Tenneco Inc. (TEN) depicted a profit of $39 million or 63 cents in the first quarter of 2011, surpassing the Zacks Consensus Estimate by 15 cents per share. It more than doubled from $15 million or 25 cents in the same quarter of 2010 driven by higher original equipment (OE) volumes and strong aftermarket sales.
Revenues in the quarter appreciated 34% to $1.76 billion on the back of higher OE production volumes, strong aftermarket sales and incremental revenues from new light and commercial vehicle launches. It was higher than the Zacks Consensus Estimate of $1.63 billion. Excluding substrate sales and $42 million in currency impact, revenues increased 23% to $1.30 billion.
Adjusted EBIT was $95 million, up 48% from $64 million a year ago. The increase was driven by higher OE volumes and aftermarket sales, as well as stronger margins on new light and commercial vehicle launches.
Adjusted EBIT margin was 5.4%, up from 4.9% a year ago. The improvement was attributable to stronger OE and aftermarket volumes, new light and commercial vehicle launches and leveraging SGA&E (selling, general, administrative and engineering) expenditure. These factors more than offset the negative impact of a mix shift between OE and aftermarket revenue and a 62% rise in substrate sales.
SGA&E expense improved to $144 million (8.2%) from $127 million (9.7%) a year ago, driven by investments in new facilities in China and Thailand, and higher engineering spending to support customer programs, technology applications and growth in emerging markets.
Segment Results
In the North American business, OE revenues surged 49% to $678 million driven by strong volumes of Ford Motor’s (F) Super-Duty pick-ups, and General Motor’s (GM) crossovers and Toyota Motor‘s (TM) Tundra truck. Aftermarket revenue rose 15% to $173 million due to higher ride control and emission control sales volumes. Adjusted EBIT soared 55% to $62 million from $40 million a year ago.
In the European business, OE revenues escalated 34% to $515 million supported by Daimler’s Sprinter, BMW 1 and 3 Series and the Volkswagen Golf. Aftermarket revenues in the region inched up 12% to $74 million.
In South America and India business, revenues soared 37% to $152 million, driven by stronger OE and aftermarket volumes in both regions. Adjusted EBIT in Europe, South America and India jumped 92% to $25 million from $13 million in the prior year.
In the Asian business, revenues rose 12% to $168 million, driven by strong production volumes on GM, Volkswagen and Nissan platforms in China. EBIT was $8 million versus $11 million a year ago.
Financial Position
Tenneco had cash and cash equivalents of $199 million as of March 31, 2011, a decline from $233 million in the year-ago period. Long-term debt increased to $1.19 billion from $1.16 billion a year ago. As of March 31, 2011, Tenneco’s leverage ratio – net debt to adjusted EBITDA including non-controlling interests – reduced to 2.1X from 2.8X as of March 31, 2010.
In the quarter, Tenneco had a cash outflow from operating activities of $103 million compared with $57 million in the year-ago quarter despite an improvement in income. The decrease in cash flow was primarily attributable to increase in accounts receivable and inventories.
Capital expenditures (net) increased to $42 million from $37 million a year ago. This was attributable to Tenneco’s investments to support light and commercial vehicle customer programs as well as expansion in emerging markets including China, India and Thailand.
Outlook
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. It is also adding Daimler and MAN, both in South America, to its list of nine previously announced commercial vehicle customers.
In addition, it has recently announced new aftermarket business in North America with seven customers, which is expected to generate more than $15 million in annual revenue.
However, the impact of earthquake and tsunami in Japan and weaker industry conditions, especially in Australia are expected to hamper the company’s results. As a result, the company retains a Zacks #3 Rank on its stock, which translates to a short-term (1 to 3 months) rating of Hold and we reiterate our long-term (more than 6 months) recommendation of Neutral.
FORD MOTOR CO (F): Free Stock Analysis Report
TENNECO INC (TEN): Free Stock Analysis Report
TOYOTA MOTOR CP (TM): Free Stock Analysis Report
Zacks Investment Research
