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Why Is Meritor (MTOR) Down 9.7% Since Last Earnings Report?

Zacks Equity Research
Lattice Semiconductor (LSCC) closed at $16.18 in the latest trading session, marking a -1.28% move from the prior day.

It has been about a month since the last earnings report for Meritor (MTOR). Shares have lost about 9.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Meritor due for a breakout? 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 Q2 Earnings Surpass Estimates, FY19 View Up

Meritor recorded adjusted earnings of $1.03 per share in second-quarter fiscal 2019 (ended Mar 31, 2019), which surpassed the Zacks Consensus Estimate of 87 cents. In the year-ago period, the figure was 75 cents per share.

Adjusted income from continuing operations was $88 million compared with $65 million in second-quarter fiscal 2018.

Sales increased approximately 8% year over year to $1.56 billion. The top line surpassed the Zacks Consensus Estimate of $1.1 billion. This year-over-year rise was due to higher truck production, majorly in North America.

Meritor’s adjusted EBITDA (earnings before interest, tax, depreciation and amortization) increased to $139 million from $122 million a year ago. Adjusted EBITDA margin was 12% compared with 11.4% a year ago. Gain in adjusted EBITDA was due to higher revenues, partly offset by foreign currency fluctuation.

Segment Results

Revenues from the Commercial Truck & Trailer segment increased to $876 million, up 7% from the same period of the year-ago quarter. The segment’s adjusted EBITDA decreased to $88 millionfrom $94 million recorded in the year-ago quarter. EBITDA margin declined to 10% from 11.5% in the same period of the last fiscal year.

Revenues from the Aftermarket & Industrial segment were $329 million, up 11% from the year-ago quarter. This gain was primarily due to increased aftermarket volume across North America, and higher sales in the industrial and trailer businesses. The segment’s adjusted EBITDA was $52 millioncompared with$38 million recorded in the year-ago period. EBITDA margin moved up to 12.8% from 15.8% in the prior-year quarter.

Financial Position

For the reported quarter, Meritor’s cash and cash equivalents totaled $98 million as of Mar 31, 2019, compared with $115 million as of Sep 30, 2018. Long-term debt was $738 million at the end of second-quarter fiscal 2019 compared with$730 million at the end of fourth-quarter fiscal 2018.

Meritor’s cash inflow from operating activities was $40 million compared with $39 million in the year-ago quarter. During the quarter under review, capital expenditure was $21 million compared with $17 million a year ago.

Outlook

In fiscal 2019, Meritor expects sales of approximately $4.4 billion compared with previously mentioned $4.3 billion. Net income is anticipated to be approximately $285 billion compared with$265 million stated earlier. Adjusted earnings per share from continuing operations are projected to be $3.50, rising from $3.30 mentioned earlier.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. The consensus estimate has shifted 5.31% due to these changes.

VGM Scores

Currently, Meritor has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

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

Outlook

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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