Tenneco Inc. (TEN) recorded a 75% increase in
profit to $42 million or 67 cents per share in the third quarter of
2011 from $24 million or 39 cents per share (before special items)
during the same quarter of 2010. The company’s profit was in line
with the Zacks Consensus Estimate during the quarter.
Revenues in the quarter grew 15% to $1.77 billion from $1.54
billion a year ago. Value-add revenue (revenues excluding substrate
sales) was $1.37 billion, a 16% increase from $1.19 billion in the
2010-quarter.
The increase in revenues was driven by stronger original
equipment (OE) volumes on current and new platforms along with a 9%
rise in global aftermarket sales. The launch and ramp-up of new
commercial vehicle platforms led to the increase in commercial and
specialty vehicle OE revenues to 12% of total OE revenue.
Adjusted earnings before interest and taxes (EBIT) rose to $99
million from $77 million in the third quarter of 2010. The
improvement in EBIT was driven by higher OE light vehicle volumes,
new commercial vehicle business, and higher global aftermarket
sales.
These factors were partially offset by $10 million in higher
operational costs in the North America OE ride control business due
to higher material costs and manufacturing inefficiencies. Currency
had a favorable impact of $7 million on EBIT.
Segment Results
In North America, OE revenues escalated 10% to
$649 million driven by strong volumes on Ford
Motor’s (F) F-150 and Focus, and
Volkswagen’s (VLKAY) Jetta. Aftermarket revenue
rose 12% to $193 million due to impressive growth in emission
control business.
EBIT in the segment decreased to $46 million from $51 million a
year ago as higher OE volumes and aftermarket sales were offset by
higher operational costs in the North America OE ride control
business.
Revenues in Europe,
South America and
India increased 19% to $727 million. In Europe, OE
revenues grew 25% to $473 million supported by strong volumes on
key platforms including the Mercedes CLS, Volkswagen Polo,
Daimler (DDAIF) CLS and Audi A4.
However, aftermarket revenues in the region inched up 1% to $92
million as higher aftermarket ride control revenues were more than
offset by lower emission control revenues due to decline in market
share.
In South America and India, revenues scaled up 13% to $162
million. EBIT rose to $37 million from $15 million a year ago due
to higher OE volumes in all regions and lower deferred and
long-term compensation expense, partially offset by an aftermarket mix
shift toward Eastern Europe.
In
Asia-Pacific,
revenues hiked 23% to $204 million, driven by volume growth in
China on key platforms with Nissan (NSANY),
Audi and Volkswagen. Adjusted EBIT increased to $16 million from
$11 million in the third quarter of 2010, driven by higher volumes
in China and lower deferred and long-term compensation expense,
partially offset by a decline in volumes in Australia.
Financial Position
Tenneco had cash and cash equivalents of $163 million as of
September 30, 2011, a decrease from $233 million as of December 31,
2010. Total debt increased to $1.30 billion from $1.22 billion as
of December 31, 2010.
Net debt was $1.14 billion as of September 30, 2011 versus $1.11
billion at the end of third quarter of 2010. The leverage ratio
(net debt to adjusted LTM EBITDA including non-controlling
interests) improved to 1.9x from 2.2x at the end of third quarter
of 2010.
In the first nine months of the year, Tenneco’s cash flow from
operations deteriorated to $44 million from $64 million despite an
improvement in income. The decrease was mainly attributable to
unfavorable
changes in working capital.
Capital
expenditures in the quarter rose to $50 million from $34 million a
year ago due to investments in order to support emission-control
technology applications for new customer programs and continued
capacity investments for expanding business in China.
Tenneco also paid $4 million to acquire the remaining 25% interest
in the company’s emission control joint venture in Thailand.
In the first nine months of 2011, capital expenditures (net)
increased to $141 million from $102 million. The company continues
to expect its capital expenditures in the range of $190 million to
$210 million for full year 2011.
Guidance
Tenneco will continue to launch and ramp-up production on new
commercial vehicle programs in North America, Europe, China and
South America. The company expects commercial vehicle OE revenue of
$650 million for the full year due to lower volumes related to
launch timing and ramp-up schedules, primarily in the Europe
segment.
Our Take
Tenneco is a Lake Forest, Illinois based leading manufacturer
and supplier of emission control, ride control systems and systems
for the automotive OEMs and the aftermarket. The company has many
program launches in the pipeline.
The company is launching diesel after treatment programs with 13
commercial vehicle and engine manufacturers globally through 2012
in North America, Europe, China and South America.
However, the company faces weak demand for aftermarket parts
compared to OE. Besides, pricing pressure from OEMs remains a
problem for Tenneco. As a result, the company retains a Zacks #3
Rank on its stock, which translates to a short-term rating of
“Hold”, and we reiterate our long-term recommendation of
“Neutral”.
DAIMLER AG (DDAIF): Free Stock Analysis Report
FORD MOTOR CO (F): Free Stock Analysis Report
NISSAN ADR (NSANY): Free Stock Analysis Report
TENNECO INC (TEN): Free Stock Analysis Report
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