Tenneco Expects Higher OE Revenues

Zacks

Tenneco Inc. (TEN) revealed that it expects original equipment (:OE) revenues between $6.4 billion and $6.8 billion for 2013, including commercial vehicle revenues of $0.9 billion–$1.1 billion. This reflects an anticipated rise of 4.9%–11.5% from OE revenues of $6.1 billion in 2012.

OE revenues mean revenues generated from parts sold directly for use by original equipment manufacturers (OEMs). As a result, demand for OE parts market is mainly a function of the vehicles production volumes by OEMs.

Tenneco believes higher light vehicle production in North America, South America and China will act as a catalyst for OE revenues growth during the year. However, the company thinks commercial vehicle revenues will mainly improve later in the year when vehicle manufacturers prepare for regulatory changes (Tier 4 final, Europe Stage 4 off-road and Euro VI) coming into effect in 2014.

For 2014, the leading supplier of automotive OEM parts anticipates OE revenues between $7.2 billion and $7.7 billion, including commercial vehicle revenues of $1.3 billion to $1.6 billion. The improvement in the year will be driven by betterment of macroeconomic conditions globally, resulting in stronger light and commercial vehicle volumes. Further, the company expects to benefit from significant incremental commercial vehicle content as regulatory changes take place.

Tenneco’s projections were based on forecasts made by IHS Automotive of IHS Inc. (IHS). For 2013, IHS Automotive expects OE light vehicle production to go up 3% in the regions where Tenneco operates. According to IHS, full-year production is expected to rise 3% in North America, 9% in China, 4% in South America and 8% in India but decline 3% in Europe due to uncertain macroeconomic environment.

Tenneco, a Zacks Rank #5 (Strong Sell) stock, reported an adjusted profit of $40.0 million or 66 cents per share in the fourth quarter 2012, up 25% from $32.0 million or 53 cents in the corresponding quarter a year ago. However, earnings missed the Zacks Consensus Estimate by 2 cents.

Revenues decreased 1.7% to $1.75 billion, which was lower than the Zacks Consensus Estimate of $1.78 billion. Excluding substrate sales and currency impact, revenues increased 1.9% to $1.39 billion. The year-over-year increase in revenues was attributable to a rise in sales volume of light vehicles in North America and China and higher North American aftermarket sales.

While we prefer to avoid Tenneco until we see signs of improvement in the company's performance, other auto stocks that are worth a look include Oshkosh Corporation (OSK) and Commercial Vehicle Group Inc. (CVGI). They carry a Zacks Rank #1 (Strong Buy).
 

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