Meritor Second Quarter Fiscal Year Sales Down 2%

Meritor's second quarter fiscal year 2017 sales declined 2% primarily due to lower commercial truck volume in North America.

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Meritor Inc. has reported financial results for its second fiscal quarter ended March 31, 2017.

Second-Quarter Highlights

  • Sales of $806 million
  • Net income attributable to the company and net income from continuing operations attributable to the company of $22 million
  • Diluted earnings per share from continuing operations of $0.24
  • Adjusted income from continuing operations attributable to the company of $32 million, or $0.35 of Adjusted diluted earnings per share
  • Adjusted EBITDA of $82 million and Adjusted EBITDA margin of 10.2%

Second-Quarter Results

For the second quarter of fiscal year 2017, Meritor posted sales of $806 million, down $15 million, or approximately 2%, from the same period last year. The decline in revenue was primarily driven by lower commercial truck volume in North America, as Class 8 truck production was down 20% year-over-year. This was largely offset by increased production in Europe, India and China, in addition to new business wins. Net income attributable to the company was $22 million, or $0.24 per diluted share, compared to $32 million, or $0.35 per diluted share, in the same period last year. Net income from continuing operations attributable to the company was $22 million, or $0.24 per diluted share, compared to $33 million, or $0.36 per diluted share, in the same quarter last year. Lower net income year-over-year was driven primarily by higher income tax expense recognized in the current year.

Adjusted income from continuing operations attributable to the company in the second quarter of fiscal year 2017 was $32 million, or $0.35 of Adjusted diluted earnings per share, compared to $38 million or $0.41 of Adjusted diluted earnings per share, in the same period last year.

Adjusted EBITDA was $82 million, compared to $81 million in the second quarter of fiscal year 2016. Adjusted EBITDA margin for the second quarter of fiscal year 2017 was 10.2%, compared to 9.9% in the same period last year. Included in the second quarter of fiscal year 2017 was a $10 million charge for a legal contingency related to a dispute with a joint venture. Despite this charge, Adjusted EBITDA and EBITDA margin increased year-over-year primarily driven by continued material, labor and burden performance, foreign exchange and favorable mix.

Cash flow provided by operating activities in the second quarter of fiscal year 2017 was $44 million, flat to the same period a year ago. Free cash flow was $21 million compared to $19 million in the same period last year.

Second-Quarter Segment Results

Commercial Truck & Industrial sales for the second quarter of fiscal year 2017 were $620 million, down $11 million compared to the same period last year. The decrease in sales was driven primarily by lower Class 8 truck production in North America, largely offset by increased volumes in Europe, India and China.

Segment adjusted EBITDA for the Commercial Truck & Industrial segment was $54 million for the quarter, down $2 million from the second quarter of fiscal year 2016. Segment adjusted EBITDA margin was 8.7%, down from 8.9% in the same period last year. The decrease in Segment adjusted EBITDA margin was driven primarily by a legal contingency charge and higher steel prices partially offset by strong operational performance, foreign exchange and favorable mix.

The Aftermarket & Trailer segment posted sales of $215 million, down $3 million from the same period a year ago. The decrease in sales was primarily due to lower U.S. trailer production, which was partially offset by higher aftermarket revenue.

Segment adjusted EBITDA for Aftermarket & Trailer was $30 million for the quarter, up $2 million from the second quarter of fiscal year 2016. Segment adjusted EBITDA margin increased to 14.0%, up from 12.8% in the same period last year. The increase in Segment adjusted EBITDA margin was driven by labor and burden performance.

Outlook for Fiscal Year 2017

The company's guidance for fiscal year 2017 has been revised from the prior quarter as follows:

  • Revenue to be approximately $3.1 billion
  • Net income attributable to the company and net income from continuing operations attributable to the company to be approximately $90 million (diluted earnings per share of approximately $1.00)
  • Adjusted EBITDA margin to be approximately 10.0%
  • Adjusted diluted earnings per share from continuing operations to be approximately $1.40
  • Operating cash flow to be in the range of $140 million to $160 million
  • Free cash flow to be in the range of $50 million to $70 million

"This was another strong quarter for Meritor," says Jay Craig, CEO and President. "Continued operational performance, combined with signs of improvement in global end markets, gives us confidence that our 2017 financial performance will be better than previously planned."

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