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Mixed Bag from Tenneco

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Tenneco Inc. (TEN - Free Report) reported third quarter 2012 adjusted earnings per share of 85 cents, comfortably ahead of the Zacks Consensus Estimate of 75 cents and up 26.9% from 67 cents a year ago. In absolute terms, profits escalated 23.8% to $52.0 million from $42.0 million in the year-ago quarter.

Meanwhile, reported earnings were $125.0 million or $2.05 per share compared with $30.0 million or 49 cents in the third quarter of 2011.

The company’s revenues for the quarter increased marginally to $1.78 billion from $1.77 billion in the year-ago quarter. However, it was lower than the Zacks Consensus Estimate of $1.83 billion.

The year-over-year increase in revenues was attributable to a rise in production of light vehicles in North America and China and higher commercial vehicle revenues. Excluding substrate sales and currency impact, revenues increased 6% to $1.46 billion. Revenues from original equipment (OE) commercial and specialty vehicles (representing 10% of the total revenue) escalated 8% year over year to $184.0 million.

Adjusted EBIT (earnings before interest, taxes and non-controlling interests) improved 14% to $113.0 million from $99.0 million in the year-ago quarter. The year-over-year improvement was driven by higher light vehicle production in North America and China, increase in commercial vehicle revenues and effective operational cost control measures.

Segment Results

Revenues from North American OE rose 7% to $697.0 million, based on higher revenues from both Emission Control and Ride Control businesses. Aftermarket revenues grew marginally by 1% to $194.0 million.

Adjusted EBIT augmented 57% to $72.0 million from $46.0 million a year ago. The rise in EBIT was driven by a strong operational performance of North America OE ride control business, higher light vehicle volumes from the OE businesses, and increased commercial vehicle revenues.

Revenues from European OE went down 7% to $440.0 million. The decrease in revenues was due to a 20% fall in revenues from the Ride Control business and a 2% dip in revenues from the Emission Control business. European aftermarket revenues fell 13% to $79.0 million, due to a 19% decrease in revenues from Emission Control business. Adjusted EBIT plunged 45.9% to $20.0 million from $37.0 million a year ago.

Revenues from South America and India slid 14% to $140.0 million. Adjusted EBIT from Europe, South America and India decreased 45.9% to $20.0 million from $37.0 million a year ago.

Revenues from Asia Pacific (Asia and Australia) increased 12% to $228.0 million, driven by a 17% increase in revenues from Asia. Adjusted EBIT from Asia Pacific surged 31% to $21.0 million from $16.0 million a year ago. The growth in EBIT was due to higher sales volume of light vehicles in China and restructuring and operating benefits in Australia.

Financial Position

Tenneco had cash and cash equivalents of $207.0 million as of September 30, 2012, down from $214.0 million as of December 31, 2011. Net debt remained almost flat at $1.14 billion as of September 30, 2012 compared with the same as of December 31, 2011.

For the first nine months of 2012, the company had cash flow from operating activities of $119.0 million, up from $44.0 million in the year-ago period. Capital expenditures for the period increased to $195.0 million from $145.0 million a year ago. The increase in capital expenditures was due to new commercial vehicle programs and increase in customer base.


Tenneco anticipates revenue growth from North America and China, owing to the strong industry production. In Europe, the company aims to reduce costs to counter the economic challenges in the continent. According to IHS Inc. , light vehicle production is expected to increase in most of the company’s markets except Europe. As a result, the company expects 25% increase in revenues for the full year 2012.

Our Take

Tenneco, based in Lake Forest, Illinois, is a leading manufacturer and supplier of emission control, ride control systems, and systems for the automotive original equipment manufacturers (OEMs) and the aftermarket.

The company competes with Meritor Inc. (MTOR - Free Report) and maintains a Zacks #4 Rank, which translates into a short-term (1 to 3 months) Sell rating. Currently, we have a long-term Neutral recommendation on the stock.

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