Meritor, Inc.’s MTOR shares rallied 8.3% on Jul 29 after the company reported strong earnings for the third quarter of fiscal 2015 (ended Jun 30, 2015). The company recorded adjusted income of 41 cents per share in the quarter, which surpassed the Zacks Consensus Estimate of 33 cents.
Earnings also increased 41.4% from 29 cents recorded in the year-ago quarter. Adjusted net income jumped to $41 million in the reported quarter from $29 million in the third quarter of fiscal 2014.
On a reported basis, Meritor posted net income from continuing operations of $15 million or 15 cents per share in the third quarter of fiscal 2015, compared with $237 million or $2.34 per share in the corresponding quarter last year.
Revenues decreased 7% year over year to $909 million, missing the Zacks Consensus Estimate of $933 million. The year-over-year decline is attributable to adverse currency impacts in Europe and Brazil. However, excluding currency impacts, sales increased 1% year over year.
Meritor’s adjusted EBITDA increased to $87 million from $82 million recorded in the third quarter of fiscal 2014. Meanwhile, adjusted EBITDA margin stood at 9.6%, compared with 8.4% in the year-ago quarter. The increase was driven by incremental pricing and improved material, labor and burden performance, partially offset by lower revenues.
Segment Results
Revenues from the Commercial Truck & Industrial segment went down 7% to $705 million in the reported quarter. The decline resulted from strengthening of the U.S. dollar against most currencies, specially the euro and the Brazilian real, and lower commercial truck production in South America and China. These negatives were, however, partially offset by better truck production in North America on the strength of the Class 8 truck market.
Segment EBITDA stood at $58 million compared with $55 million in the year-ago quarter. EBITDA margin increased to 8.2% from 7.2% in the prior-year quarter, driven by incremental pricing as well as enhanced material, labor and burden performance; partially marred by lower revenues.
Revenues from the Aftermarket & Trailer segment declined 8% to $233 million due to unfavorable currency exchange rates in Europe. Segment EBITDA improved to $31 million from $28 million in the year-ago quarter. EBITDA margin stood at 13.3% compared with 11.1% in the third quarter of fiscal 2014.
Financial Position
Meritor’s cash and cash equivalents totaled $345 million as of Jun 30, 2015, versus $247 million as of Sep 30, 2014. Total debt amounted to $1.1 billion as of Jun 30, 2015, compared with $972 million as of Sep 30, 2014.
In the first nine months of fiscal 2015, Meritor’s cash flow from operating activities was $122 million compared with $103 million in the same period a year ago. Capital expenditures increased to $45 million from $39 million. Free cash flow stood at $77 million compared with $64 million in the first nine months of fiscal 2014.
Outlook
For fiscal 2015, Meritor expects revenues in the $3.5–$3.55 billion range. Adjusted EBITDA margin is likely to be 9.3%, higher than the previous projection of 9–9.2%. Adjusted earnings from continuing operations are expected between $1.40 and $1.50 per share, up from $1.30–$1.40 guided earlier.
In addition, Meritor plans capital expenditures of $80 million for the fiscal. Interest expenses are projected in the range of $80–$85 million. Further, Meritor expects forecasts free cash flow at $110 million.
Meanwhile, Meritor is focused on its three-year plan, M2016, which aims at achieving margin, debt reduction and revenue growth through operational efficiency, enhancement of customer value and reduction of product costs.
Stocks to Consider
Meritor carries a Zacks Rank #3 (Hold). Better-ranked automobile stocks include Ford Motor Co. F, Tesla Motors, Inc. TSLA and PACCAR Inc. PCAR. All the stocks carry a Zacks Rank #2 (Buy).
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