Morningstar | Tenneco Reports Preliminary 2018 Revenue Results, Provides 2019 Revenue Guidance; $73 FVE Unchanged
Narrow moat-rated Tenneco reported preliminary full-year 2018 revenue of $11.8 billion, roughly in line with our estimate and the sell-side consensus. Revenue includes the Oct. 1 closing of the Federal-Mogul acquisition. Excluding the acquisition and the impact of currency translation, organic revenue growth for the full year was 6%. Management also provided preliminary full-year 2019 revenue guidance for 4% to 5% organic growth on a pro forma basis, on a constant-currency basis. Including the acquisition of Federal-Mogul, we currently estimate 2019 revenue at $18.2 billion, just slightly above the $18.1 billion sell-side consensus forecast. The 5-star-rated Tenneco shares currently trade at a compelling 50% discount to our fair value. In our opinion, the stock is attractively valued relative to our estimates for revenue, cash flow, and return on invested capital.The company had previously scheduled an earnings conference call with analysts for Feb. 25. However, during preparation of year-end financials for the newly combined entity, the company said that it discovered differences in accounting practices between Tenneco and Federal-Mogul in "determining the appropriate capitalization and/or classification of certain expenses." Consequently, the company has postponed the earnings conference call to allow additional time to prepare full-year financial statements. Tenneco also said that any related accounting changes "will not be material to earnings or cash flow in any reporting period." As a result, we anticipate no change to our Stage I forecast or our fair value estimate.
Tenneco designs, manufactures and sells products and services for light vehicle, commercial truck, off-highway, industrial and aftermarket customers. As a parts supplier, the company produces individual component parts for vehicles as well as groups of components that are combined as modules or systems within vehicles. These parts, modules, and systems are sold to the light vehicle and commercial truck manufacturers as well as aftermarket customers, including independent warehouse distributors, distributors, engine rebuilders, retail parts stores, mass merchants, and service chains. The company operates in four segments, consisting of the following: Clean Air, Powertrain, Motorparts, and Ride Performance.
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