Headquartered in Lake Forest, Illinois, Tenneco Inc. (TEN) is a leading manufacturer and supplier of emission control, ride control systems and systems. The company recently announced that its second quarter 2009 results would be released on July 30.

In the first quarter, Tenneco had reported adjusted net losses of $29 million or $0.61 per diluted share, compared with adjusted net income of $10 million or $0.20 per diluted share a year ago. Revenues were down 38% year-over-year to $967 million, on lower OE production volumes.

Earlier, Tenneco had stated that cash generation and strict cost management remain its top near-term priorities in the face of the global economic crisis. The company plans to lower its global salary costs by a minimum of 10% each quarter, equivalent to the reduction of salary cost by about $7 million each quarter during 2009.

Senior level executives would take a larger salary reduction. The company plans to downsize 1,100 positions, 500 salaried and 600 hourly, out of its 21,000 employees worldwide.

Tenneco’s total costs are coming down by about $30 million every year. Cost cutting has offset some of the negative impacts of higher raw material prices, particularly in Europe, where 12 facilities have been moved from Western Europe to Eastern Europe and an 11% reduction in headcount has been implemented. About 30% of the production now takes place in Eastern Europe.

Under the current global restructuring program, the company aims at closing three manufacturing facilities in North America – an elastomer plant in Milan, Ohio, and two OE emission control facilities in Evansville, Indiana and Emigsville, Pennsylvania. Internationally, the company is shutting down the Dunsborough engineering facility in Australia.

Tenneco is flexing operations at both its Cozad, Nebraska and Hartwell, Georgia OE ride control plants instead of completely shutting down these facilities. With these measures, Tenneco anticipates generating $58 million in annualized cost savings by the end of 2009.

Yet, what remains a matter of concern is that Tenneco’s fixed costs are about 40% of its sales. Pricing pressure from OEMs, weakening demand for aftermarket parts, and sizeable production cuts at General Motors (GMGMQ) and Ford (F) are the negative factors associated with the stock.

We expect the company to report net losses in the range of $1.50 to $1.55 per diluted share in the second quarter of 2009. Revenues are expected to slip about 20% to 25% year over year. We rate the stock a Hold and set a six-month target price of $11.50.

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