio, to we something that would ongoing focused and not making that it. focused may any in need in It's the management that that need And we're look scenario. any on continuing not nature, just to

Rod Lache

they make a are relatively or the things that they in dent of Are contemplating meaningful types you're leverage, small? could

Brian Kesseler

in think a bag I mixed there's there.

Roger Wood

agree. Yes. I

Rod Lache

All right. Thank you.

Operator

from Our go next come Ryan question will with ahead. Brinkman JPMorgan. Please

Ryan Brinkman

this combined terms end point are of walk your takes help taking for question. on Could the First, the free XXXX roughly year? to leverage you $XXX as just thanks what you XXXX? Hi, maybe from does in big relative company total us million starting of puts cash year target XXXX FCF again, and imply my flow to negative

And ongoing trend lower million $XXX help savings, mentioned cash you like though other connect the level XXXX. in one-time cost of effect the dots restructuring Can some of costs the of in general the earnings? spend, then you of the the

on separate in all considering these have for just mind a free estimate combined basis? then things, you business an cash normalized do And or flows of the either

Jason Hollar

Yes.

Jason. here providing next So will I'll I but cash key free start think some as thoughts as provide to can. ahead what color elements we to this look XXXX much like a the as not year. and try go provide We're today, and is can certainly guidance flow we

As talked you of be items one the costs the the of we've a the one-time to biggest with will associated bit, transaction. reduction little already

$XXX level So, that million from flow next difference savings. half roughly obviously that free million a be will $XXX year to cash the

benefit starting at through ending million and should XXXX rate million, And we next EBITDA to in through $XXX earlier synergies we get talked at $XXX that then the close as our regard. year run to flowing close

business. elements, on terms the would it's other sides In certainly the of both say opportunity of little I probably a

have XXXX. get which DRiV, year in we should substantial do closer within saying I'm we Specifically more unusual a not in not state", XXXX costs is this should some reoccur that "normalized but

Beijing of dollars as year amount North say footprint to the work the as should did And rationalization business key a or control CapEx fairly finish actual restructuring this ride beyond of progress, well I as we those as for two areas restructuring America the spend move. well synergy streams, the plant substantial

outflow incremental in We'll at we not this next would $XXX Those range two more significant define expect least somewhere the activities of precisely later. to probably cash year. that year million drive are million perhaps to up going that $XX

market also at New don't that's businesses the I And of had we there's opportunity across with CapEx the given a both of side. there. further bit little that, some more certainly but level associated within Tenneco the moves, restructuring been think some quite

cash of a same expect items in I In interest rate from given terms to I and to terms rate taxes taxes of would perspective interest, would the be expect those different. that expense generally that the current environment not be materially especially

of then to of that By And be - remainder of we range. at working the And for year, capital of in million get target. the XXXX, course end then to-date. the $XXX the type will it following the million we would be we within that expect $XXX similar

there have capital. still the the we end able the rest to within that of XXXX, conviction year working by high get So, second of be we'll that

of how goes versus more, we'll a perhaps get ability next much year. effectuate that so to go about our balance is how do and this we given year our that year but good question progress the there. and see And do the And certainly we we'll out to-date, of feel from

Ryan Brinkman

gauge there covenants. any more your helpful. at comfort relative to Okay, then does pursue the today to suppliers maybe you. very that's trends leverage your to mean still need wanted getting just level look have some relaxation don't room breathing it done? of ratio, you other makes recently outlook required the And that me sense I or as to earnings from and to lastly stronger Does credit Thank facility

Brian Kesseler

Yes.

facility. about but before transact. go And any we we very facilitate gives we to not is the continue levels. we So, feel you're spin different to to referring talked we us facility to credit that covenant ourselves at, is foremost here our ready everything those get comfortable to current that flexibility will with highlighted facility feel And than the and credit credit we that There to to need look that first the that continue what at have that.

that point. potentially thing, if that's come we at of within not also this right the We there conclusion that type to we've think by feel any there's but means flexibility some

for will needing to certainly will proper help it's the facilitate additional also it this spin, this it rest as of And not life. So, in without whatever the a But adjustments. on moment is early process. if reason its on continue reminder,

well So we're positioned this. to the with provide flexibility

Ryan Brinkman

helpful. Very you. Okay. Thank

Operator

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

Armintas Sinkevicius

taking improvements. Thank the There Very there's you as for good suggests morning. you that question. mentioned the operational – margin the

talk that the was think it's has than along and second progressing expected. quarter how I the you talk how here there integrating more Federal-Mogul integration was know, challenging. a don't But integration the to software I from first if or been last moving that's some bit software of that less maybe the quarter? could about

Brian Kesseler

is an on This sides the fourth – with think Armin. fourth there be fully of separated by the very we're harmonization by the we kind separation quarter of have From Yeah, end bit a and we're the inside We'll we're Systems this quarter. pleased are Brian. standpoint integration – as I schedule mentioned operationally quarter. on we progress of divisions script both the in the will making.

fourth really there's essentially after quarter. divisions two no So, of intertwining the the

with comfortable where really we're So we're at.

to synergies together impact the Overall, have the I well As you to see are can think very come the results. teams flow. starting

Armintas Sinkevicius

was how product. channel your side with of challenges And and Maybe there's DRiV bit fully the or could here last – of the sort the you those particularly for a if business that second any quarter on challenge side resolved. in quarter any are then if aftermarket the Okay. has talk a to progressed

Brian Kesseler

Yeah.

the division I on it the because I the in judge started of few subsequent see to better there earnings of first Motorparts early think to second to to our are where as things a think then quarter call forms, a expected talked going was kind performance, to different half in lot QX on late in in we get back quarter. the we we

XXXX. XXXX Q of basis points in half than the first actually in margins XX first higher half Our are the of

progress So we that making the expect. would

to strong. little Started to. expected weaken a could out along is like July quarter bit in June, we in Second you started that it again pretty hear coming customers' commentary. our

will out year conflict some completely previous the start time And get years' be second we lapping This the so channel we'll year. the the of losses. of of lapped by half

the our – we've our has and our – America So business XX% business million in gaining that what probably lost a recovered new and feeling next years nice already. the job. this that conflict. of we're about term. is doing year that in over in customers that And the confidence is to wins the And in getting intention that we're feel team North $XXX of About America couple in back. XX% channel North of been back get we medium We in around that of

along So making of we're the on where challenged our DRiV's right of some we like parts in as We're business and more the expected. long-term place at. footprint moving

Armintas Sinkevicius

Great. one Any sensitivity ending year me And for X.X. at here. last You're leverage? around the

As thinking challenging spin a does what obviously the a mentioned you you've think comps it here. But here. at how leverage bit hard about of be It's levers a without point DRiV for bit become the couple you're about But just the business? would helpful.

Brian Kesseler

medium-term. from beginning free of Yeah. to be a things the DRiV we'll three-year one mean, is conversion cash there. XXX% make in be window – targeting on that to flow standpoint I performance From say of the company the perspective, progress outside the a the

we the coming position. future product and better that's find even we're in gaining we're And around some things that a where the and if could ways simplification we're we'll So see the with the the changes talk the the on other leverage deleverage, be we out comfortable in we'll more making about of to spin. complexity inside efficiencies lines,

taking. we're guess in I that confident direction So we're the

Armintas Sinkevicius

appreciate Much it. Great.

Brian Kesseler

Thank you.

Operator

question Joseph come next Markets. RBC Our ahead. Capital Please Spak go with will from

Joseph Spak

question. the Thanks for taking

better helpful look you at sort quarter to incrementals it you commentary Air, guys just with of understand I of lot volume low I was factors the guess exception but again, I Clean So because if the here XXs. the on want guess decrementals, provided high of XXs, and just a

on what's So that that's are you of sort mix-related worse targets. was margin downside? than -- extra Is How higher of from than products? the the gas diesel much pain said the your that stuff

Ron Hundzinski

that Joe. the saw first That a contributor it. in Hey, was Ron. We This quarter. Yes. is to

China Also higher are second well. the lost We margin it the continued to in as the see business Powertrain on sales in quarter.

us headwinds higher combination Powertrain So in our in Europe business. the decrementals China diesel down Powertrain margins. Those sales margins would two coming for hitting were the that are and from prevent

the job the the big year-over-year. of was As tremendous Powertrain a sequential, you did Clean performance I would challenge say but a know more. was But sequentially more Air on very year-over-year that

Roger Wood

Yeah.

Joe, I think this worth it's mentioning is Roger.

because it's to the we business worth going on mentioning bit said the differences the to side targets business. more to side just in fundamental think the get expect be a I Powertrain what is on challenging than complement that Clean that set the we Ron of the down for Air to

quarter they made to tremendous progress work from that. to first So second the the continue quarter. They on

our in So -- that from be a Federal-Mogul perspective Clean my all the that side. bit it higher it's would side Powertrain for previous than -- Air unexpected perspective Powertrain not that the side the

Brian Kesseler

There's the us. We're a quarter into impacted From down. we're a kind we range that think of the two the down is is little the go. major China Beijing up of plant a facility. trying in XX%. Ride the it's That's around XXs in Yeah. the better wrap for of decrementals the And as bonds relocation Motorparts One turmoil XX% side, business into it. that where the higher. or get still a were new to the there But things Performance lot right in we

down not to margin a thing not our to starting The the volumes see meet chose is on we're replace and we hurdles that other from programs did perspective. ramp

next over into out structure two. plants through quarters move get four as to those from to got to to be move So able next we've cost fixed we several the that year

So think side our America, in be. North both the moves into a we the then get other where we them on back but of the that's and it while, footprint I for right to to get going expect we downsides would impact upside

Joseph Spak

much All as other roll right. follow the to as segments CTOH some I I and think exposed industrial maybe to as concern especially you're next that the other companies, not there's that. Class of but some a That's guess, business, we on into into on, very X also helpful. about growing year, headed know

are on vehicle different is So what business business? those typically on that decrementals that the you see -- and incrementals any light versus

Roger Wood

increased for a on the we're higher of launching business, From the the is see thing China content our positive working those This would side at specifically that the with looking changes. we those side the Yeah. that bit CTOH business over we're currently the that Roger. business regulation in in of

side business, the in The the a through Pacific in actually. the framework, as whether significant and about excited all the content arena volume. increase opportunities as really both those Asia well Europe next tremendous regulatory we're Americas of in the that Long-term, growth as because we it's years, XX see over changes world in regulatory lift come

the of side of source excitement is a us. real for that So business

Brian Kesseler

New about there the as commercial as DRiV so From the and Yeah. percentage in the outs than off-highway it our a not -- are for is is margin same vehicle, difference a light Tenneco, but perspective, truck ins no us. less

Joseph Spak

any it quick efficiencies this missed really what merger any the this, of you or… for Is cancellation sorry, And beforehand? just CapEx Are I Okay. real realize related? but maybe that that of on projects, the the timing sort reduction year, was there then didn't Is if it do? from

Brian Kesseler

Mostly the some But pushed of One, we buy. off out mentioned. some you too. that that first there programs have then benefit leveraging getting the two scale of are are

Jason Hollar

side Tenneco New of business the are that. the from we heavily focused And really Yeah. on

increasing cash area conversion overall is the at organization, capital look we As focused our we're in on. our an efficiency that

be we that it. we business. will about. opportunities to way But it's have the more no in we There's necessary spend believe question do efficient where the the We to capital across enterprise support

Joseph Spak

Okay. Thank you.

Operator

go [Operator next Instructions] Sachs. question Goldman David ahead. with Our Please from will Tamberrino come

David Tamberrino

was hit be get it already And but more what's on bit to needs still be Thank co-mingled to I to a to What's currently internal What touched two? really wanted by split it. operations done bifurcated? you. year-end? a clarity think target the will entities? stand-alone on the I What little Gentlemen, the little between

Brian Kesseler

this step and anything last systems quarter work the there. tackling is of we buttoning we'll our find up we're that then all The through IT

teams a period TSAs handfuls that. than between a less management just Operationally the managing very two we'll of is short -- that the really be it that for systems fourth cooling to we out the quarter and this quarter ready end IT of behind organizations we that So two the But the to are us time. some already dedicated. work get are car anything roll. We'll have just and in at is have that really of very beginning we're it

David Tamberrino

plant plant Okay. won't or be And there facilities? shared footprints any

Brian Kesseler

A all on campus. separated two couple there and they're buildings anyway. here most -- cases separate it's In one already but almost

very it's easy to So separate.

Roger Wood

little very very David. few that of Yes. very, There's

David Tamberrino

one. as mean, last the has market the year. benefits back the been costs, into any progress coming P&L or half we in since I pricing then And the Okay. there just XXXX? into Steel the beginning of down coming Is in the

Brian Kesseler

the steel lot those challenges but absorbed on over mixed million, a our side discussions, we we where discussions. XX the different in $XX of Obviously, Well, Performance place. had of in with get mechanisms tariff we got Ride recovery all quarters

where making one those lot it's so it a OEs don't the generally there. the -- progress see other we way But meaningful And combat or on pieces discussions, effect moving of hand-to-hand having there. especially with in so a different a we're the

Jason Hollar

Yes.

impacting year of we anything businesses. lot of pieces Within but balance see forecast, really as moving highlighted, the not Brian do any significantly the quarter or the the of a

Roger Wood

Tenneco Same thing side. the on New

David Tamberrino

From Okay. through is List X into China Understood. from the a one. U.S. businesses? last perspective anything the And your there imported

Brian Kesseler

No.

Roger Wood

impact. No. No. No

David Tamberrino

for taking my questions. Thanks

Operator

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

Tenneco (TEN) 6 Aug 192019 Q2 Earnings call transcript