Tenneco Outpaces Estimates - Analyst Blog

Tenneco Inc. (TEN) showed a profit of $38 million or 62 cents per share (before special items) during the second quarter of 2010 versus a loss of $10 million or 22 cents per share (before special items) in the same quarter of previous year. The company has far exceeded the Zacks Consensus Estimate of 44 cents during the quarter.
 
Revenue in the quarter surged 36% to $1.5 billion on the back of a strong original equipment (OE) production volumes across all regions including new launches as well as improved aftermarket sales globally, particularly in North America and South America.
 
Compared with the Zacks Consensus Estimate of $1.4 billion for the quarter, excluding substrate sales and the impact of $16 million in negative currency, revenues went up 36% to $1.21 billion.
 
Adjusted EBIT (earnings before interest, taxes and non-controlling interests) increased about fourfold to $97 million from $25 million in the second quarter of 2009. This was attributable to increased production volumes in all regions, manufacturing efficiencies and higher aftermarket sales globally, partially offset by higher selling, general, administrative and engineering costs.
 
Gross margin rose to 18.6% from 17.5% a year ago, driven by higher OE production volumes, manufacturing efficiencies and an increase in higher-margin aftermarket sales.
 
Regional Performance
 
In the North American market, OE revenue hiked 75% to $557 million, driven by strong volumes on Ford Motor’s (F) Super Duty pick-up truck, General Motors’ (MTLQQ) Epsilon and GMT900 models, and Chrysler’s Dodge Ram pick-ups. Aftermarket revenue increased 21% to $181 million on the back of higher volumes. EBIT increased to $50 million from $6 million a year ago.
 
In the European market, OE revenue rose 15% to $380 million driven by increased content on top selling models including Ford Focus, Mazda 3, VW Golf, Audi 3, Volvo Truck, BMW 5-Series and Daimler AG’s ("DDAIF") Sprinter. The aftermarket revenue fell marginally by 4% to $97 million.
 
In South America and India, revenue shot up 43% to $129 million, driven by higher aftermarket sales in South America and improved OE volumes in both regions. EBIT for the Europe, South America and India region increased to $30 million from $6 million in the second quarter of 2009.
 
In the Asian market, revenues soared 37.5% to $121 million, driven by higher OE volumes in China, particularly on GM and Volkswagen models. Revenue of $37 million generated from the Australian market exceeded the year-ago quarter revenue by $7 million due to higher OE production volume. EBIT in the region rose to $13 million from $5 million in the prior year, driven by strong volumes and manufacturing efficiencies.
 
Financial Position
 
Tenneco had cash and cash equivalents of $146 million as of June 30, 2010, a decrease from $167 million as of December 31, 2009. Long-term debt declined to $1.19 billion as of June 30, 2010 from $1.15 billion as of the year ago period.
 
In the first half of the year, Tenneco’s cash flow from operations advanced to $47 million from $31 million in the year-ago period, driven mainly by an increase in net income. Capital expenditures increased to $72 million from $66 million a year ago. This was attributable to Tenneco’s ongoing investments to support customer programs and expansion activities in the emerging markets.
 
As of June 30, 2010, Tenneco’s leverage ratio – net debt to adjusted EBITDA including non-controlling interests – was 2.3, down significantly from 5.5 as of June 30, 2009.
 
Tenneco, a Zacks #3 Rank stock, is a Lake Forest, Illinois based leading manufacturer and supplier of emission control, ride control systems, and systems for the automotive original equipment manufacturers and the aftermarket. Based on the improved results, the company’s stock price elevated 7.5% to $25.94 on Thursday afternoon.