Meritor Inc. reports the financial results for its first fiscal quarter ended December 31, 2014.
First-Quarter Highlights
- Sales were $879 million, down $21 million, or 2%, from the same period last year.
- Net income attributable to Meritor on a GAAP basis was $29 million, compared to $11 million a year ago. Earnings per share was $0.29 per diluted share, compared to $0.11 a year ago.
- Adjusted income from continuing operations in the first quarter of fiscal year 2015 was $35 million, or $0.35 per adjusted diluted share, compared to $13 million, or $0.13 per adjusted diluted share, a year ago.
- Adjusted EBITDA was $79 million, compared to $72 million in the prior year.
- Adjusted EBITDA margin was 9.0%, compared to 8.0% in the first quarter of fiscal year 2014.
- Free cash flow was negative $21 million in the first quarter of fiscal year 2015, compared to negative $16 million in the same period a year ago.
First-Quarter Results
For the first quarter of fiscal year 2015, Meritor posted sales of $879 million, down $21 million, or 2%, from the same period last year. The sales decrease was primarily driven by lower commercial truck production and unfavorable exchange rates in Europe and South America, as well as lower revenue from Meritor's defense business. This impact was partially offset by higher sales in North America as the Class 8 truck market continued to strengthen.
Net income attributable to Meritor from continuing operations, on a GAAP basis, was $32 million, or $0.32 per diluted share, compared to $12 million, or $0.12 per diluted share, in the prior year. The increase in net income from continuing operations was primarily driven by higher adjusted EBITDA and lower interest expense.
Adjusted income from continuing operations in the first quarter of fiscal year 2015 was $35 million, or $0.35 per adjusted diluted share, compared to $13 million, or $0.13 per adjusted diluted share, a year ago.
Adjusted EBITDA was $79 million, compared to $72 million in the first quarter of fiscal year 2014. Adjusted EBITDA margin for the first quarter of fiscal year 2015 was 9.0%, compared to 8.0% in the same period last year. This improvement in Adjusted EBITDA and Adjusted EBITDA margin was primarily driven by incremental pricing and material, labor and burden performance.
Cash flow from operating activities in the first quarter of fiscal 2015 was negative $9 million, compared to negative $4 million in the same period last year. Free cash flow for the first quarter of fiscal year 2015 was negative $21 million, compared to negative $16 million in the same period last year, primarily due to higher annual variable incentive compensation payments paid in the most recent quarter.
First-Quarter Segment Results
Commercial Truck & Industrial sales were $703 million, down $24 million compared to the same period last year. The decrease in sales was driven by lower production in Europe, South America and defense as well as unfavorable exchange rates. This impact was partially offset by higher sales in North America as the Class 8 truck market continued to strengthen.
Segment EBITDA for the Commercial Truck & Industrial segment was $56 million for the quarter, up $3 million from the first quarter of fiscal year 2014. Segment EBITDA margin increased to 8.0%, up from 7.3% in the same period last year. The increase in segment EBITDA and EBITDA margin reflects incremental pricing and material, labor and burden performance, partially offset by lower revenue and unfavorable mix.
The Aftermarket & Trailer segment posted sales of $208 million, up $6 million from the same period a year ago. Segment EBITDA for Aftermarket & Trailer was $25 million, up $4 million from the first quarter of fiscal year 2014. Segment EBITDA margin improved to 12.0% from 10.4% in the first quarter of fiscal year 2014. The increase was primarily due to slightly higher revenue in North America and pricing actions executed during fiscal year 2014.
New Business Win with PACCAR
Further positioning the company for growth, Meritor announced a long-term contract with PACCAR. This seven-year agreement secures preferred product positioning for rear axles in North America and Australia. In addition, Meritor now has enhanced optional positioning for brakes, drivelines and front axles.
"We are excited to enter into this long-term agreement with PACCAR and further strengthen our relationship in such a significant way," says Ike Evans, Chairman and CEO, Meritor. "The Meritor team is fully committed to delivering industry-leading products to support PACCAR in building great trucks."
Outlook for Fiscal Year 2015
The company is revising its guidance as follows:
- Revenue to be approximately $3.7 billion (decreased from approximately $3.8 billion).
- Adjusted EBITDA margin to be approximately 9.0% (revised from a range of 8.8% to 9.0%).
- Adjusted earnings per share from continuing operations in the range of $1.20 to $1.30 (unchanged from previous guidance).
- Free cash flow to be approximately $100 million (unchanged from previous guidance).
Consistent with the outlook provided in November 2014, Meritor anticipates the following for the entire company:
- Capital expenditures in the range of $80 million to $90 million.
- Interest expense in the range of $80 million to $90 million.
- Cash interest in the range of $65 million to $75 million.
- Effective income tax rate of approximately 20%.
"We remain committed – and on track – to achieving our M2016 metrics, despite continued softness in the global markets," Evans says. "Securing new contracts, such as with PACCAR, is a result of the effort the Meritor team has put forth to drive the company toward greater shareholder value as part of our M2016 strategy."
