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Why Is Tenneco (TEN) Down 17.1% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Tenneco (TEN). Shares have lost about 17.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Tenneco due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Tenneco Lags Q1 Earnings Estimates, Lowers 2019 Outlook

Tenneco reported first-quarter 2019 results, wherein adjusted earnings per share of 52 cents missed the Zacks Consensus Estimate of 94 cents. Also, the company’s bottom line declined from the prior-year quarter figure of $1.62.

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In the reported quarter, Tenneco’s adjusted net income was $42 million compared with $83 million in first-quarter 2018.

Quarterly revenues rose 74% year over year to $4.5 billion, almost in line with the Zacks Consensus Estimate. On a constant-currency basis,organic revenues rose 4%, and net revenue growth from acquisitions and divestitures was 75%, partly offset by 5% negative impact of currency translation.

Adjusted EBITDA (income before interest expenses, income taxes, noncontrolling interests and depreciation, and amortization) was $327 million compared with $212 million recorded in the prior-year quarter. Apart from the acquired Federal-Mogul business, the figure includes weaker aftermarket, and China OE volume and related operational inefficiencies.

Segmental Results

After the inclusion of the Federal-Mogul business, Tenneco operates under four segments, consisting of Clean Air, Ride Performance, Powertrain and Motorparts. The Motorparts segmentreflects the company’s historical Aftermarket units along with the Motorparts aftermarket businessof Federal-Mogul. Further, Ride Performance division comprises Tenneco’s historical Ride Performance segment and the Motorparts OE business of Federal-Mogul.

The Clean Air division’s first-quarter revenues were $1.78 billion compared with the year-earlier figure of $1.76 billion.

Revenues in the Ride Performance division were $733 million compared with $513 million recorded in the year-ago quarter.

The Powertrain division’s first-quarter revenues were $1.2 billion.

The Motorparts division’s revenues were $797 million, up from $312 million generated in first-quarter 2018.

Financial Position

Tenneco had cash and cash equivalents of $697 million as of Mar 31, 2019, up from $315 million as of Dec 31, 2018. Long-term debt was $5.3 billion as of Mar 31, 2019, compared with $1.36 billion as of Dec 31, 2018.

Outlook

For the second quarter of 2019, the company expects revenues of $4.45-$4.55 billion, similar to the first quarter. Further, adjusted EBITDA is projected to be $375-$395 million.

Tenneco revised its guidance for 2019. It expects revenues of$17.7-$18.1 billion compared with $18.2-$18.4 billion stated earlier. On a pro forma basis, it expects organic revenue growth rate to be 3%, with currency translation impact of negative 2%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -23.59% due to these changes.

VGM Scores

Currently, Tenneco has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Tenneco has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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