Meritor, Inc. (MTOR) reported adjusted income of 35 cents per share in the fourth quarter of fiscal 2014 (ended Sep 30, 2014) that surpassed the Zacks Consensus Estimate of 16 cents. Earnings increased significantly from 13 cents in the year-ago quarter. Adjusted net income jumped to $35 million in the reported quarter from $13 million in the fourth quarter of fiscal 2013.
On a reported basis, Meritor posted net income from continuing operations of $29 million or 29 cents per share in the fourth quarter of fiscal 2014, compared with $40 million or 41 cents per share in the corresponding quarter last year.
Revenues increased 3.4% year over year to $933 million, beating the Zacks Consensus Estimate of $918 million. The year-over-year increase was attributable to higher sales in North America, partially offset by lower revenues in Europe, Defense and South America.
Adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) of Meritor increased to $80 million from $73 million in the fourth quarter of fiscal 2013. Meanwhile, adjusted EBITDA margin stood at 8.6%, compared with 8.1% in the year-ago quarter. The increase was led by improvements in material costs, operating performance and higher revenue, partially offset by the unfavorable mix impact.
Fiscal 2014 Performance
Meritor’s adjusted earnings per share increased significantly to $1.02 for fiscal 2014 from 42 cents recorded in fiscal 2013 beating the Zacks Consensus Estimate of 70 cents per share. Revenues for fiscal 2014 increased 2.5% to roughly $3.8 billion from $3.7 billion in fiscal 2013, in line with the Zacks Consensus Estimate. The year-over-year increase was driven by higher sales in North America, partially offset by lower revenues in Defense and South America.
Segment Results
Revenues from the Commercial Truck & Industrial segment went up 2.8% to $729 million in the reported quarter. The improvement was driven by higher revenues in North America, partially offset by lower sales in Europe, Defense and South America.
Segment EBITDA dropped 1.9% to $53 million from $54 million in the year-ago quarter. EBITDA margin decreased to 7.3% from 7.6% in the prior-year quarter due to unfavorable mix impact of lower sales in South America and Defense, and higher variable incentive compensation, partially offset by favorable impact of material and operating performance, and higher sales in North America.
Revenues from the Aftermarket & Trailer segment increased 5.7% to $240 million. Segment EBITDA improved 25.9% to $34 million from $27 million in the year-ago quarter. EBITDA margin was 14.2% compared with 11.9% in the fourth quarter of fiscal 2013.
Financial Position
Meritor’s cash and cash equivalents were $247 million as of Sep 30, 2014 versus $318 million as of Sep 30, 2013. Total debt amounted to $972 million as of Sep 30, 2014, compared with $1.14 billion as of Sep 30, 2013.
In fiscal 2014, Meritor’s cash flowin operating activities was $215 million, compared with cash outflow of $96 million in fiscal 2013. Capital expenditures were $77 million, compared with $54 million in fiscal 2013. Free cash flow stood at $138 million in fiscal 2014, compared with cash outflow of $150 million in fiscal 2013.
Outlook
For fiscal 2015, Meritor expects its revenues to be $3.8 billion. Adjusted EBITDA margin is likely to range from 8.8% to 9% while adjusted earnings from continuing operations are expected between $1.20 and $1.30 per share.
In addition, Meritor expects capital expenditures in the range of $80–$90 million for the fiscal year. Interest expense is projected to be in the range of $80–$90 million. Further, Meritor expects free cash flow to be $100 million.
Meritor is focused on its three-year plan M2016, which aims at achieving margin, debt reduction and revenue growth through operational efficiency, enhancing customer value and reducing product costs. With this, the company plans to achieve 10% adjusted EBITDA margin for the full-year 2016 and reduce net debt by $400 million to $1.5 billion. The company expects to record revenue increases of $500 million per year driven by new products and new customers.
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 #3 (Hold). Better-ranked automobile stocks worth considering include Gentex Corp. (GNTX), Toyota Motor Corporation (TM) and STRATTEC Security Corporation (STRT), each carrying a Zacks Rank #1 (Strong Buy).
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