HYMLF Hyundai Motor Co Ltd (PK)

Tenneco Inc. (TEN) posted a modest $2 million rise in profits to $41 million or 66 cents per share in the first quarter of 2012 from $39 million or 63 cents in the same quarter of 2011 (all excluding one-time items)., missing the Zacks Consensus Estimate by 7 cents.

Revenues in the quarter appreciated 9% to $1.9 billion on the back of the company’s strong customer and platform position and higher original equipment (OE) light vehicle production volumes, incremental commercial vehicle revenues and increased revenues from North American aftermarket. Excluding substrate sales and currency impact, revenues increased 12% to $1.5 billion.

Adjusted EBIT was $97 million, up $2 million from the year-ago level. The improvement was attributable to higher light vehicle production volumes, increase in commercial vehicle revenues and higher aftermarket sales in North America.

Segment Results

In North America, OE revenues rose 16% to $788 million, driven by higher content on strong-selling platforms including Ford Motor’s (F) Focus, General Motor’s (GM) Silverado/Sierra and the Chevrolet Equinox, and a 50% increase in commercial vehicle revenues. Aftermarket revenues grew 14% to $198 million due to higher unit sales of Ride Control and Emission Control products and higher demand for an expanded line of products. Adjusted EBIT increased 14.5% to $71 million from $62 million a year ago.

In Europe, OE revenues inched up 1% to $520 million supported by Daimler AG’s (DDAIF) Sprinter, Volkswagen's (VLKAY) Golf, and Daimler B-class, and incremental revenues from the Volkswagen Up and Amarok as well as initial ramp-up of commercial vehicle programs. Aftermarket revenues in the segment fell 12% to $65 million due to weaker emission control sales on the back of troubled market conditions in Europe.

In South America and India, revenues slid 3% to $147 million, due to lower volumes. Adjusted EBIT in Europe, South America and India dipped 28% to $18 million from $25 million in the prior year.

In Asia, OE revenues improved 18% to $155 million, driven by strong volumes in China and a strong platform mix on key programs with Audi, Volkswagen and Hyundai Motor (HYMLF). OE revenues in Australia inched up 3% to $39 million, which was partially offset by lower aftermarket sales. Adjusted EBIT in Asia Pacific (Asia and Australia) was flat at $8 million compared with the prior year quarter.

Financial Position

Tenneco had cash and cash equivalents of $193 million as of March 31, 2012, a $6 million decline from $199 million as of March 31, 2011. Total debt increased marginally to $1.4 billion as of March 31, 2012 from $1.3 billion as of March 31, 2011. As of March 31, 2012, Tenneco’s leverage ratio – net debt to adjusted EBITDA including non-controlling interests – reduced to 1.9X from 2.1X as of March 31, 2011.

In the quarter, Tenneco’s cash used for operating activities declined to $85 million compared with $103 million in the year-ago quarter. The improvement in cash flow was primarily attributable to decrease in accounts receivable compared with the prior year.

Capital expenditures increased to $59 million from $41 million a year ago. This was attributable to Tenneco’s majority investments in OE businesses in Europe and North America to support new light and commercial vehicle customer programs, and to accommodate new programs in China.

Outlook

Tenneco anticipates continued margin improvement in the OE emission control business in North America, driven by higher volumes and commercial vehicle programs. In Europe, it expects the business to benefit from strong customer and platform mix and the ramp up of new commercial vehicle programs in Europe.

The company also expects to benefit from the ramp up of commercial vehicle programs in South America and foresees EBIT in the Asia-Pacific segment to improve due to strong OE volumes in China.

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. It is launching diesel after treatment programs with 13 commercial vehicle and engine manufacturers globally through 2012 in North America, Europe, China and South America. As a result, the company retains a Zacks #1 Rank on its stock, which translates in to a short-term rating of “Strong Buy”.

 
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