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Meritor Beats on Q1 Earnings, Lags Revs

Zacks Equity Research

Meritor Inc.’s (MTOR) adjusted income rebounded to $12 million or 12 cents per share in the first quarter of fiscal 2014 (ended Dec 31, 2013) from adjusted loss of $11 million or 11 cents in the year-ago quarter. Moreover, earnings per share surpassed the Zacks Consensus Estimate of 7 cents.

Meritor posted a net profit of $11 million or 11 cents per share in the first quarter of fiscal 2014 compared with net loss of $21 million or 22 cents in the corresponding quarter last year.

Revenues increased 2% year on year to $907 million but missed the Zacks Consensus Estimate of $933 million. Increase in commercial truck production in Europe and South America was responsible for the increase in revenues, partially offset by lower defense revenues and weak revenues from India.

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of Meritor increased to $70 million compared with $46 million in the first quarter of fiscal 2013. Meanwhile, adjusted EBITDA margin was 7.7% compared with 5.2% in the year-ago quarter.

Segment Results

Revenues from the Commercial Truck & Industrial segment improved 1.7% to $727 million in the reported quarter. The increase in revenues in Europe and South America offset the decline in defense revenue and continued weakness in India. Segment EBITDA surged 56% to $53 million from $34 million in the year-ago quarter. EBITDA margin increased to 7.3% from 4.8% in the prior-year quarter due to material and structural cost reductions and the favorable impact of increased revenues from Europe and South America, which offset the unfavorable impact of lower defense revenue.

Revenues from the Aftermarket & Trailer segment increased 2.5% to $208 million. Segment EBITDA increased 46% to $19 million from $13 million a year ago. EBITDA margin improved to 9.1% from 6.4% in the first quarter of fiscal 2013, driven by pricing actions and a decline in material and structural costs.

Financial Position

Meritor’s cash and cash equivalents declined to $300 million as of Dec 31, 2013 from $318 million as of Sep 30, 2013. Total debt amounted to $1.14 billion as of Dec 31, 2013, in line with Sep 30, 2013.

In the first quarter of fiscal 2014, Meritor had cash outflow of $4 million from operating activities compared with $91 million in the first quarter of fiscal 2013. Capital expenditures declined to $12 million from $15 million a year ago. Meritor had free cash outflow of $16 million in the period compared with $106 million in the first quarter of fiscal 2013.

Outlook

For fiscal 2014, Meritor expects revenues of $3.7 billion. Adjusted EBITDA margin is likely to be 7.5% and adjusted earnings from continuing operations are expected between 30 cents and 40 cents per share.

In addition, Meritor expects capital expenditures between $80 million and $90 million for the fiscal year. Interest expense is projected to be $105–$115 million.

Further, Meritor expects free cash flow to be in a range of $0–$25 million.

M2016 Plan

Meritor remains committed to its three-year plan, M2016, which aims to achieve 10% adjusted EBITDA margin for full-year 2016 and produce incremental run-rate booked revenue of $500 million per annum from the beginning of fiscal year 2013 to the end of fiscal year 2016. The plan also aims to reduce the company’s net debt, including retirement benefit liabilities, by $400 million to less than $1.5 billion.

Headquartered in Troy, Mich., Meritor is a global automotive parts manufacturer and supplier to North America, Europe and other parts of the world. The company operates manufacturing facilities in North America, South America, Europe and Asia-Pacific.

Meritor carries a Zacks Rank #1 (Strong Buy). Some other stocks worth considering in the same industry are Gentex Corp. (GNTX), Magna International Inc. (MGA) and Tenneco Inc. (TEN). All these stocks carry a Zacks Rank #2 (Buy).

Read the Full Research Report on TEN
Read the Full Research Report on MGA
Read the Full Research Report on GNTX
Read the Full Research Report on MTOR


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