Meritor Inc. (MTOR) reported adjusted income of 28 cents per share in the third quarter of fiscal 2014 (ended Jun 30, 2014), which surpassed the Zacks Consensus Estimate of 15 cents. However, earnings declined from 34 cents in the year-ago quarter. Adjusted net income dropped 15.2% to $28 million from $33 million in the third quarter of fiscal 2013.
On a reported basis, Meritor posted net income from continuing operations of $236 million or $2.33 cents per share in the third quarter of fiscal 2014 compared with a net loss of $37 million or 38 cents per share in the corresponding quarter last year.
Though revenues decreased 0.7% year over year to $986 million, the figure beat the Zacks Consensus Estimate of $977 million. The year-over-year decline can be attributed to lower commercial truck production in South America and reduced revenues from the Family of Medium Tactical Vehicles (FMTV) program. However, revenues benefited from higher commercial truck production in North America.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of Meritor decreased to $80 million from $87 million in the third quarter of fiscal 2013. Meanwhile, adjusted EBITDA margin stood at 8.1% compared with 8.8% in the year-ago quarter. The deterioration was led by lower revenues and unfavorable mix impact of lower sales in South America and the defense business.
Segment Results
Revenues from the Commercial Truck & Industrial segment fell 2.9% to $761 million in the reported quarter. Lower commercial truck production in South America and reduced defense revenues were responsible for the decline, partially offset by higher commercial truck production in North America.
Segment EBITDA dropped 17.9% to $55 million from $67 million in the year-ago quarter. EBITDA margin decreased to 7.2% from 8.5% in the prior-year quarter due to lower revenues and unfavorable mix impact of lower sales in South America and the defense business.
Revenues from the Aftermarket & Trailer segment increased 8.8% to $259 million. Segment EBITDA improved 4% to $26 million from $25 million in the year-ago quarter. EBITDA margin was 10% compared with 10.5% in the third quarter of fiscal 2013.
Financial Position
Meritor’s cash and cash equivalents were $303 million as of Jun 30, 2014 versus $318 million as of Sep 30, 2013. Total debt amounted to $1.09 billion as of Jun 30, 2014, compared with $1.14 billion as on Sep 30, 2013.
In the first nine months of fiscal 2014, Meritor had cash flow of $103 million from operating activities compared with cash outflow of $73 million in the first nine months of fiscal 2013. Capital expenditures were $39 million compared with $31 million in the same period a year ago. Free cash flow stood at $64 million in the first nine months of fiscal 2014 compared with cash outflow of $104 million in the year-ago period.
Outlook
For fiscal 2014, Meritor reaffirmed its revenue expectation in the range of $3.75 billion to $3.8 billion. Adjusted EBITDA margin is likely to range from 7.7% to 7.9%, while adjusted earnings from continuing operations is expected between 65 cents and 75 cents per share, up from the previous estimate of 50 cents to 60 cents.
In addition, Meritor expects capital expenditures in the range of $65–$75 million for the fiscal year, down from the previous guidance of $75–$85 million. Interest expense is projected to be $95–$105 million.
Further, Meritor expects free cash flow in the band of $50–$75 million, up from the previous projection of breakeven to $25 million.
Headquartered in Troy, MI, Meritor is a global automotive parts manufacturer and supplier. The company operates manufacturing facilities in North America, South America, Europe and Asia-Pacific.
Meritor carries a Zacks Rank #1 (Strong Buy). Some better-ranked stocks that are worth considering in the auto sector include Visteon Corp. (VC), Accuride Corp. (ACW) and American Axle & Manufacturing Holdings Inc. (AXL). Visteon sports a Zacks Rank #1.
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