Meritor, Inc. today reported financial results for its second fiscal quarter ended March 31, 2018.
Second-Quarter Highlights
- Sales of $1,066 million
- Net income attributable to the company and net income from continuing operations attributable to the company of $57 million, or $0.63 per diluted share
- Adjusted income from continuing operations attributable to the company of $68 million, or $0.75 per adjusted diluted share
- Adjusted EBITDA of $122 million and adjusted EBITDA margin of 11.4 percent
Second-Quarter Results
For the second quarter of fiscal year 2018, Meritor posted sales of $1,066 million, up $260 million or approximately 32 percent, from the same period last year. The increase in revenue was primarily driven by higher production in all of our major markets. Sales for the quarter were also favorably impacted by new business wins and favorable foreign currency.
Net income attributable to the company and net income from continuing operations attributable to the company were $57 million, or $0.63 per diluted share, compared to $22 million, or $0.24 per diluted share, in the same period last year. Higher net income year over year was driven primarily by conversion on increased revenue.
Adjusted income from continuing operations attributable to the company in the second quarter of fiscal year 2018 was $68 million, or $0.75 per adjusted diluted share, compared to $32 million, or $0.35 per adjusted diluted share, in the same period last year.
Adjusted EBITDA was $122 million, compared to $82 million in the second quarter of fiscal year 2017. Adjusted EBITDA margin for the second quarter of fiscal year 2018 was 11.4 percent, compared to 10.2 percent in the same period last year. Higher adjusted EBITDA and adjusted EBITDA margin year over year were driven primarily by conversion on higher revenue, $11 million of lower pension and retiree medical benefits and a one-time $10 million legal charge related to a dispute with a joint venture in the prior year that did not repeat. These increases were partially offset by incremental environmental reserves of $8 million principally related to a legacy site and $5 million of lower affiliate earnings arising from the sale of the company’s interest in the Meritor WABCO joint venture in the previous year.
Cash flow provided by operating activities in the second quarter of fiscal year 2018 was $39 million, a decrease of $5 million from the same period a year ago. Free cash flow was $22 million compared to $21 million in the same period last year.
Reportable Segment Changes
On March 12, 2018, the company’s reportable segments were modified. As of the second quarter of fiscal year 2018, Meritor’s reportable segments are:
- Commercial Truck & Trailer
- Aftermarket & Industrial
Prior year reportable segment financial results have been recast for these changes.
Second-Quarter Segment Results
Commercial Truck & Trailer sales for the second quarter of fiscal year 2018 were $854 million, up $236 million or 38 percent, compared to the same period last year. The increase in sales was primarily driven by higher production in all of our major markets. Higher sales in the quarter were also driven by the continued benefits from new business wins, as well as favorable foreign currency.
Segment adjusted EBITDA for the Commercial Truck & Trailer segment was $96 million for the quarter, up $44 million from the second quarter of fiscal year 2017. Segment adjusted EBITDA margin was 11.2 percent, up from 8.4 percent in the same period last year. The increase in segment adjusted EBITDA was driven primarily by conversion on higher revenue, a one-time legal charge related to a dispute with a joint venture in the prior year that did not repeat and the favorable impact of changes to retiree medical benefits, partially offset by higher variable compensation and lower affiliate earnings arising from the sale of the company’s interest in the Meritor WABCO joint venture in the previous year.
The Aftermarket & Industrial segment posted sales of $256 million, up $30 million from the same period a year ago. The increase in sales was primarily driven by higher sales in our Industrial business, which included sales from the business that was acquired in the fourth quarter of fiscal year 2017.
Segment adjusted EBITDA for Aftermarket & Industrial was $36 million for the quarter, up $4 million from the second quarter of fiscal year 2017. Segment adjusted EBITDA margin decreased to 14.1 percent from 14.2 percent in the same period last year. The increase in segment adjusted EBITDA was driven primarily by the favorable impact of changes to retiree medical benefits, partially offset by higher material and freight costs.
Outlook for Fiscal Year 2018
The company’s guidance for fiscal year 2018 has been revised from the prior quarter as follows:
- Revenue to be in the range of $4.0 billion to $4.1 billion.
- Net income attributable to the company to be in the range of $130 million to $145 million.
- Adjusted EBITDA margin to be approximately 11.2 percent.
- Adjusted diluted earnings per share from continuing operations to be in the range of $2.70 to $2.85.
- Operating cash flow to be in the range of $220 million to $235 million.
- Free cash flow to be in the range of $120 million to $135 million.
“With the revenue tailwinds we expect to continue in the second half, in addition to new business and market share wins, our full year guidance has improved measurably,” said Jay Craig, CEO and president. “We believe that our performance in fiscal 2018 will put us very close to achieving our M2019 earnings per share target a year early.”
