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Meritor (MTOR) Up 0.2% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Meritor (MTOR). Shares have added about 0.2% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Meritor due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Meritor Puts Up a Stellar Show in Q3

Meritor posted adjusted earnings per share of 62 cents in third-quarter fiscal 2021 (ended Jun 30, 2021), handily beating the Zacks Consensus Estimate of 50 cents. Higher-than-anticipated adjusted EBITDA from the Commercial Truck & Trailer segment resulted in this outperformance.

The bottom line reversed the year-ago adjusted loss of 36 cents a share. Adjusted income from continuing operations was $45 million in the reported quarter as against the loss of $26 million recorded in the prior-year period.

Sales surged 98%, year over year, to $1,016 million in the fiscal third quarter. This year-over-year increase was primarily driven by higher global truck production in all markets. Moreover, the reported figure surpassed the Zacks Consensus Estimate of $965 million.

Adjusted EBITDA went up to $107 million from the year-earlier quarter’s $7 million. Adjusted EBITDA margin was 10.5% compared with the prior year’s 1.4%. This upside stemmed from higher sales volumes, partially negated by higher freight, steel and electrification costs.

Segment Results

For the June-end quarter, revenues in the Commercial Truck & Trailer segment amounted to $800 million, skyrocketing 138% year over year on higher global truck production in all markets. Moreover, the figure outpaced the Zacks Consensus Estimate of $697 million. The segment reported an adjusted EBITDA of $69 million, reversing the loss of $23 million witnessed in the year-ago quarter. The figure also surpassed the consensus mark of $54 million. The EBITDA margin came in at 8.6% during the quarter versus the -6.8% recorded in the prior-year quarter.

Quarterly revenues in the Aftermarket & Industrial segment totaled $258 million, up 27% from the year-ago level, on higher volumes across the segment. The revenue figure, however, lagged the Zacks Consensus Estimate of $274 million. The segment’s adjusted EBITDA was $36 million, up from the $31 million witnessed in the prior-year period. The figure, however, missed the consensus mark of $41.25 million. Also, EBITDA margin edged down 1.3%, year on year, to 14% during the April-June period, primarily on elevated freight costs, which more than muted conversion on higher sales.

Financial Position

In the reported quarter, Meritor’s cash and cash equivalents summed $138 million as of Jun 30, 2021, compared with $280 million as of Jun 30, 2020. Long-term debt was $1,011 million at the end of the fiscal third quarter, down from the $1,193 million as of Jun 30, 2020.

During the fiscal third quarter, Meritor’s cash provided from operating activities was $39 million, compared with the cash used for operating activities of $102 million witnessed in the year-ago quarter. Free cash flow for the fiscal third quarter was $18 million compared with the negative $114 million recorded in the same period last year. For the quarter ended Jun 30, 2021, capital expenditure was $21 million compared with the $12 million incurred in the year-ago quarter.

Fiscal 2021 Outlook

For fiscal 2021, Meritor projects sales to be $3.9 billion, up from the previous forecast of $3.65-$3.8 billion. The company projects adjusted earnings per share to be $2.45, up from the earlier guidance of $2.15-$2.3. Cash flow from operations and free cash flow are anticipated to be $210 million and $115 million, respectively, compared with the earlier projection of $205-$220 million and $110-$125 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 5.66% due to these changes.

VGM Scores

Currently, Meritor has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Meritor has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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