Tenneco Inc. (TEN) posted a profit of $19 million or 31 cents per share in the fourth quarter of 2010, which was lower than the Zacks Consensus Estimate by 6 cents per share. However, profits rose from $7 million or 13 cents per share in the fourth quarter of 2009 on higher production volumes and improved aftermarket revenues.
Revenues in the quarter grew 19% to $1.58 billion on the back of higher original equipment (OE) production volumes (particularly in North America) and strong aftermarket sales. It was higher than the Zacks Consensus Estimate of $1.5 billion. Globally, original equipment revenues rose 20% to $1.3 billion while aftermarket revenues increased 15% to $279 million.
Excluding substrate sales and the negative impact of $21 million based on fluctuations in currency, revenues went up 20% to $1.23 billion. Adjusted EBIT (earnings before interest, taxes and non-controlling interests) scaled up 19% to $68 million from $57 million in the fourth quarter of 2009.
Performance by Region
In the North American market, OE revenues escalated 24% to $568 million driven by strong volumes of Ford Motor’s (F) F-150 and Super-Duty pick-ups, and General Motor’s (GM) Chevrolet Equinox and Silverado. Aftermarket revenue rose 23% to $148 million due to higher sales volume given the strong market demand for both ride and emission control products. Adjusted EBIT surged 72% to $31 million from $18 million a year ago.
In the European market, OE revenues grew 13% to $438 million supported by Audi A1, Volkswagen Transporter, Daimler AG’s (DDAIF) Sprinter and the BMW 1 and 3 Series. However, aftermarket revenues in the region were flat at $78 million.
In South America and India region, revenues soared 34% to $150 million, driven by higher OE volumes, mainly in Argentina and India. Adjusted EBIT for the Europe, South America and India decreased by $2 million to $20 million.
In the Asian market, revenues hiked 19% to $195 million, driven by higher OE volumes in China, particularly from GM and Audi platforms. EBIT in the Asia-Pacific region was flat ay $17 million during the quarter.
Annual Results
For 2010, Tenneco reported a lower profit of $1.57 per share compared with the Zacks Consensus Estimate of $1.64 per share. However, the company did well considering the loss of 59 cents per share in 2009.
Revenues in the year appreciated 28% to $5.94 billion, driven by the same factors that influenced the fourth quarter revenues. Excluding substrate sales and the impact of currency, revenue increased 26% to $4.64 billion. Adjusted EBIT was $306 million was compared with $118 million in 2009.
Financial Position
Tenneco had cash and cash equivalents of $233 million as of December 31, 2010, an increase from $167 million in the year-ago period. Long-term debt increased to $1.16 billion from $1.15 billion a year ago. As of December 31, 2010, Tenneco’s leverage ratio – net debt to adjusted EBITDA including non-controlling interests – reduced to 1.9X from 3.1X as of December 31, 2009.
In 2010, Tenneco’s cash flow from operations improved by $3 million to $244 million due to an improvement in income. Capital expenditures increased to $151 million from $120 million a year ago. This was attributable to Tenneco’s investments in light and commercial vehicle customer programs as well as expansion in emerging markets including China, India and Thailand.
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.
Beginning in the fourth quarter 2009 and through 2011, the company has been launching programs with 11 different commercial vehicle customers in order to meet new diesel emissions regulations in China, North America, Europe and South America. This along with a strong recovery in OE production volumes will continue to drive the company’s earnings. As a result, the company retains a Zacks #1 Rank on its stock, which translates to a short-term (1 to 3 months) rating of Strong Buy.
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