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Meritor (MTOR) Up 3.9% 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 3.9% 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’s Q4 Earnings & Sales Beat Estimates, Down Y/Y

Meritor posted adjusted diluted earnings per share of 15 cents in fourth-quarter fiscal 2020 (ended Sep 30, 2020), handily beating the Zacks Consensus Estimate of 5 cents. Higher-than-anticipated revenues from the Commercial Truck & Trailer segment resulted in this outperformance.

The bottom line, however, declined from the year-ago adjusted earnings of 83 cents a share. Adjusted income from continuing operations was $11 million in the reported quarter compared with the adjusted income of $70 million recorded in the prior-year quarter.

Sales slipped 26% year over year to $758 million in the fiscal fourth quarter. This year-over-year decline was due to lower market volumes resulting from weak customer demand amid the coronavirus pandemic. Nonetheless, the reported figure surpassed the Zacks Consensus Estimate of $728 million.

Adjusted EBITDA declined to $60 million from the year-earlier quarter’s $116 million. Adjusted EBITDA margin was 7.9% compared with the prior year’s 11.3%.

Segment Results

For the September-end quarter, revenues in the Commercial Truck & Trailer segment amounted to $560 million in the fiscal fourth quarter, down 28% year over year on lower market volumes, resulting from waning customer demand amid the pandemic. Yet, the figure outpaced the Zacks Consensus Estimate of $531 million. The segment reported adjusted EBITDA of $24 million, down from the $72 million witnessed in the year-ago quarter. EBITDA margin slid to 4.3% during the quarter from the 9.3% recorded in the prior-year quarter.

Revenues in the Aftermarket & Industrial segment totaled $226 million, dropping 22% from the year-ago level, primarily on dismal production volumes across most markets served. The revenue figure also missed the Zacks Consensus Estimate of $233 million. The segment’s adjusted EBITDA was $34 million, down $7 million from the prior-year period. Nevertheless, EBITDA margin inched up 0.8% year on year to 15% during the July-September quarter.

Financial Position

In the reported quarter, Meritor’s cash and cash equivalents summed $315 million as of Sep 30, 2020, compared with $108 million as of Sep 30, 2019. Long-term debt was $1,188 million at the end of the fiscal fourth quarter, up from the $902 million as of Sep 30, 2019.

Meritor’s cash flow from operating activities as of Sep 30, 2020, was $77 million, compared with the $62 million witnessed in the year-ago quarter. Free cash flow for the fiscal fourth quarter was $37 million compared with the $22 million recorded in the same period last year. For the quarter ended Sep 30, 2020, capital expenditure was $40 million, at par with the year-ago quarter figure.

Fiscal 2020 Highlights

For the fiscal year, Meritor registered adjusted earnings per diluted share of $3.24 per share, down from the $3.37 reported in the year-ago quarter. Adjusted income from continuing operations attributable to the company was $85 million, tanking from the $330 million reported in the same period last year. This downside was chiefly due to dismal revenues as a result of reduced market volumes amid the coronavirus pandemic.

Net sales for fiscal 2020 came in at $3 billion, plunging 31% year on year.  Lower market volumes primarily due to lackluster customer demand, as a result of the COVID-19 pandemic, resulted in this dismal performance.

Adjusted EBITDA came in at $272 million in fiscal 2020 compared with the $520 million seen in fiscal 2019. Adjusted EBITDA margin was 8.9% for the year, down 3% from the prior fiscal year.

Outlook for Fiscal 2021

For fiscal 2021, Meritor projects sales in the range of $3.1-$3.35 billion. Cash flow from operations and free cash flow are anticipated in the range of $145-$185 million and $60-$100 million, respectively.

Further, the firm projects net income from continuing operations in the band of $45-$75 million.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.


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