Tenneco Inc. (TEN) posted a 68% increase in profits to $32 million or 53 cents per share in the fourth quarter of 2011 from $19 million or 31 cents per share in the same quarter of 2010. However, the company’s profit failed to meet the Zacks Consensus Estimate by 5 cents per share.
Total revenue in the quarter went up 13% to $1.8 billion and 13% to $1.4 billion excluding substrate sales and currency impact. Higher original equipment (OE) light vehicle production volumes, incremental revenue from commercial vehicle launches and increases in global aftermarket sales contributed to the revenue growth in the quarter.
Adjusted EBIT improved 31% to $89 million from $68 million a year ago. The increase was driven by stronger OE light vehicle production volumes, the launch and ramp up of new commercial vehicle programs and reduced selling, general and administrative expenses, partially offset by higher year-over-year operational costs in the North American ride control business and $4 million in planned costs associated with expanding manufacturing capabilities and supporting new programs in China. Moreover, currency had a unfavorable impact of $2 million on EBIT in the quarter.
Performance by Regions
In the North American market, OE revenues escalated 21% to $685 million driven by higher light vehicle production and increased content on strong selling vehicles including the Chevy Malibu, Ford Motor’s (F) Focus, and the Ford F-150 and Super Duty pick-up trucks. Aftermarket revenue rose 9% to $162 million due to higher sales volumes. Adjusted EBIT surged 52% to $47 million from $31 million a year ago.
In the European market, OE revenues grew 14% to $498 million driven by the company’s strong platform position including on the Mercedes CLS, Volkswagen’s (VLKAY) Polo, and new Audi A6 in ride control and the Daimler’s (DDAIF) Sprinter, Volkswagen Golf, Opel Astra, Ford Focus C-Max and BMW 1-Series and 3-Series. Aftermarket revenues in the region went up 1% to $79 million.
In South America and India, revenues inched up 1% to $151 million, driven by higher aftermarket sales in South America and higher OE volumes in both regions. Adjusted EBIT for the Europe, South America and India region increased by $8 million to $28 million in the quarter
In the Asian region, revenues hiked 7% to $209 million, driven by higher OE volumes in China, particularly on Volkswagen, Audi, Nissan (NSANY) and FAW platforms. Adjusted EBIT was $14 million compared with $17 million a year ago.
Annual Results
For 2011, Tenneco reported a profit of $163 million or $2.66 per share versus $96 million or $1.57 per share a year ago. Revenue of $7.2 billion increased 21% from $5.9 billion in 2010. Excluding substrate sales and the impact of currency, revenues increased 15% to $5.4 billion.
The increase in revenues was driven by higher light vehicle production, particularly in North America, South America, and China, stronger global aftermarket sales, and OE revenues from commercial vehicle programs. Adjusted EBIT increased to $398 million from $306 million a year ago.
Financial Position
Tenneco had cash and cash equivalents of $214 million as of December 31, 2011, a decrease from $233 million as of December 31, 2010. Long-term debt was flat at $1.2 billion as of December 31, 2011 compared with the same as of December 31, 2010.
As of December 31, 2010, Tenneco’s leverage ratio (net debt to adjusted EBITDA including non-controlling interests) was an all-time low at 1.7x compared with 1.9x as of December 31, 2010.
In 2011, Tenneco’s cash flow from operations was flat at $245 million compared with $244 million in 2010. Capital expenditures increased to $213 million from $151 million a year ago.
Outlook
Tenneco expects OE revenues of $6.6 billion in 2012 and $7.8 billion in 2013. The company also expects its global original equipment revenue to increase to $10.0 billion–$11.5 billion by 2016, of which 30% to 35% is expected to be commercial vehicle revenues. Substrate sales are expected to be 32% of OE revenue by 2016. It also anticipates capital expenditures between $230 million and $250 million for 2012.
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
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TENNECO INC (TEN): Free Stock Analysis Report
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