Meritor Inc. has reported financial results for its second fiscal quarter ended March 31, 2015.
Second-Quarter Highlights
- Sales were $864 million, down $90 million, or 9.4%, from the same period last year.
- Net income attributable to Meritor on a GAAP basis was $43 million, compared to $1 million during the second quarter of fiscal year 2014. Diluted earnings per share from continuing operations was $0.38, compared to diluted earnings per share of $0.01 a year ago.
- Adjusted income from continuing operations was $42 million, or adjusted diluted earnings per share of$0.41, compared to $24 million, or adjusted diluted earnings per share of $0.24 a year ago, an increase of 71%.
- Adjusted EBITDA was $87 million, compared to $80 million in the prior year.
- Adjusted EBITDA margin was 10.1%, compared to 8.4% in the second quarter of fiscal year 2014.
- Free cash flow was $27 million in the second quarter of fiscal year 2015, compared to $9 million in the same period a year ago.
- Company repurchased $31 million of equity and equity-linked securities.
"We have continued to improve our financial performance despite ongoing macroeconomic challenges from weak global markets, particularly Brazil, and foreign exchange headwinds resulting from the strengthening U.S. dollar," says Ike Evans, Executive Chairman of Meritor. "Our results demonstrate the continued success of our M2016 initiatives in driving solid margin expansion."
Second-Quarter Results
For the second quarter of fiscal year 2015, Meritor posted sales of $864 million, down 9.4% from the same period last year. The sales decline was driven primarily by lower commercial truck production in South America and China, and lower revenue in the Defense business. In addition, sales also were negatively impacted by currency exchange rate declines primarily in Brazil and Europe against the U.S. dollar. Higher sales in North America partially offset the year-over-year revenue decrease, as Class 8 truck orders continued to strengthen.
Net income from continuing operations attributable to Meritor on a GAAP basis was $39 million, or diluted earnings per share of $0.38, compared to $1 million, or diluted earnings per share of $0.01, in the prior year. The increase in net income from continuing operations was driven primarily by lower interest expense and higher adjusted EBITDA.
Adjusted income from continuing operations in the second quarter of fiscal year 2015 was $42 million, or adjusted diluted earnings per share of $0.41, compared to $24 million, or adjusted diluted earnings per share of $0.24 a year ago.
Adjusted EBITDA was $87 million compared to $80 million in the second quarter of fiscal year 2014. Adjusted EBITDA margin for the second quarter of fiscal year 2015 was 10.1%, compared to 8.4% in the same period last year. This improvement in Adjusted EBITDA and Adjusted EBITDA margin was driven primarily by material, labor and burden performance and incremental pricing, as well as gains from foreign exchange currency hedges.
Free cash flow for the second quarter of fiscal year 2015 was $27 million, compared to $9 million, in the same period last year, driven by higher adjusted income from continuing operations and lower working capital requirements related primarily to factoring programs.
Second-Quarter Segment Results
Commercial Truck & Industrial sales were $681 million, a decrease of $82 million, compared to the same period last year. The decline in sales was driven by lower commercial truck production in South America and China and lower revenue in the Defense business, as well as unfavorable exchange rates, primarily in Europe and Brazil. This impact was partially offset by higher sales in North America associated with a strong Class 8 truck market.
Segment EBITDA for the Commercial Truck & Industrial segment was $57 million for the quarter, unchanged from the second quarter of fiscal year 2014. Segment EBITDA margin increased to 8.4% from 7.5% in the same period last year, a 90 basis point improvement compared to the prior year. The increase in Segment EBITDA margin was driven primarily by material, labor and burden performance and incremental pricing, as well as gains from foreign exchange currency hedges. These actions more than offset reduced revenue and unfavorable mix associated with lower commercial vehicle demand in South America and lower Defense revenue.
The Aftermarket & Trailer segment posted sales of $212 million, down $13 million from the same period a year ago, due primarily to unfavorable currency exchange rates in Europe. Segment EBITDA for Aftermarket & Trailer was $30 million, up $6 million from the second quarter of fiscal year 2014. Segment EBITDA margin was 14.2%, up from 10.7% in the second quarter of fiscal year 2014. The margin increase was driven primarily by net material and operational performance and pricing.
Outlook for Fiscal Year 2015
The company outlined its guidance as follows:
- Revenue to be in the range of $3.50 billion to $3.55 billion, decreased from approximately $3.7 billion from prior guidance.
- Adjusted EBITDA margin to be in the range of 9.0 to 9.2%, revised from approximately 9.0%.
- Adjusted diluted earnings per share from continuing operations in the range of $1.30 to $1.40, up from a range of $1.20 to $1.30.
- Effective income tax rate of approximately 15%, adjusted from the prior estimate of approximately 20%.
- Free cash flow to be approximately $100 million, unchanged from previous guidance.
Meritor anticipates the following in fiscal 2015 for the entire company:
- Capital expenditures in the range of $80 million to $90 million, unchanged from prior estimates.
- Interest expense in the range of $80 million to $85 million, as compared to $80 million to $90 million from prior estimates.
- Cash interest in the range of $65 million to $70 million, adjusted from the prior range of $65 million to $75 million.
"Due to strong execution of our M2016 initiatives, we are pleased to raise our full year outlook for Adjusted EBITDA margin performance and adjusted diluted earnings per share from continuing operations," says Jay Craig, Meritor's newly appointed CEO and President. "I'm confident we will continue to meet our commitments and, by doing so, drive enhanced value for our shareholders."
