Restructuring and a range of products set to benefit from tighter emission controls around the world have hauled supplier Tenneco back from the edge of bankruptcy to book profits in three consecutive quarters.
“If you go back to the fourth quarter of 2008, the whole thing kind of just blew up around the world,” Tenneco chief executive Gregg Sherrill told Dow Jones. “That fourth quarter was really the low point for Tenneco. It hit us and knocked us pretty hard. But we had aggressively attacked with some restructuring actions so that by the first quarter we were slowly beginning to see some improvement.”
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Products such as manifolds, filter systems and catalytic reduction make Tenneco a leader in the growing emissions control sector as even emerging markets such as India and China implement stricter emission standards..
“We are in a period of very active diesel regulation, so that is driving us into new markets,” Sherrill said. “We have a big growth curve coming in both on-road and off-road commercial vehicles here, China and Europe, and there is also demand in the light vehicle.”
Sherrill said commercial vehicle sales account for 7% of the company’s revenue. The goal is to increase the amount to 15% next year and as much as 25% in 2012, which will provide more balance and help cushion the drops in car and pickup truck sales. Also, boosting commercial sales is a natural choice since the bigger vehicles will require more emissions features.
Tenneco in October 2008 began a global restructuring that resulted in the elimination of 1,100 jobs world-wide, generating annualised savings of $58million.
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By GlobalData“They did a great job restructuring, cutting costs and making a lot of moves to preserve cash flow,” Fitch Ratings analyst Kathleen Connelly told Dow Jones. She recently raised Tenneco’s credit rating to B+, four notches below investment grade.
Analysts surveyed by Thomson Reuters expect Tenneco to report earnings of $1.17 a share for 2010 on revenue of $5.48bn with earnings nearly doubling to $2.29 a share next year on revenue of $6.53bn. Tenneco said its five-year compound annual growth rate forecast is 18% to 20%.
Tenneco’s biggest challenges now are its exposure to the European automotive market and its $1.3 billion in debt, the report said.
“They are a global auto supplier and rely on the European market for 44% of their revenue,” Connelly said. “We are keeping a close eye on the vehicle production there.”
The number of vehicles sold in Europe’s 19 largest countries is expected to fall to the low 15m range from 16.7m in 2009. The drop is a result of the end of scrappage programs many countries offered last year to boost automotive sales.
Tenneco is meanwhile continuing to work on its debt. Although the debt is considered somewhat high given the company’s size, it has yet to become a major concern since Tenneco continues to take steps to pay it down, Dow Jones said. The company has announced plans to secure a new term loan due May 2016 and an extension of a revolving credit line to as late as May 2014. Its senior credit facility is currently set to expire March 2012.
