Meritor, Inc. (NYSE: MTOR) today reported financial results for its fourth quarter and full fiscal year ended Sept. 30, 2012.
Fourth-Quarter Highlights
- Sales were $986 million, down $231 million or 19 percent, from the same period last year.
- Net income on a GAAP basis was $5 million or $0.05 per diluted share, compared to $31 million or $0.32 per diluted share in the prior year’s fourth quarter.
- Net income from continuing operations per share, on a GAAP basis, was $0.04 per diluted share, compared to $0.40 per diluted share in the prior year.
- Adjusted earnings per share from continuing operations were $0.32, compared to $0.45 in the same period last year.
- Adjusted EBITDA was $79 million, down $18 million or 19 percent from the same period last year. Adjusted EBITDA margin of 8 percent was flat to the same period last year.
- Cash flow provided by operations was $55 million in the fourth quarter of fiscal year 2012, compared to $60 million in the same period last year.
- Free cash flow for the quarter was $31 million, compared to $23 million in the same period last year.
“Our fourth-quarter financial results were solid and in line with our expectations,” said Chairman, CEO and President Chip McClure. “Despite weakening sales volumes outside the United States, we were able to maintain improved adjusted EBITDA margin for the full year through tight cost controls, strong military volumes and the continued benefits of earlier implemented pricing actions and footprint rationalization.”
Fourth-Quarter Results
For the fourth quarter of fiscal year 2012, Meritor posted sales of $986 million, down 19 percent from the same period last year due to lower sales volumes in global markets as well as weaker currency translation.
Net income from continuing operations, on a GAAP basis, was $4 million or $0.04 per diluted share, compared to $38 million or $0.40 per diluted share in the prior year. The decline in net income from continuing operations was due primarily to an $18 million charge associated with a change in actuarial assumptions for the company’s year-end valuation of asbestos-related liabilities as well as lower earnings from unconsolidated affiliates associated with weaker volumes in their respective markets.
Adjusted income from continuing operations in the fourth quarter of fiscal year 2012 was $31 million, or $0.32 per diluted share, compared to $43 million, or $0.45 per diluted share, a year ago. Adjusted EBITDA was $79 million, compared to $97 million in the fourth quarter of fiscal year 2011. Adjusted EBITDA margin for the fourth quarter of fiscal year 2012 was 8 percent, which was flat relative to the same period last year. Despite a significant drop in sales, adjusted EBITDA margin remained stable primarily due to the year-over-year benefit of the company’s North American pricing actions, European footprint rationalization, and improved military mix which more than offset the EBITDA margin impact of lower sales volumes.
Free cash flow for the fourth quarter of fiscal year 2012 was $31 million compared to free cash flow of $23 million in the same period last year, primarily driven by higher dividends from unconsolidated affiliates and improvements in working capital partially offset by voluntary contributions to the company’s global pension plans of $25 million.
Fourth-Quarter Segment Results
Commercial Truck sales were $583 million, down $185 million compared with the same period last year. Segment EBITDA for the Commercial Truck segment was $46 million for the quarter, down $3 million from the fourth quarter of fiscal year 2011. Segment EBITDA margin improved to 7.9 percent, up from 6.4 percent in the same period last year. The favorable impact on segment EBITDA margin of North American pricing actions, European footprint rationalization, and improved net material performance more than offset the margin impact of lower sales volumes overall and lower earnings from the company’s unconsolidated Brakes affiliate in Brazil.
Sales for the company’s Industrial segment were $222 million, down $47 million from the fourth quarter of fiscal year 2011, driven by weaker volumes in both China and India. Segment EBITDA for the company’s Industrial segment was $15 million, down $3 million from the same period last year. Segment EBITDA margin was 6.8 percent, up slightly from 6.7 percent in the fourth quarter of fiscal year 2011. The margin impact of improved military mix more than offset the margin impact of lower volumes in China.
The company’s Aftermarket & Trailer segment posted sales of $248 million, down $26 million from the same period last year, primarily due to lower Aftermarket volumes and weaker currency translation. Segment EBITDA for Aftermarket & Trailer was $20 million, down $12 million or 38 percent from the fourth quarter of fiscal year 2011, and segment EBITDA margin declined to 8.1 percent from 11.7 percent in the fourth quarter of fiscal year 2011. The decrease in segment EBITDA and margins was primarily due to a $6 million charge for a value added tax contingency associated with certain sales transactions, as well as lower sales in European and North American markets.
Fiscal Year Results
For fiscal year 2012, Meritor posted sales of $4.4 billion, down $204 million or 4 percent from the prior fiscal year due to lower sales volumes in global markets outside the U.S. and weaker currency translation.
Net income on a GAAP basis was $52 million compared to $63 million in the prior fiscal year. Net income from continuing operations, on a GAAP basis, for fiscal year 2012 was $70 million or $0.72 per diluted share, compared to $65 million or $0.67 per diluted share in the prior fiscal year.
Adjusted income from continuing operations in fiscal year 2012 was $111 million, or $1.14 per diluted share, compared to $82 million, or $0.85 per diluted share, a year ago. Adjusted EBITDA was $345 million in fiscal year 2012, compared to $347 million in fiscal year 2011. Adjusted EBITDA for fiscal year 2012 does not include an $18 million charge recognized in the fourth fiscal quarter associated with the re-measurement of asbestos-related liabilities or a $16 million gain on the sale of excess land recognized in the third fiscal quarter. Adjusted EBITDA margin was 7.8 percent in fiscal year 2012 compared to 7.5 percent in the prior fiscal year. Despite the decline in sales, adjusted EBITDA margin improved primarily due to the company’s North American pricing actions, European footprint rationalization and improved military mix, which more than offset the EBITDA margin impact of lower sales volumes.
Cash flow provided by operating activities for the full fiscal year was $77 million as compared to $41 million in the prior fiscal year. The improvement in operating cash flow is primarily due to lower working capital and lower cash used for discontinued operations partially offset by significantly higher contributions to our global pension plans. Free cash flow for fiscal year 2012 was negative $12 million, compared to negative $70 million in fiscal year 2011.
Fiscal 2012 Accomplishments
- Executed EBITDA margin enhancing strategies.
- Enhanced EBITDA margin despite revenue headwinds.
- Continued to restructure the business to fit current market conditions.
- Rationalized European footprint to improve margin expansion.
- Successfully managed the return of peak FMTV production.
- Realized the benefit of 2011 executive headcount reductions.
- Continued to secure pricing equal to Meritor’s value proposition.
- Implemented pricing negotiations which contributed to margin expansion.
- Invested to reduce premium costs.
- Executed operational improvements to increase productivity and minimize premium costs.
- Continued collaboration with customers and suppliers to profitably address demand.
- Awarded new business based on market leading product lines.
- Worked with customers to meet flexible demands on commercial truck volumes throughout the year.
- Received 14 customer awards in 2012 for performance in three major regions of the world.
- Named 2012 Global Remanufacturer of the Year by ReMaTecNews.
- Continued to drive new product development.
- Provided content on two of the three finalists in the engineering and manufacturing development phase of the Joint Light Tactical Vehicle program.
- Introduced latest generation of drive axles and brakes.
- Selected by Wabash National to have Meritor trailer axles as standard equipment on its trailers.
- Implemented balance sheet strategies.
- Maintained a high level of liquidity to manage all cycles.
- Executed an amended $515 million U.S. revolving credit facility that extended the maturity date to April 2017 with a springing maturity date of 2015 under certain circumstances.
- Executed a new $100 million U.S. accounts receivable program that matures in June 2015.
- S&P upgraded senior secured credit rating to BB- from B+ and upgraded the senior unsecured credit rating to B- from CCC+
- Continued to reduce the unfunded pension liability.
2013 Priorities
With a clear vision to be the recognized leader in providing drivetrain, mobility, braking and aftermarket solutions to the global commercial vehicle and industrial markets, the company will continue to remain diligently focused on the following priorities for 2013:
- Maintain flexibility in an uncertain market and successfully execute as global markets recover.
- Remain focused on rigorous cost management.
- Continue to implement appropriate balance sheet strategies.
- Continue to invest in new product development to maintain market and technology leadership positions.
Outlook for 2013
For fiscal year 2013, the company expects the following from continuing operations:
- Revenue to be approximately $4 billion.
- Adjusted EBITDA margin to be approximately 7 percent.
- Adjusted earnings per share from continuing operations in the range of $0.25 to $0.35.
- Free cash flow from continuing operations before restructuring payments to be about breakeven.
- Effective tax rate to be approximately 50 percent.
For fiscal year 2013, the company anticipates the following for the entire company:
- Capital expenditures in the range of $65 million to $75 million.
- Interest expense in the range of $90 million to $100 million.
- Cash interest in the range of $75 million to $85 million.
- Cash income taxes in the range of $50 million to $60 million.
“Our team is focused on our 2013 priorities and key initiatives,” said McClure. “In these volatile markets, we continue to remain flexible and prepared for when the global markets recover. At the same time, we are executing on strategies with two distinct customer-focused business segments that support sustainable and future growth, collaboration with customers and suppliers, strategic investments, new product development and rigorous cost management.”
