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Tenneco (TEN) Q4 Earnings, Revenues Top Estimates; Rise Y/Y

Tenneco Inc.TEN recently reported fourth-quarter 2016 results wherein adjusted earnings per share of $1.67 outpaced the Zacks Consensus Estimate of $1.42. Moreover, earnings increased 20.1% from $1.39 recorded in the fourth quarter of 2015.

Adjusted net income went up 15% to $92 million from $80 million a year ago. Despite the favorable outcome, the company's share price remained constant at $65.21 post the release.

On a reported basis, Tenneco's net income came in at $40 million or 73 cents per share, compared with $68 million or $1.17 per share in the year-ago quarter.

Revenues rose 6% year over year to $2.16 billion, surpassing the Zacks Consensus Estimate of $2.09 billion. The year-over-year improvement in the top line was aided by strong revenues at both the Clean Air and Ride Performance product lines. Excluding currency effects, revenues rose 9% to $2.2 billion.

Global aftermarket revenues increased 1% year over year. Commercial truck and off-highway revenues fell 7%. Meanwhile, light vehicle revenues rose 13%.

Adjusted EBIT (earnings before interest, taxes and non-controlling interests) increased 6% to $157 million from $148 million a year ago. The upside was driven by higher light vehicle volumes and technology content growth in both product lines, increased aftermarket sales and a continued focus on launch execution and manufacturing improvement. Adjusted EBIT margin was 7.3%, on par with year-ago level.

Tenneco Inc. Price, Consensus and EPS Surprise

Tenneco Inc. Price, Consensus and EPS Surprise | Tenneco Inc. Quote

2016 Performance

Earnings per share for 2016 increased 26.3% to $6.15 from $4.87 in 2015 and outpaced the Zacks Consensus Estimate of $5.90. Revenues for the year increased 4.8% to $8.60 billion and also managed to surpass the Zacks Consensus Estimate of $8.53 billion. Excluding the impact of currency, revenues increased 7% to $8.8 billion, driven by an increase in light vehicle revenues.

Segment Results

Revenues from the Clean Air division rose 6.4% to $1.5 billion from $1.4 billion a year ago. Adjusted EBIT increased to $126 million from $119 million in the prior-year quarter.

Revenues from the Ride Performance division rose to $613 million from $582 million a year ago. Adjusted EBIT increased to $58 million from $51 million in the year-ago quarter.

Financial Position

Tenneco had cash and cash equivalents of $347 million as of Dec 31, 2016, up from $287 million as of Dec 31, 2015. Long-term debt was $1.38 billion as of Dec 31, 2016, compared with $1.21 billion as of Dec 31, 2015.

In 2016, cash flow from operating activities was $489 million, compared with $517 million in 2015. Capital expenditures for the said period totaled $319 million compared with $282 million a year ago.

Share Repurchase

In fourth-quarter 2016, the company bought back 1.4 million shares for $79 million. In 2016, the company bought back 4.2 million shares for $225 million.

Outlook

Total revenue is expected to improve about 7% in the first quarter of 2017. The company expects to exceed global industry production by 3%. Tenneco also expects to record 4% organic growth, based on incremental content which will comply with the Tier 3 and Euro 6 emissions regulations, the ramp up of recently launched programs and the company's strong position in the global light vehicle market.

Tenneco also expects an increase in commercial truck and off-highway revenues and a better performance in the global aftermarket. However, currency headwinds are likely to dent first-quarter results.

The company expects to surpass the light vehicle industry production by 4 percentage points in 2017. This will lead to a 5% increase in total revenue based on current industry production forecast and constant currency.

Tenneco's 2017 revenue estimates are based on projections of a 1% hike in the light vehicle global industry production, 2% improvement in the commercial truck global production and 2% rise in off-highway engine production in the regulated regions of North America and Europe.

Tenneco outpaced industry production by more than 3 percentage points in the last 10 years. The 2017 outlook implies that the company will be able to maintain the track record. The company expects to benefit from multiple factors in 2017 which include strong global position in light vehicle platforms, regulatory-driven Clean Air content, rising demand for advanced suspension systems and leading position in the global aftermarket.

For 2018 and 2019, Tenneco expects revenue growth, excluding currency impact, to improve and outpace industry production by 3-5 percentage points each year.

Price Performance

In the last three months, Tenneco's share price increased 20.6% while the Zacks categorized Auto/Truck Original Equipment industry saw a 16.2% increase. The company benefitted from increasing global regulations in the Clean Air division and strong industry fundamentals at the Ride Performance division.

Zacks Rank & Key Picks

Tenneco currently carries a Zacks Rank #3 (Hold).

Better-ranked companies in the auto space include Penske Automotive Group, Inc. PAG , Fox Factory Holding Corp. FOXF and General Motors Company GM . All the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Fox Factory has an expected earnings growth rate of around 16.6% for the current year. Penske Automotive has an expected long-term growth rate of 8.2%, while the same for General Motors is pegged at 9.4%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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