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Tenneco (TEN) Up 18.9% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

It has been about a month since the last earnings report for Tenneco (TEN). Shares have added about 18.9% 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 its most recent earnings report in order to get a better handle on the important drivers.

Tenneco Q2 Loss Narrower Than Expected

Tenneco posted adjusted loss per share of $2.15 in second-quarter 2020, narrower than the Zacks Consensus Estimate of loss of $3.52. Higher-than-anticipated revenues from Clean Air, Powertrain and Ride Performance segments resulted in the narrower-than-expected loss.

However, the bottom-line figure compares unfavorably with the year-ago quarter’s earnings of $1.20 due to lower revenue generation across all of the company’s segments.

The OEM auto supplier recorded revenues of $2,637 million in the reported quarter, beating the Zacks Consensus Estimate of $2,211 million. The top-line figure, however, declined from the $4,504 million recorded in second-quarter 2019. Decline in light-vehicle production due to the coronavirus crisis hurt revenues.

Segmental Highlights

The Clean Air division’s revenues were $1,140 million compared with the year-earlier figure of $1,827 million. The figure, however, surpassed the Zacks Consensus Estimate of $862 million. Adjusted EBITDA totaled $38 million in the quarter, down from the year-ago quarter’s $168 million.

Revenues in the Ride Performance division came in at $336 million compared with the $709 million recorded in the year-ago quarter. The reported figure, however, outpaced the Zacks Consensus Estimate of $294 million. Negative adjusted EBITDA totaled $41 million in the June-end quarter, down from positive adjusted EBITDA of $50 million witnessed in the prior-year quarter.

The Powertrain division’s revenues summed $602 million, down from the $1,133 million recorded in the corresponding quarter of 2019. The revenue figure, however, beat the Zacks Consensus Estimate of $486 million. Negative adjusted EBITDA totaled $21 million in the reported quarter, down from the year-ago quarter’s positive adjusted EBITDA of $118 million.

The Motor parts division’s revenues came in at $559 million, slumping from the $835 million generated in second-quarter 2019. The figure also missed the Zacks Consensus Estimate of $566million. Adjusted EBITDA totaled $71 million in the April-June quarter, down 43.7% year over year.

Financial Position

Tenneco had cash and cash equivalents of $1,362 million as of Jun 30, 2020, compared with $564 million as of Dec 31, 2019. Long-term debt was $6,629 million, up from $5,371 million as of Dec 31, 2019.

Outlook

Tenneco suspended the 2020 guidance as it expects the pandemic’s crippling impact to strain its operations in the days to come.

Tenneco expects sales to be up substantially in the third quarter compared with the second. However, sales will likely decline year on year. The organization also expects the benefit of incremental structural cost savings and continued capital management to result in sequential growth in cash from operations through the second half of 2020.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -67.43% due to these changes.

VGM Scores

Currently, Tenneco has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. 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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