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Tenneco (TEN) Gains on Higher Volumes, Costs Keep Rising

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Tenneco (TEN) Gains on Higher Volumes, Costs Keep Rising

Higher volumes across Americas, EMEA and APAC aid Tenneco (TEN). However, rise in costs and expenses is a concern.

On Aug 13, we issued an updated research report on Tenneco, Inc. TEN.

Quarterly revenues for the company rose 9% year over year to $2.54 billion, almost in line with the Zacks Consensus Estimate. This rise in revenues is driven by higher volumes and program launches across the Americas, EMEA and APAC regions. However, adjusted earnings per share of $1.92 for second-quarter 2018 (ended Jun 30, 2018), missed estimates of $2.

For third-quarter 2018, organic revenues are expected to improve 5% year over year from $2.3 billion recorded in the year-ago quarter. Growth in light-vehicle, commercial trucks and off-highway revenues across all regions, along with a steady contribution from the aftermarket, is expected to drive the results. Similarly, for 2018, the figure is expected to grow 5% year over year on a constant-currency basis, which is likely to surpass the industry’s production by 3%.

Tenneco Inc. Price and Consensus

 

Tenneco Inc. Price and Consensus | Tenneco Inc. Quote

Moreover, Tenneco is splitting its business into two separate entities while acquiring Federal-Mogul. One entity will consist of aftermarket & ride performance, and the other will comprise of the company’s powertrain technology. Segregating business into separate entities will aid the company to benefit from synergies and focus more on individual businesses. Further, this will create two separate industry leaders at their respective market, with financial flexibility to drive long-term value creation.

However, continuous rise in costs and expenses — majorly due to facility restructuring and related charges, goodwill impairment charges and pension charges — is a concern for the company. At the six-month end of 2018, Tenneco’s costs and expenses rose around 9.3%, on a year-over-year basis, to roughly $5 billion. Moreover, with the newly enacted tariffs, the figure is expected to augment in 2018.

Further, the company’s stock has seen the Zacks Consensus Estimate for annual earnings being revised 5.5% downward over the past 30 days.

Price Performance

In the past three months, Tenneco’s stock has declined 8.4%, outperforming 10.5% decline recorded by the industry it belongs to.

 

Zacks Rank & Key Picks

Tenneco currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the auto space are Honda Motor Co., Ltd. HMC, Fox Factory Holding Corporation FOXF and Allison Transmission Holdings, Inc. ALSN. Honda presently carries a Zacks Rank #2 (Buy) while Fox Factory and Allison Transmission sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Honda has an expected long-term growth rate of 3%. Shares of the company have risen 7.3% in the past year.

Fox Factory has an expected long-term growth rate of 16.8%. Over a year, shares of the company have gained 76.2%.

Allison Transmission has an expected long-term growth rate of 10%. Over a year, shares of the company have gained 22.4%.

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