Tenneco to Close Vittaryd Plant

Tenneco Inc. ( TEN - Analyst Report ) recently announced its plans to close its emission control plant in Vittaryd, Sweden, as soft market conditions in Europe is hurting its aftermarket emission control business.

The company plans to shut down the plant, which employs around 113 hourly workers and 9 salaried workers, by the third quarter of 2013. Though Tenneco has shown concern about the employees, the economic slump in the region has forced the company to consolidate its aftermarket emission control capacity in Europe.

The company expects to shift production from Vittyard to other emission control operations located in Laval in France, Edenkoben in Germany, Valencia in Spain and Rybnik in Poland. This strategy will help the company meet the market demand and strengthen its long-term competitiveness.

The closure will result in restructuring charges of $10 million to $14 million, including non-cash asset impairments, cost of relocating tooling, equipment and production to other facilities, severance and retention payments to employees, and other related costs over the next four quarters.

The company will incur about $4 million in non-cash charges in the third quarter of 2012. Meanwhile, it expects to generate savings of $4 million in late 2013 after the charges are paid off.

Tenneco, in the second quarter of 2012, registered a 40% increase in profit (excluding special items) to $70 million or $1.14 per share from $50 million or 81 cents in the comparable quarter last year. The results also breezed past the Zacks Consensus Estimate by 17 cents.

Total revenue increased marginally to $1.92 billion, but failed to match the Zacks Consensus Estimate of $2.04 billion. The year-over-year growth was attributable to a rise in production of light vehicles in North America and China along with higher commercial vehicle revenues around the world.

Tenneco, the leading maker of emission control and ride control systems benefits from tighter emission regulations and rising commercial vehicle business. However, the company remains exposed to customer concentration risks.

Tenneco, which competes with Meritor Inc. ( MTOR - Analyst Report ) , maintains a Zacks #3 Rank, which translates into a short-term (1 to 3 months) Hold rating. Currently, we have a long-term Neutral recommendation on the stock.