Meritor, Inc. (NYSE: MTOR) today reported financial results for its third fiscal quarter ended June 30, 2014.
Third-Quarter Highlights
- Sales were $986 million, down $7 million from the same period last year.
- Net income on a GAAP basis was $234 million, compared to a net loss of $38 million, in the same period last year. Net income included $209 million from the antitrust settlement with Eaton Corporation (including recovery of legal fees).
- Net income from continuing operations was $236 million, or $2.33 per diluted share, compared to a loss of $37 million, or $0.38 per diluted share, in the prior year. Adjusted income from continuing operations was $28 million, or $0.28 per diluted share, compared to $33 million, or $0.34 per diluted share, a year ago.
- Adjusted EBITDA was $80 million, compared with $87 million in the prior year.
- Adjusted EBITDA margin was 8.1 percent, compared to 8.8 percent in the same period last year.
- Free cash flow was $71 million, compared to $28 million in the same quarter of last year.
Third-Quarter Results
For the third quarter of fiscal year 2014, Meritor posted sales of $986 million, down $7 million or one percent from the same period last year. This decrease was primarily due to lower commercial truck production in South America and the continued step down in revenue from the Family of Medium Tactical Vehicles (FMTV) program, which more than offset higher commercial truck production in North America.
Net income from continuing operations, on a GAAP basis, was $236 million, or $2.33 per diluted share, compared to a loss from continuing operations of $37 million, or $0.38 per diluted share, in the prior year.
Adjusted income from continuing operations in the third quarter of fiscal year 2014 was $28 million, or $0.28 per diluted share, compared to $33 million, or $0.34 per diluted share, a year ago. Adjusted income from continuing operations excludes $209 million from the antitrust settlement with Eaton Corporation less reimbursement of current year legal fees.
Adjusted EBITDA was $80 million, compared to $87 million in the third quarter of fiscal year 2013. Adjusted EBITDA margin for the third quarter of fiscal year 2014 was 8.1 percent, compared to 8.8 percent in the same period last year. Lower revenue and the unfavorable mix impact of lower sales in South America and the defense business drove the lower Adjusted EBITDA and Adjusted EBITDA margin year-over-year.
Cash flow from operating activities in the third quarter of fiscal year 2014 was $85 million, compared to $36 million in the same period last year. Free cash flow for the third quarter of fiscal year 2014 was $71 million, compared to $28 million in the prior year. The improvement in both cash flow metrics is primarily due to lower pension contributions and lower cash taxes.
Third-Quarter Segment Results
Commercial Truck & Industrial sales were $761 million, down $23 million or 3 percent, compared with the same period last year. The decrease was primarily due to lower commercial truck production in South America and lower defense revenue, partially offset by higher commercial truck production in North America.
Segment EBITDA for the Commercial Truck & Industrial segment was $55 million for the quarter, down $12 million or 18 percent from the third quarter of fiscal year 2013. Segment EBITDA margin was 7.2 percent, down from 8.5 percent in the same period last year. Lower revenue and the unfavorable mix impact of lower sales in South America and the defense business drove the lower Segment EBITDA and Segment EBITDA margin year-over-year.
The Aftermarket & Trailer segment posted sales of $259 million, up $21 million or 9 percent, from the same period last year. Segment EBITDA for Aftermarket & Trailer was $26 million, up one million dollars, or 4 percent, from the third quarter of fiscal year 2013. Segment EBITDA margin was 10.0 percent, down slightly from 10.5 percent in the same period last year. The loss of earnings associated with the company’s ownership interest in Suspensys, which was sold in the fourth quarter of fiscal year 2013, offset the benefit of higher revenue.
Outlook for Fiscal Year 2014
The company is raising its earnings and free cash flow guidance as follows:
- Adjusted EBITDA margin in the range of 7.7 percent to 7.9 percent (increased from approximately 7.7 percent).
- Adjusted earnings per share from continuing operations in the range of $0.65 to $0.75 (increased from the range of $0.50 to $0.60).
- Free cash flow in the range of $50 to $75 million (increased from the range of breakeven to $25 million).
Meritor is reaffirming its revenue guidance in the range of $3.75 billion to $3.8 billion, assuming constant currency.
The company anticipates the following:
- Capital expenditures in the range of $65 million to $75 million (reduced from the range of $75 million to $85 million).
- Interest expense in the range of $95 million to $105 million (unchanged from the prior quarter’s assumptions), excluding the $21 million loss on debt extinguishment.
- Cash interest in the range of $80 million to $90 million (unchanged from the prior quarter’s assumptions).
- Cash income taxes in the range of $30 million to $40 million (reduced from the range of $40 million to $50 million).
“We are on track with our M2016 objectives,” said Chairman and CEO Ike Evans. “Our year-to-date performance demonstrates the traction we’re getting to achieve sustained improvement in our financial performance.”
Third-Quarter Fiscal Year 2014 Conference Call
Meritor will host a conference call and webcast to discuss the company’s third-quarter results for fiscal year 2014 at 8:30 a.m. (ET) Thursday, July 31, 2014.
To participate, call (617) 213-4845 10 minutes prior to the start of the call. When registering, reference passcode 99661845.
Investors can also listen to the conference call in real time or access a recording of the call for seven days after the event by visiting the investors page on meritor.com.
A replay of the call will be available from 12:30 p.m. July 31 to 11:59 p.m. Aug. 7 by calling (888) 286-8010 within the United States or (617) 801-6888 for international calls. Refer to replay passcode 92993486. To access the listen-only audio webcast, visit meritor.com and select the webcast link from the homepage or the investor page.
