Please ensure Javascript is enabled for purposes of website accessibility

Here's Why Tenneco Stock Fell 15% on Thursday

By Lou Whiteman – Updated Apr 13, 2019 at 12:09PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A rough fourth quarter and weak guidance caused the stock to crash.

What happened

Shares of Tenneco (TEN) fell 15.3% on Thursday after the auto parts manufacturer reported fourth-quarter results that fell short of Wall Street expectations and it offered tepid margin guidance for 2019.

So what

Tenneco reported fourth-quarter EPS of $1.30, missing analyst expectations for $1.41. On its call with investors, the company also said that during a post-merger integration, it identified what it called a "historical error in the capitalization of expenditures in inventory," but said there was no material impact from that error.

Check out the latest earnings call transcript for Tenneco.

Adding motor oil to an auto engine.

Image source: Getty Images.

The company said that its EBITDA margin in the quarter was hurt by lower volumes in high-margin sectors including China and in the aftermarket, and by "headwinds from tariffs, steel, and other material economics."

The current year isn't looking much better on profitability. The company forecast 2019 EBITDA margin to be flat versus the 10.4% margin generated in 2018, with higher steel costs and continued low volume in China remaining overhangs. Aftermarket will continue to grow in importance if fears about peaking auto sales are well founded.

Now what

Tenneco is a company in transition, having acquired rival Federal-Mogul last fall for $5.4 billion. It's now planning to split the combined business into two publicly traded entities, one focused on powertrains and the other on aftermarket parts, shock absorbers, suspension systems, and brake parts.

The breakup strategy is favored by activist investor Carl Icahn, the former majority owner of Federal-Mogul and -- after the buyout -- the holder of 9.9% of Tenneco's shares. Judging by Thursday's stock performance, other investors have chosen to watch this play out from the sidelines.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.