We are reiterating our "Neutral" recommendation on
). The company continues to benefit from tighter emission
regulations along with consistent performance in the commercial
business segment. However, we are concerned about the prevailing
customer concentration risks faced by the company.
Tenneco's business grows from its diversified platform mix,
including top selling trucks in North America and top selling
passenger vehicles in the overseas markets. The company is planning
to launch multiple programs with 13 different commercial vehicle
customers - truck and engine manufacturers. This will help Tenneco
to meet new emission regulation laws both for on and off-road
The company's Emission control segment will have a favorable
impact from strict emission regulations through 2015. It
anticipates that a 5-year average compound annual original
equipment (OE) revenue growth rate will range between 18% and 20%
in 2014. The growth is a result of the implementation of emission
However, Tenneco is under threat due to customer concentration.
General Motors Company
Ford Motor Co.
) contributed 19% and 15%, respectively, to total sales in 2011.
About 50% of aftermarket sales were generated from the top ten
customers last year.
Besides, the company's sales suffered in 2011, due to price
concessions demanded by automotive retailers such as
Advance Auto Parts Inc.
). Aftermarket parts demand was also weak for Tenneco compared to
the original equipment demand.
The company witnessed a 5% growth in profit in the first quarter
of 2012 that recorded $41 million or 66 cents per share
compared with $39 million or 63 cents a year ago, missing the
Zacks Consensus Estimate by 7 cents. Revenues surged 9%
year-over-year to $1.9 billion in the quarter. The hike was due to
the company's strong customer base, higher OE light vehicle
production volumes, incremental commercial vehicle revenues and
increased revenues from North American aftermarket.
Tenneco, based in Lake Forest, Illinois, is a leading
manufacturer and supplier of emission control, ride control
systems, and systems for the automotive original equipment
manufacturers (OEMs) and the aftermarket. It operates 84
manufacturing plants and 15 engineering facilities worldwide, which
are strategically positioned to meet local customer demand.
Worldwide, the company serves more than 64 different OEMs. It
Our long-term recommendation is backed by a Zacks #3 Rank, which
translates into a short-term (1 to 3 months) "Hold" rating.
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