Here's Why Tenneco Stock Fell 15% on Thursday
What happened
Shares of Tenneco (NYSE: 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.
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.
10 stocks we like better than TennecoWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*
David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Tenneco wasn't one of them! That's right -- they think these 10 stocks are even better buys.
*Stock Advisor returns as of March 1, 2019
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.