For the third quarter of fiscal year 2020, Meritor posted sales of $514 million, down $652 million, or approximately 56 percent, from the same period last year. The decrease in sales was primarily due to lower market volumes driven by decreased customer demand and government mandates as a result of the COVID-19 pandemic. The majority of the company’s manufacturing facilities were idled during the month of April with production increasing throughout the remainder of the quarter.
Net loss attributable to Meritor was $36 million, or $0.50 loss per diluted share, compared to net income attributable to Meritor of $86 million, or $1.00 per diluted share in the prior year. Net loss from continuing operations attributable to Meritor was $36 million, or $0.50 loss per diluted share, compared to net income from continuing operations attributable to Meritor of $85 million, or $0.99 per diluted share, in the same period last year. Lower net income year over year was driven primarily by lower revenues as a result of significantly lower market volumes due to the COVID-19 pandemic, as well as higher restructuring costs related to programs announced in June 2020.
During the quarter, certain actions were executed in order to decrease the impact of the significantly lower production levels. These actions included temporary salary reductions, employee headcount reductions, hourly employee layoffs and other discretionary spend reductions.
Adjusted loss from continuing operations attributable to the company in the third quarter of fiscal year 2020 was $34 million, or $0.47 loss per adjusted diluted share, compared to adjusted income from continuing operations attributable to the company of $103 million, or $1.20 per adjusted diluted share, in the same period last year.
Adjusted EBITDA was $7 million, compared to $146 million in the third quarter of fiscal year 2019. Adjusted EBITDA margin for the third quarter of fiscal year 2020 was 1.4 percent, compared to 12.5 percent in the same period last year. The decrease in adjusted EBITDA year over year was driven primarily by lower revenues as a result of lower market volumes due to the COVID-19 pandemic. Cost reduction actions executed in the quarter partially offset the impact from lower revenue.
Cash used for operating activities in the third quarter of fiscal year 2020 was $102 million compared to cash provided by operating activities of $143 million in the same period a year ago. Free cash flow was negative $114 million, compared to $124 million, in the same period last year. The decrease in operating cash flow year over year was driven primarily by lower revenue as a result of significantly lower market volumes due to the impact of the COVID-19 pandemic. Of the total decline in operating cash flow, $124 million of the reduction was due to the impact of accounts receivable factoring as a result of lower balances available under the factoring programs.
Third-Quarter Segment Results
Commercial Truck sales for the third quarter of fiscal year 2020 were $336 million, down $589 million, or 64 percent, compared to the same period last year. The decrease in sales in the third quarter of fiscal year 2020 was primarily due to lower market volumes driven by decreased customer demand and government mandates as a result of the COVID-19 pandemic. The majority of the company’s production facilities were idled during the month of April with production increasing throughout the remainder of the quarter.
Segment adjusted EBITDA for Commercial Truck was negative $23 million, or negative 6.8 percent of sales for the quarter, compared to $97 million, or 10.5 percent of sales in the prior year. The decrease in segment adjusted EBITDA and segment adjusted EBITDA margin was driven primarily by significantly decreased market volumes for most regions across the segment due to the COVID-19 pandemic, partially offset by cost actions executed in the quarter.
The Aftermarket and Industrial segment posted sales of $203 million, down $79 million, or 28 percent, from the same period a year ago. While Aftermarket facilities were not idled during the third quarter of fiscal year 2020, sales were lower in comparison with fiscal year 2019 due to changes in customer demand and the impact from the termination of the WABCO distribution arrangement. Industrial sales were also down, driven by decreased volumes as a result of the impact of the COVID-19 pandemic, partially offset by the revenue generated from the AxleTech business.
Segment adjusted EBITDA for Aftermarket and Industrial was $31 million, or 15.3 percent of sales for the quarter, compared to $50 million, or 17.7 percent of sales, a year ago. The decrease in segment adjusted EBITDA and segment adjusted EBITDA margin was driven primarily by the lower volumes partially offset by the cost reduction actions executed in the quarter.
Liquidity
- The company ended its third fiscal quarter with $970 million of total liquidity. This includes $280 million of cash and $690 million of undrawn liquidity under the company’s revolving credit and U.S. Securitization facilities. Liquidity represents approximately 29% of trailing 12-month sales.
- Meritor issued $300 million of 6.25 percent unsecured senior notes due 2025. Net proceeds from the offering of the notes, as well as cash on hand, were used to repay the outstanding $304 million balance under the company’s senior secured credit facility.
Outlook for Fourth Quarter Fiscal Year 2020
The company is providing the following guidance for the fourth quarter, of fiscal year 2020:
- Sales of approximately $700 million
- Net loss attributable to the company and net loss from continuing operations attributable to the company to be approximately $10 million
- Diluted loss per share from continuing operations to be approximately $0.15
- Adjusted EBITDA margin of approximately 6 percent
- Adjusted diluted EPS from continuing operations of approximately negative $0.10
- Operating cash flow to be approximately $65 million
- Free cash flow of approximately $25 million
“We took aggressive actions to reduce our cost structure in the short-term to preserve liquidity and stabilize cash flow,” said Jay Craig, president and CEO of Meritor. “At the same time, we are making the appropriate investments to ensure the company is in a strong product position for the future.”
Third-Quarter Fiscal Year 2020 Conference Call
Meritor will host a conference call and webcast to discuss the company’s third-quarter results for fiscal year 2020 on July 29 at 9 a.m. ET.
To participate, call (844) 412-1003 within the U.S. or (216) 562-0450 from outside the U.S. at least 10 minutes prior to the start of the call. Please reference conference ID: 6485724 when registering. 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 starting at 12 p.m. ET on July 29 until 12 p.m. ET on Aug. 5 by calling (855) 859-2056 within the U.S. or (404) 537-3406 from outside the U.S. Please refer to replay conference ID 6485724. To access the listen-only audio webcast, visit meritor.com and select the webcast link from the investors page.
SOURCE: Meritor
