On Sep 30, 2014, we issued an updated research report on Tenneco Inc. (TEN). The company reported a 16.94% earnings surprise in the last quarter.
Tenneco 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 also improved 31.8% from $1.10 in the second quarter of 2013 on higher volumes, better operational performance and favorable effective tax rate.
Tenneco expects revenues from commercial truck and off-highway markets in the third quarter to increase 20–25% year over year, based on business wins and benefits from incremental content on existing platforms to meet off-highway regulations in North America and Europe. The company further expects higher commercial truck revenues in China.
Tenneco expects light vehicle revenues in the third quarter to improve 5%. The company also anticipates total original equipment revenue, including light vehicle, commercial truck and off-highway revenues, to increase 7–11% for full-year 2014.
Tenneco’s emission control business market share is expected to hit 10% in 2015 on the back of tighter regulations through 2015. The company expects to achieve a 5-year average compound annual original equipment (OE) revenue growth rate of 18% to 20% in 2014, driven by the global implementation of emission related regulations.
However, we are concerned about the pricing pressure from original equipment manufacturers (OEM). In addition, Tenneco largely depends on a few customers in the OEM segment, including General Motors Company (GM), Ford Motor Co. (F) and Volkswagen AG (VLKAY). Also, sales and pricing to automotive retailers have been soft as they have been consolidating and forcing pricing concessions.
Meanwhile, Tenneco’s Clean Air segment is facing lower production volumes, relatively weak economic conditions and reduced light and commercial vehicle production in South America. In the third quarter of 2014, light vehicle production is expected to be flat in Europe and decline 12% in South America.
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