Shares of automotive parts specialist Tenneco (NYSE:TEN) fell out of bed when Wall Street opened for the day, dropping a huge 18% in the first minutes of trading. Although the stock pared those losses, it was still down by a painful 13% or so at roughly 3 p.m. EDT. Investors were clearly not pleased with the company's earnings, which were released before the trading day began.
Tenneco suffered a roughly 40% sales decline in the second quarter of 2020 compared to the same period in 2019. Each of its five main product categories got hit, so there was basically nowhere to hide, despite management highlighting that its diversification helped in the quarter. On the bottom line Tenneco turned in a $4.30 per share loss, compared to a quarterly profit of $0.32 a share in the same stanza of 2019. Even taking out one-time charges, the company still lost $2.15 per share in the second quarter. No matter how you cut things, it was ugly.
There were a number of headwinds for the automotive parts maker to deal with, most of which relate back to COVID-19. For example, it was forced to close plants due to the coronavirus (they are reopened now) and demand for its products stalled along with the broad economic shutdowns ordered by governments around the world, undertaken to slow the pandemic. To be fair, a bad quarter was pretty much baked into the cake. But investors appear to have been expecting less pain based on the swift stock decline following the earnings release.
The company has been focusing on cost cutting and debt reduction so it can benefit when things start to get back to some semblance of normal. Management noted that it expects financial performance to improve sequentially in the third quarter, but that earnings will be below third-quarter 2019 numbers. Beyond that, there wasn't much to go on about the future other than a broad statement that the company expects higher demand over the next several quarters. But coming from such a low base, that's not necessarily such a big achievement.
Tenneco had a bad quarter, which is no surprise. However, it appears that investors had been hoping for something less bad than what they got. Although the world is trying to reopen for business following widespread COVID-19-related shutdowns, the coronavirus is proving difficult to deal with. This likely means that, even if things get better from here, Tenneco probably has more headwinds ahead.