Share price of Meritor, Inc. (MTOR) decreased 0.7% to $13.11 as the company reported lower revenues and reduced the fiscal revenue guidance. Meanwhile, Meritor reported adjusted income of 35 cents per share in the first quarter of fiscal 2015 (ended Dec 31, 2014) that surpassed the Zacks Consensus Estimate by 6 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 first quarter of fiscal 2014.
On a reported basis, Meritor posted net income from continuing operations of $32 million or 32 cents per share in the first quarter of fiscal 2015, compared with $12 million or 12 cents per share in the corresponding quarter last year. The increase in net income from continuing operations came on the back of higher adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) and lower interest expense.
Revenues decreased 2% year over year to $879 million, missing the Zacks Consensus Estimate of $911 million. The year-over-year decrease is attributable to lower commercial truck production and unfavorable exchange rates in Europe and South America, and a decline in revenue from Meritor’s defense business. However, this was partially offset by higher sales in North America with the strengthening of the Class 8 truck market.
Adjusted EBITDA of Meritor increased to $79 million from $72 million in the first quarter of fiscal 2014. Meanwhile, adjusted EBITDA margin stood at 9%, compared with 8% in the year-ago quarter. The increase was led by incremental pricing and material, labor and burden performance.
Segment Results
Revenues from the Commercial Truck & Industrial segment went down 3.3% to $703 million in the reported quarter. The decline resulted from lower production in Europe, South America, defense and unfavorable exchange rates. This was partially offset by better sales in North America with the strengthening of the Class 8 truck market.
Segment EBITDA increased 5.7% to $56 million from $53 million in the year-ago quarter. EBITDA margin increased to 8% from 7.3% in the prior-year quarter, driven by incremental pricing and material, labor and burden performance, partially offset by lower revenue and unfavorable mix.
Revenues from the Aftermarket & Trailer segment increased 3% to $208 million. Segment EBITDA improved 19% to $25 million from $21 million in the year-ago quarter. EBITDA margin was 12% compared with 10.4% in the first quarter of fiscal 2014.
Financial Position
Meritor’s cash and cash equivalents were $214 million as of Dec 31, 2014 versus $247 million as of Sep 30, 2014. Total debt amounted to $967 million as of Dec 31, 2014, compared with $972 million as of Sep 30, 2014.
In the first quarter of fiscal 2015, Meritor’s cash outflow from operating activities was $9 million, compared with cash outflow of $4 million in the same period a year ago. Capital expenditures were flat at $12 million. Free cash outflow stood at $21 million compared with cash outflow of $16 million in the first quarter of fiscal 2014.
Outlook
For fiscal 2015, Meritor expects its revenues to be $3.7 billion, down from the previous guidance of $3.8 billion. Adjusted EBITDA margin is likely to be 9% higher than the previous projection of a range of 8.8%–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.
Recently, Meritor announced that it has signed a long-term contract with PACCAR Inc. (PCAR). Under this deal, Meritor will deliver its industry-leading products to PACCAR.
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 #2 (Buy). Better-ranked automobile stocks include Superior Industries International, Inc. (SUP) and Wabash National Corp. (WNC), each sporting a Zacks Rank #1 (Strong Buy).
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