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Why Is Tenneco (TEN) Up 27.9% Since Last Earnings Report?

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A month has gone by since the last earnings report for Tenneco (TEN - Free Report) . Shares have added about 27.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Tenneco due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Tenneco Q3 Earnings Miss, Sales Top Estimates

Tenneco reported adjusted earnings of 33 cents per diluted share in third-quarter 2020, lagging the Zacks Consensus Estimate of 43 cents. Dismal revenues from the Ride Performance segment resulted in this lower-than-expected profit.

Moreover, the bottom-line figure compares unfavorably with the year-ago quarter’s earnings of $1.23 per share.

The Illinois-based auto supplier recorded revenues of $4,256 million in the reported quarter, beating the Zacks Consensus Estimate of $3,961 million. The top-line figure, however, declined from the $4,319 million recorded in third-quarter 2019. Adjusted EBITDA for the September-end quarter came in at $388 million, up $1 million from the year-ago level, primarily driven by operating performance, and enhanced contribution from structural and temporary cost savings.

Segmental Highlights

For the July-September period, the Clean Air division’s revenues summed $1,919 million compared with the year-ago figure of $1,772 million. The revenue figure, however, surpassed the Zacks Consensus Estimate of $1,739 million. Adjusted EBITDA totaled $149 million in the quarter, down from the year-ago quarter’s $157 million.

For the third quarter, revenues in the Ride Performance division came in at $600 million, down from the $671 million recorded in the year-earlier period. The reported figure also missed the Zacks Consensus Estimate of $613 million. Adjusted EBITDA totaled $32 million in the September-end quarter, declining from the $42 million witnessed in the prior-year quarter.

The Powertrain division’s revenues amounted to $1,007 million during the third quarter of 2020, decreasing from the $1,082 million recorded in the corresponding quarter of 2019. The revenue figure, however, outpaced the Zacks Consensus Estimate of $973 million. Adjusted EBITDA came in at $124 million in the reported quarter, up from the year-ago quarter’s $109 million.

The Motorparts division’s revenues came in at $730 million, plunging from the $794 million generated in third-quarter 2019. Nevertheless, the revenue figure topped the Zacks Consensus Estimate of $702 million. Adjusted EBITDA totaled $131 million in the July-September quarter, up from the prior-year quarter’s adjusted EBITDA of $121 million.

Financial Position

Tenneco had cash and cash equivalents of $716 million as of Sep 30, 2020, compared with the $564 million seen as of Dec 31, 2019. Long-term debt totaled $5,596 million, up from $5,371 million as of Dec 31, 2019. However, total debt was recorded at $5,772 million, down $1,079 million from the second quarter owing to the pay down of the revolving credit facility.

During the third quarter, the company’s net cash provided by operating activities was $486 million compared with the year-earlier quarter’s $164 million.

Outlook

For the fourth quarter, Tenneco expects revenues to be roughly at par with the third quarter and adjusted EBITDA margin to expand almost 200 basis points year on year.

The company projects full-year capital expenditures of approximately $380 million, and net debt to be at par or below the 2019 year-end level of $5 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 737.5% due to these changes.

VGM Scores

At this time, Tenneco has a strong Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Tenneco has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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