U.S. Parts Suppliers See Few Bumps From VW Scandal
October 23 2015 - 4:00PM
Dow Jones News
Two U.S. parts suppliers said Friday they expect little fallout
from Volkswagen AG's emissions scandal, easing concerns that have
lingered for weeks over how heavier scrutiny on diesel engines
might impact the components makers.
Tenneco Inc. Chief Executive Gregg Sherrill, who runs a company
considered a leader in emissions components, said Friday during an
earnings conference call that the auto industry was already
adopting more stringent guidelines and "real world" testing of
diesel emissions before VW admitted in September it had installed
software to mask emissions output during lab tests.
"We really don't see any effect in the next several years," Mr.
Sherrill said, adding there will be a positive for the industry as
auto makers increase component purchases to conform to more
stringent regulations. "It really hasn't changed our product
planning at all," he said.
The comments helped lift most shares of U.S. auto parts makers.
The biggest gainer was Lake Forest, Ill.-based Tenneco, which saw
its shares rise 12% to $54.20 in Friday afternoon trading.
BorgWarner Inc., another emissions components supplier, rose 2.7%
to $43.40.
Investors had initially punished Tenneco and BorgWarner's stock
over the past weeks since the companies relies on VW for 8% and 17%
of their revenue, respectively.
Tenneco reported earnings Friday and said net income dropped to
$52 million in the third quarter compared with $78 million to a
year earlier due to restructuring costs. Operating earnings far
exceeded analyst expectations.
The company's report helps kick off an earnings season for the
auto-supply sector at a time when parts makers are pressured by
questions about emissions testing, weak China volumes, currency
headwinds and tough conditions in emerging markets.
Axle maker Dana Corp., reporting on Thursday, said third-quarter
net income rose to $119 million compared with $90 million for the
same period a year earlier, but it said unfavorable currency
fluctuations and the divestiture of its operations in Venezuela
reduced its sales by $136 million.
Like many suppliers, Dana and Tenneco are pointing to strong
light-vehicle and truck demand in North America and Europe as
factors that more than offset those concerns.
Lear Corp., known as a seat supplier, also makes electrical
components that could be affected by shifting emissions standards
or higher scrutiny. Lear CEO Matt Simoncini echoed Mr. Sherrill's
comments after the company reported its third quarter numbers,
saying he hasn't seen any customer production changes and is
instead expecting some increase in component orders.
"Stricter fuel economy and lower emission requirements are
driving electrical content growth," Mr. Simoncini told analysts
Friday. "Traditional powertrains are requiring more signal
management to achieve better fuel economy."
Lear's third-quarter profit jumped 29% in its latest quarter as
results rode robust demand in the auto sector even in the face of
currency headwinds. Lear also increased its annual outlook for core
operating earnings to a range of $1.27 billion to $1.3 billion, up
from a previous $1.23 billion to $1.27 billion.
Write to Jeff Bennett at jeff.bennett@wsj.com
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(END) Dow Jones Newswires
October 23, 2015 15:45 ET (19:45 GMT)
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