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Tenneco takes 4Q skid
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January 6, 1999: 3:35 p.m. ET
But stock shrugs off shortfall blamed on weak auto replacement-part sales
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NEW YORK (CNNfn) - Investors seemed relatively undaunted by the news Tenneco Inc.'s fourth-quarter results will be below consensus estimates, sending the company's stock only fractionally lower Wednesday.
Tenneco shares were down 3/16 to 35-3/4 in afternoon trading.
The reason the stock wasn't getting beaten down is that the automotive replacement-parts operations related to the earnings shortfall remain on the selling block, according to Bear Stearns analyst Gary Schneider.
"The company says it hopes to say something sooner rather than later about a possible sale" of the operations, Schneider said after the company's Wednesday morning conference call with analysts.
He said the company wouldn't comment on specific reports of a possible transaction in the works with the British automotive parts maker LucasVarity (LVA).
The Wall Street Journal reported Wednesday that LucasVarity has been holding separate merger discussions with Tenneco and TRW about purchasing automotive operations. LucasVarity said preliminary discussions are taking place with several companies "in connection with a wide range of strategic alternatives," but wouldn't confirm any specific discussions.
"Normally, a stock loses about 15 percent" when it makes a negative earnings pre-announcement, Schneider said. But he said investors are aware of Tenneco's announced intention to increase the "strategic value" of its automotive parts and packaging units.
"The only way to increase value is for this stock to split up into three businesses. They have three businesses that don't have synergies," said Daniel Khoshaba, an analyst with BT Alex. Brown. He said he especially would like to see the company sell its containerboard business because it "is the most accretive of the different businesses they have."
The Greenwich, Conn.-based company said consolidation in the auto industry, exemplified by the merger that created DaimlerChrysler, contributed to the weaker sales. So did unseasonably warm weather and continued economic weakness in South America and Asia.
All told, Tenneco said it expected the automotive replacement-parts unit -- which includes such brands as Monroe shock absorbers and Walker brakes -- to have reduced operating income by between $25 million and $30 million.
The company also said another $50 million to $60 million in operating income reduction would be attributed to charges taken for bad debts, pricing adjustments and costs related to customer acquisitions.
Tenneco said it would be "reducing headcount" as part of its restructuring effort, but wasn't specific about what that would entail.
Otherwise, Tenneco said, results from its automotive original equipment and specialty packaging businesses remained strong, with the exception of its containerboard operations, which are expected to have depressed operating income by between $5 million and $10 million.
In the fourth quarter of 1997, Tenneco posted operating income of $76 million, or 44 cents a diluted share, before an accounting charge. First Call, a firm that tracks company earnings estimates, forecast operating income of 50 cents a share for the quarter ended Dec. 31.
Tenneco wasn't specific about how short of estimates its fourth-quarter results would be. But "if you do the math, they'll be about 30 cents a share. That's excluding the charges," said BT Alex. Brown's Khoshaba.
Tenneco said its outlook for 1999 remains positive. "Retail trends indicate that sales of Tenneco products are increasing and beginning to open up inventory channels," said company chairman Dana Mead in a statement. "The original equipment business continues to grow significantly as we introduce more of our parts on more platforms amid a good outlook for vehicle production in North America and Europe and recovery in Asia."
"An awful lot of what they've done is accelerate costs in the quarter to avoid hurting 1999 results," says Bear Stearns' Schneider. In fact, the fourth-quarter warning has no bearing on his forecast that Tenneco will earn $2.50 a share for 1999.
BT Alex. Brown's Khoshaba said he sees the company's value at $44-$45 a share if it is successfully broken up. He said the company's stock is up about 13 percent in the past few weeks on speculation that the breakup will take place. 
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Tenneco
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