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Tenneco Tops Q2 Earnings on Improved Operational Performance

Zacks Equity Research

Tenneco Inc. (TEN) reported adjusted earnings per share of $1.45 in the second quarter of 2014, which beat the Zacks Consensus Estimate by 21 cents. Earnings per share improved 31.8% from $1.10 in the second quarter of 2013.

Adjusted net income increased 30.9% to $89 million from $68 million a year ago. On a reported basis, Tenneco’s net income came in at $81 million or $1.32 per share compared with $63 million or $1.02 per share in the year-ago quarter. The reported net income includes restructuring expenses and tax adjustments in both quarters. The year-over-year improvement was driven by higher production volumes, better operational performance and favorable effective tax rate.


Tenneco Inc - Earnings Surprise | FindTheBest


Revenues increased 8.4% year on year to $2.24 billion, marginally beating the Zacks Consensus Estimate of $2.21 billion. The improvement can be attributed to higher revenues from both segments. Revenues benefited from a 6% hike in light vehicle OE revenues, a 27% increase in commercial truck and off-highway OE revenues, and a 4% improvement in global aftermarket revenues.

Adjusted EBIT (earnings before interest, taxes and non-controlling interests) grew 12.2% to $166 million from $148 million a year ago. Adjusted EBIT benefited from a 9% increase in adjusted EBIT at the Clean Air Division and a 29% improvement in adjusted EBIT at the Ride Performance Division. Meanwhile, adjusted EBIT margin improved to 7.4% from 7.2% a year ago.

Segment Results

Revenues from the Clean Air Division improved 9.6% to $1.54 billion from $1.41 billion a year ago. Adjusted EBIT augmented 9.1% to $120 million from $110 million a year ago driven by stronger light and commercial truck and off-highway volumes.

Revenues from Ride Performance Division rose 5.9% to $700 million from $661 million. Adjusted EBIT grew 29.3% to $75 million from $58 million. Adjusted EBIT margin at this segment was 10.7%, up from 8.8% a year ago. EBIT benefited from higher light vehicle and commercial truck revenues in North America, cost savings initiatives and strong aftermarket sales in North and South America.

Financial Position

Tenneco had cash and cash equivalents of $260 million as of Jun 30, 2014, down from $275 million as of Dec 31, 2013. Total debt stood at $1.3 billion as of Mar 31, 2014 compared with $1.1 billion as of Dec 31, 2013.

In the first half of 2014, cash used from operating activities was $26 million, down from cash flow of $41 million in the year-ago period. Capital expenditures for the period totaled $167 million as against $122 million in the year-ago quarter.


Based on IHS Automotive forecasts, Tenneco expects global light vehicle production to increase 5% in the third quarter of 2014, with a 9% rise in North America, 11% increase in China and 9% growth in India. Light vehicle production is predicted to decline 12% in South America, and remain flat in Europe. Tenneco expects its light vehicle revenues in the third quarter to improve 5%, in-line with the global industry light vehicle production increase.

Also, Tenneco expects revenues from commercial truck and off-highway customers in the third quarter to increase 20–25%. The favorable projection takes into account new business and benefits from incremental launches on current platforms. Tenneco also expects higher commercial truck revenues in China.

Tenneco is a leading manufacturer and supplier of emission control and ride control systems for automotive original equipment manufacturers and the aftermarket. Currently, the company retains a Zacks Rank #3 (Hold).

Some better-ranked automobile stocks worth considering include Tower International, Inc. (TOWR), Visteon Corporation (VC) and China Automotive Systems Inc. (CAAS). All the stocks sport a Zacks Rank #1 (Strong Buy).

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Read the Full Research Report on VC
Read the Full Research Report on TOWR
Read the Full Research Report on CAAS

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