The Zacks Analyst Blog Highlights: Tenneco, Ford Motor, Volkswagen, Daimler and Nissan

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Nov 02, 2011, 09:30 ET

CHICAGO, Nov. 2, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Tenneco Inc. (NYSE: TEN), Ford Motor (NYSE: F), Volkswagen (OTC: VLKAY), Daimler (OTC: DDAIF) and Nissan (OTC: NSANY).

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Here are highlights from Tuesday's Analyst Blog:

Tenneco Meets Estimates

Tenneco Inc. (NYSE: TEN) recorded a 75% increase in profit to $42 million or 67 cents per share in the third quarter of 2011 from $24 million or 39 cents per share (before special items) during the same quarter of 2010. The company's profit was in line with the Zacks Consensus Estimate during the quarter.

Revenues in the quarter grew 15% to $1.77 billion from $1.54 billion a year ago. Value-add revenue (revenues excluding substrate sales) was $1.37 billion, a 16% increase from $1.19 billion in the 2010-quarter.

The increase in revenues was driven by stronger original equipment (OE) volumes on current and new platforms along with a 9% rise in global aftermarket sales. The launch and ramp-up of new commercial vehicle platforms led to the increase in commercial and specialty vehicle OE revenues to 12% of total OE revenue.

Adjusted earnings before interest and taxes (EBIT) rose to $99 million from $77 million in the third quarter of 2010. The improvement in EBIT was driven by higher OE light vehicle volumes, new commercial vehicle business, and higher global aftermarket sales.

These factors were partially offset by $10 million in higher operational costs in the North America OE ride control business due to higher material costs and manufacturing inefficiencies. Currency had a favorable impact of $7 million on EBIT.

Segment Results

In North America, OE revenues escalated 10% to $649 million driven by strong volumes on Ford Motor's (NYSE: F) F-150 and Focus, and Volkswagen's (OTC: VLKAY) Jetta. Aftermarket revenue rose 12% to $193 million due to impressive growth in emission control business.

EBIT in the segment decreased to $46 million from $51 million a year ago as higher OE volumes and aftermarket sales were offset by higher operational costs in the North America OE ride control business.

Revenues in Europe, South America and India increased 19% to $727 million. In Europe, OE revenues grew 25% to $473 million supported by strong volumes on key platforms including the Mercedes CLS, Volkswagen Polo, Daimler (OTC: DDAIF) CLS and Audi A4.

However, aftermarket revenues in the region inched up 1% to $92 million as higher aftermarket ride control revenues were more than offset by lower emission control revenues due to decline in market share.

In South America and India, revenues scaled up 13% to $162 million. EBIT rose to $37 million from $15 million a year ago due to higher OE volumes in all regions and lower deferred and long-term compensation expense, partially offset by an aftermarket mix shift toward Eastern Europe.

In Asia-Pacific, revenues hiked 23% to $204 million, driven by volume growth in China on key platforms with Nissan (OTC: NSANY), Audi and Volkswagen. Adjusted EBIT increased to $16 million from $11 million in the third quarter of 2010, driven by higher volumes in China and lower deferred and long-term compensation expense, partially offset by a decline in volumes in Australia.

Guidance

Tenneco will continue to launch and ramp-up production on new commercial vehicle programs in North America, Europe, China and South America. The company expects commercial vehicle OE revenue of $650 million for the full year due to lower volumes related to launch timing and ramp-up schedules, primarily in the Europe segment.

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.

The company is launching diesel after treatment programs with 13 commercial vehicle and engine manufacturers globally through 2012 in North America, Europe, China and South America.

However, the company faces weak demand for aftermarket parts compared to OE. Besides, pricing pressure from OEMs remains a problem for Tenneco. As a result, the company retains a Zacks #3 Rank on its stock, which translates to a short-term rating of Hold, and we reiterate our long-term recommendation of Neutral.

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