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Tenneco Earnings Lag but Beat Estimates

TEN VC GNTX

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Tenneco Inc. (TEN - Analyst Report) reported adjusted earnings per share of $1.10 in the second quarter of 2013, which slivered past the Zacks Consensus Estimate by a penny. Earnings per share decreased 3.5% year over year from $1.14 in the second quarter of 2012.

Net income decreased 2.9% to $68.0 million from $70.0 million a year ago. On a reported basis, the company’s profit was $63.0 million or $1.02 per share compared with $87.0 million or $1.42 in the second quarter of 2012. The year-over-year drop in profit was due to higher tax rate.

Revenues increased 7.7% year on year to $2.07 billion, beating the Zacks Consensus Estimate of $1.97 billion. The increase in revenues was attributable to higher revenues from Clean Air division and Ride Performance segment, driven by increase in global light vehicle production, higher commercial vehicle revenues in Europe and South America and better global aftermarket business.

Adjusted EBIT (earnings before interest, taxes and non-controlling interests) increased 6.5% to $148.0 million from $139.0 million a year ago. Adjusted EBIT benefited from a 15% increase in adjusted EBIT from Clean Air Division and a 4% improvement in EBIT from Ride Performance.

Segment Results

Revenues from Clean Air Division improved 10.4% to $1.4 billion from $1.3 billion a year ago. The improvement was due to higher light vehicle production in North America, China and South America together with higher revenues from both the light and commercial vehicle businesses in Europe.

Adjusted EBIT augmented 15% to $110.0 million from $96.0 million a year ago due to higher Asia Pacific volumes and effective operational cost management. The year-over-year improvement was driven by higher light vehicle volumes in North America, China and South America, and effective operational cost management.

Revenues from Ride Performance Division rose 2.3% to $661.0 million from $646.0 million, driven by higher light vehicle production in China. Adjusted EBIT increased to $58.0 million from $56.0 million due to due to higher volumes in China.

Financial Position

Tenneco had cash and cash equivalents of $235.0 million as of Jun 30, 2013, up from $223.0 million as of Dec 31, 2012. Net debt was $1.27 billion as of Jun 30, 2013 compared with $1.18 billion as of Dec 31, 2012.

For the first half of 2013, the company had cash flow from operating activities of $41.0 million, up from $1.0 million in the year-ago period. Capital expenditures for the period were $122.0 million compared with $124.0 million in the year-ago period.

Outlook

Based on IHS forecasts, the company expects that total light vehicle production will increase 4% in the third quarter of 2013, with an 8% rise in North America and China, while South America is likely to report flat production level. However, light vehicle production is expected to decline 3% in Europe due to the economic uncertainty.

Our Take

Tenneco is a leading manufacturer and supplier of emission control, ride control systems, and systems for the automotive original equipment manufacturers (OEMs) and the aftermarket. Currently, the company retains a Zacks Rank #3 (Hold).

Some other stocks that are performing well in the industry where Tenneco operates include Gentex Corp. (GNTX - Snapshot Report), Visteon Corp. (VC - Snapshot Report) and Denso Corp. . All these companies carry a Zacks Rank #1 (Strong Buy).
 

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