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Meritor (MTOR) Up 1.6% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Meritor (MTOR). Shares have added about 1.6% in that time frame, outperforming 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 catalysts.

Meritor Q1 Earnings & Sales Trump Estimates

Meritor posted adjusted earnings per share of 60 cents in first-quarter fiscal 2021 (ended Dec 31, 2020), marginally surpassing the Zacks Consensus Estimate of 59 cents. Higher-than-anticipated adjusted EBITDA from the Commercial Truck & Trailer and Aftermarket & Industrial segments resulted in this outperformance.

The bottom line, however, declined marginally from the year-ago adjusted earnings of 64 cents a share. Adjusted income from continuing operations was $44 million in the reported quarter compared with the $52 million recorded in the prior-year period.

Sales edged down 1.3% year over year to $889 million in the fiscal first quarter. This year-over-year decline primarily resulted from the unfavorable impact of the termination of the WABCO distribution arrangement, which took place in second-quarter fiscal 2020, largely offset by higher truck production. Nonetheless, the reported figure surpassed the Zacks Consensus Estimate of $815 million.

Adjusted EBITDA went up to $102 million from the year-earlier quarter’s $98 million. Adjusted EBITDA margin was 11.5% compared with the prior year’s 10.9%.

Segment Results

For the December-end quarter, revenues in the Commercial Truck & Trailer segment amounted to $691 million, up 4% year over year on slightly higher market volumes in Europe and India. Moreover, the figure outpaced the Zacks Consensus Estimate of $607 million. The segment reported adjusted EBITDA of $63 million, up from the $57 million witnessed in the year-ago quarter. The figure also handily surpassed the consensus mark of $42.81 million. EBITDA margin expanded to 9.1% during the quarter from the 8.6% recorded in the prior-year quarter.

Quarterly revenues in the Aftermarket & Industrial segment totaled $234 million, dropping 15% from the year-ago level, on account of the termination of the WABCO distribution arrangement. The revenue figure, nonetheless, beat the Zacks Consensus Estimate of $226 million. The segment’s adjusted EBITDA was $35 million, down $4 million from the prior-year period. Nevertheless, EBITDA margin inched up 0.8% year on year to 15% during the October-December period.

Financial Position

In the reported quarter, Meritor’s cash and cash equivalents summed $283 million as of Dec 31, 2020, compared with $108 million as of Dec 31, 2019. Long-term debt was $1,189 million at the end of the fiscal first quarter, up from the $901 million as of Dec 31, 2019.

Meritor’s cash flow from operating activities as of Dec 31, 2020, was $44 million, compared with the cash used for operating activities of $19 million witnessed in the year-ago quarter. Free cash flow for the fiscal first quarter was $34 million compared with the negative $35 million recorded in the same period last year. For the quarter ended Dec 31, 2020, capital expenditure was $10 million compared with the $16 million incurred in the year-ago quarter.

Upbeat Fiscal 2021 Outlook

For fiscal 2021, Meritor projects sales in the range of $3.65-$3.8 billion, up from the previous guidance of $3.1-$3.35 billion. Cash flow from operations and free cash flow are anticipated in the band of $205-$220 million and $110-$125 million, respectively, up from the guidance of $145-$185 million and $60-$100 million, respectively, issued in the last quarter.

Further, the firm projects net income from continuing operations at $115-$140 million, significantly higher than the previous estimate of $45-$75 million.

 

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month. The consensus estimate has shifted -32.22% due to these changes.

VGM Scores

Currently, Meritor has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

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

Outlook

Meritor has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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