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Tenneco Beats on Q3 Earnings and Revs

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Tenneco Inc. (TEN - Free Report) reported adjusted earnings per share of 99 cents in the third quarter of 2013, which beat the Zacks Consensus Estimate of 95 cents. Earnings per share surged 16.5% year over year from 85 cents in the third quarter of 2012.

Net income increased 19.2% to $62 million from $52 million a year ago. On a reported basis, Tenneco’s profit was $12 million or 19 cents per share compared with $125 million or $2.05 per share in the third quarter of 2012. The current quarter includes restructuring expenses of $59 million or 95 cents per share, partly offset by net tax benefits of $9 million or 15 cents per share.

Revenues increased 10% year on year to $1.96 billion, beating the Zacks Consensus Estimate of $1.95 billion. The increase in revenues was attributable to higher revenues from all operating segments.

Adjusted EBIT (earnings before interest, taxes and non-controlling interests) increased 15% to $130 million from $113 million a year ago. Adjusted EBIT benefited from a 22% increase in adjusted EBIT from Clean Air Division and a 20% improvement in EBIT from Ride Performance Division.

Segment Results

Revenues from Clean Air Division improved 12% to $1.33 billion from $1.19 billion a year ago. The improvement was due to higher light vehicle production, increased revenues from the commercial vehicle business and addition of new platforms.

Adjusted EBIT augmented to $96 million from $79 million a year ago due to an increase in commercial and light vehicle volumes and strong operating performance.

Revenues from Ride Performance Division rose 7% to $635 million from $593 million, driven by higher revenues from all regions. Adjusted EBIT increased to $55 million from $46 million on higher volumes in most regions and favorable impact from platform launches.

Financial Position

Tenneco had cash and cash equivalents of $276 million as of Sep 30, 2013, up from $223.0 million as of Dec 31, 2012. Total debt was $1.36 billion as of Sep 30, 2013 compared with $1.18 billion as of Dec 31, 2012.

For the third quarter of 2013, the company had cash flow from operating activities of $50 million, down from $125 million in the year-ago period. Capital expenditures for the period were $57 million compared with $65 million in the year-ago period.

Restructuring Activities

As announced earlier, Tenneco is undertaking certain restructuring activities to reduce structural costs in Europe by $60 million annually. These activities are expected to result in restructuring costs of around $120 million, of which $80 million worth of expenses have already been announced by the company.


Based on IHS Automotive forecasts, Tenneco expects total light vehicle production to increase 3% in the fourth quarter of 2013, with a 6% rise in North America and 8% increase in China, partly offset by a 5% decline in industry production in South America and an 11% plunge in India. However, light vehicle production is expected to stay in line with the prior-year quarter in Europe.

Tenneco expects revenues to grow significantly in the fourth quarter and full year. Although commercial vehicle volumes are expected to remain weak, commercial and specialty revenues in the fourth quarter are expected to remain in line with the third quarter.

Tenneco expects capital expenditure to amount to $250 million in 2013. The guidance for tax rate was affirmed at 36%–38%, with total cash taxes expected to be about $110 million.

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 #2 (Buy).

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

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