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Tenneco to Reduce European Production

Zacks Equity Research

Lingering European economic concerns have led Tenneco Inc. (TEN) to announce the shutting down of its ride performance plant in Gijon, Spain, and decomplexing of the ride performance plant in Sint-Truiden, Belgium. The current customer business will be transferred to other ride performance operations and the Gijon plant will be closed in the first quarter of 2014.

These Tenneco plants produce shock absorbers for automobile manufacturers and the replacement market. Around 230 people are employed in the Gijon plant. However, these actions will lead to 480 job losses in Western Europe. Tenneco will be consulting with employee works council before taking the final call.

Tenneco expects that this strategy will enable the company to function proficiently and boost its competitive strength in the European market in the long run. However, these actions will cost Tenneco $63 million, of which $55 million will be recorded in the third quarter of 2013. These charges include non-cash asset impairments, the cost of relocating tooling, equipment and production to other facilities, severance and retention payments to employees, and other related costs.

These actions are part of Tenneco’s efforts to reduce cost of production and cut structural costs in Europe by $60 million annually. Toward this aim, the company had also completed the closure of aftermarket facility in Vittaryd, Sweden in Aug 2013. The company expects the expenses related to the closures to be recorded in 2013 and 2014, while the benefits will be noticed from 2016. Thus, the company expects to make a saving of $22 million from this initiative.

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 #3 (Hold).

Some stocks that are performing well in the industry where Tenneco operates include Gentex Corp. (GNTX), Magna International Inc. (MGA) and American Axle & Manufacturing Holdings Inc. (AXL). All these companies carry a Zacks Rank #1 (Strong Buy).

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