Meritor's Earnings Beat Estimates, Up Y/Y - Analyst Blog

Meritor Inc.'s MTOR adjusted income increased to $21 million or 22 cents per share in the second quarter of fiscal 2014 (ended Mar 31, 2014) from $6 million or 6 cents in the year-ago quarter. Moreover, earnings per share surpassed the Zacks Consensus Estimate by 13 cents.

Meritor posted a net loss from continuing operations of $2 million or 2 cents per share in the second quarter of fiscal 2014 compared with the net loss of $4 million or 4 cents in the corresponding quarter last year.

Revenues increased 5.9% year over year to $962 million, surpassing the Zacks Consensus Estimate of $921 million. Increase in commercial truck production in Europe and North America was responsible for the rise in revenues, partially offset by lower revenues from the Family of Medium Tactical Vehicles (FMTV) program.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of Meritor increased to $78 million from $58 million in the second quarter of fiscal 2013. Moreover, adjusted EBITDA margin was 8.1% compared with 6.4% in the year-ago quarter.

Segment Results

Revenues from the Commercial Truck & Industrial segment improved 7.2% to $763 million in the reported quarter. The increase in revenues was due to higher commercial truck production in Europe and North America offset the decline in defense revenue.

Segment EBITDA surged 54% to $57 million from $37 million in the year-ago quarter. EBITDA margin increased to 7.5% from 5.2% in the prior-year quarter due to material and structural cost reductions and the favorable impact of increased revenues, which offset the unfavorable impact of lower FMTV revenue.

Revenues from the Aftermarket & Trailer segment increased 3.6% to $232 million. Segment EBITDA remained constant at the year-ago level of $22 million. EBITDA margin was 9.5% compared with 9.8% in the second quarter of fiscal 2013.

Financial Position

Meritor's cash and cash equivalents were $233 million as of Mar 31, 2014 versus $318 million as of Sep 30, 2013. Total debt amounted to $1.1 billion as of Mar 31, 2014, compared with $1.14 billion in Sep 30, 2013.

In the first half of fiscal 2014, Meritor had cash flow of $18 million from operating activities compared with the cash outflow of $109 million in the first half of fiscal 2013. Capital expenditures were $25 million compared with $23 million a year ago.

Capital Management

In the reported quarter, Meritor issued $225 million of 6.25% notes due in 2024. The proceeds, along with balance sheet cash, will be used to redeem $250 million of 10.625% notes due in 2018 and to pay off the remaining $41 million term loan balance. By doing so, the company expects to reduce the annual cash interest by about $14 million.

Moreover, in the quarter, Meritor amended its revolving credit agreement. The company extended the maturity date to Feb 2019. Additionally, the facility size was augmented to $499 million till Apr 2017. Thereafter, the facility size will amount to $410 million through Feb 2019.

Outlook

For fiscal 2014, Meritor increased its revenue expectation to the range of $3.75 billion to $3.8 billion from the previous estimate of $3.7 billion. Adjusted EBITDA margin is likely to be 7.7%, increasing from the previous guidance of 7.5%, and adjusted earnings from continuing operations is expected between 50 cents and 60 cents per share, up from the previous estimate of 30 cents to 40 cents.

In addition, Meritor expects capital expenditures between $75 million and $85 million for the fiscal year. Interest expense is projected to be $95–$105 million.

Further, Meritor expects free cash flow to be in a range of $0–$25 million.

Headquartered in Troy, MI, Meritor is a global automotive parts manufacturer and supplier to North America, Europe and other parts of the world. The company operates manufacturing facilities in North America, South America, Europe and Asia-Pacific.

Meritor carries a Zacks Rank #2 (Buy). Some other stocks worth considering in the same industry are Superior Industries International, Inc. SUP, Gentherm Inc. THRM and Modine Manufacturing Co. MOD. All these stocks carry a Zacks Rank #1 (Strong Buy).