TEN Ride Control to Power Escape

Tenneco Inc. (TEN - Analyst Report) has announced the launch of its ride control business for Ford Motor Co.’s (F - Analyst Report) new 2013 Escape. The company will be providing front struts and rear monotube shocks for the Ford Escape, which will be manufactured in the recently redesigned Louisville Assembly Plant.

Rear monotube shocks will be manufactured in the Owen Sound, Ontario, facility while front struts will be produced in the Celaya, Mexico, plant. Shocks and struts maintain the vertical load of the vehicle on the vehicle tires, thus helping the tire keep in contact with the road.

Tenneco is the global supplier of emission control and ride control systems of Ford Motor. These products are used in a number of Ford Motor’s passenger cars, light and medium duty trucks.

Tenneco witnessed a 5% year-over-year growth in profit in the first quarter of 2012 that recorded $41 million or 66 cents per share, missing the Zacks Consensus Estimate by 7 cents. Revenues surged 9% year-over-year to $1.9 billion in the quarter. The hike was attributable to the company’s strong customer base, higher OE light vehicle production volumes, incremental commercial vehicle revenues and increased revenues from North American aftermarket.

Lake Forest, Illinois-based 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. It provides the ride control products to 22 light vehicle manufacturers which are used in 150 light vehicle models. The major customers include AB Volvo (VOLVY), Scania, Navistar International Corporation (NAV - Analyst Report), Daimler AG (DDAIF) and PACCAR Inc. (PCAR - Analyst Report).

Currently, Tenneco retains a Zacks #3 Rank, which translates into a short-term (1 to 3 months) “Hold” rating. The company continues to benefit from tighter emission regulations along with consistent performance in the commercial business segment. However, we are concerned about the prevailing customer concentration risks faced by the company. We have a long-term (more than 6 months) “Neutral” recommendation on the stock.