Shares of Tenneco (NYSE:TEN), a leading designer and manufacturer of automotive products and solutions, were down 21% on Friday after the company provided investors with a business update regarding the COVID-19 outbreak.
Management provided an update on multiple aspects of its business and started off by withdrawing its first-quarter and full-year guidance due to high levels of uncertainty surrounding COVID-19. Tenneco also temporarily suspended or reduced operations across the Americas; Europe, the Middle East, and Africa; and the Asia-Pacific regions.
Management believes the impact to its business will peak during the second quarter, and the company will take steps to partly offset the damage: Overall salary costs will be reduced at least 25% through furloughs and pay cuts, while executives will reduce their salaries by 50%, and the CEO will not draw a salary. Capital expenditures in 2020 will be reduced to less than $400 million, compared with previous guidance between $610 million and $650 million.
In a press release, CEO Brian Kesseler said: "The continuing near-term deterioration in demand in our end markets necessitates further difficult decisions. These steps, together with the continued execution of our Accelerate plan introduced earlier this year, will allow us to return to full operations more efficiently when demand returns and allow us to continue on the path to building a stronger Tenneco."
The automotive industry has been one of the hardest hit areas as consumers put off big-ticket purchases, which sends a wave of negative implications throughout the industry. Tenneco has significant liquidity, which should enable it to weather the storm: It has roughly $700 in cash and a revolving credit facility of $1.5 billion, and no significant near-term debt maturities.
Markets will eventually rebound from the disruptions caused by COVID-19, but not all companies have the strong balance sheet to weather the storm. While the downturn can provide opportunities for investors to buy stocks at a cheaper price, make sure you're investing in financially sound companies with an intact long-term growth story.