Meritor Inc. has reported financial results for its fourth quarter and full fiscal year ended September 30, 2015.
Fourth-Quarter Highlights
- Sales were $853 million, compared to $933 million, in the same period last year.
- Net loss attributable to Meritor was $21 million for the period, compared to net income of $3 million in the same period last year. Net loss from continuing operations attributable to Meritor was $21 million, compared to net income of $29 million in the same period last year.
- Adjusted income from continuing operations was $37 million, or $0.39 per adjusted diluted earnings per share, compared to $35 million, or $0.35 per adjusted diluted earnings per share, a year ago.
- Adjusted EBITDA was $81 million, compared to $80 million in the same period last year. Adjusted EBITDA margin of 9.5% increased from 8.6% in the same period last year.
- Meritor repurchased $25 million of common stock in the fourth quarter under its $210 million equity and equity-linked repurchase program.
Fourth-Quarter Results
For the fourth quarter of fiscal year 2015, Meritor posted sales of $853 million, down $80 million, or 9%, from the same period last year. This decrease was primarily due to weaker foreign currency exchange rates relative to the U.S. dollar.
Net loss from continuing operations attributable to Meritor was $21 million, or negative $0.22 per diluted share, compared to net income from continuing operations attributable to Meritor of $29 million, or $0.29 per diluted share, in the prior year.
Net loss attributable to Meritor was $21 million for the period, compared to net income attributable to Meritor of $3 million in the fourth quarter 2014.
In the fourth quarter of fiscal year 2015, the company recognized a pension settlement loss of $55 million, net of tax, associated with the settlement of its German and Canadian pension plans and total goodwill and asset impairment charges of $13 million, net of tax, related to its Defense business. In addition, the company reversed valuation allowances against deferred tax assets in certain European jurisdictions and Mexico, which resulted in a $16 million income tax benefit in the quarter.
Adjusted net income from continuing operations in the fourth quarter was $37 million, or adjusted diluted earnings per share of $0.39, compared to $35 million, or adjusted diluted earnings per share of $0.35, in the prior year.
Adjusted EBITDA was $81 million, compared to $80 million in the fourth quarter of fiscal year 2014. Adjusted EBITDA margin for the fourth quarter of fiscal year 2015 was 9.5%, compared to 8.6% in the same period last year. The improvements in Adjusted EBITDA and Adjusted EBITDA margin were driven primarily by material, labor and burden performance and pricing actions, which more than offset the impact of lower revenue.
Free cash flow in the fourth quarter of fiscal year 2015 was negative $59 million, compared to $74 million in the same period last year. Free cash flow in the fourth quarter of fiscal year 2015 included an outflow of $94 million to fund the company's voluntary buyout of its German and Canadian pension plan obligations. Free cash flow in the prior year's fourth quarter included $209 million of proceeds from the settlement of the Eaton antitrust litigation. Those proceeds were partially offset by $134 million associated with the voluntary pre-funding of three years of mandatory pension contributions to the company's U.S. and U.K. pension plans.
Fourth-Quarter Segment Results
Commercial Truck & Industrial sales were $650 million, down $79 million, or 11%, compared to the same period last year. Revenue was unfavorably impacted by the strengthening U.S. dollar against most currencies, primarily the euro and the Brazilian real. Higher truck production in North America driven by a strong Class 8 truck market partially offset lower production in South America and China.
Segment EBITDA for the Commercial Truck & Industrial segment was $45 million for the quarter, down $8 million from the fourth quarter of fiscal year 2014. Segment EBITDA margin was 6.9%, compared to 7.3% in the same period last year. The year-over-year Segment EBITDA and Segment EBITDA margin decreases were due primarily to lower revenue.
The Aftermarket & Trailer segment posted sales of $231 million, down 4% from the same period last year. The unfavorable impact of the strengthening U.S. dollar against the euro drove lower revenue in the company's Aftermarket business in Europe. Segment EBITDA for Aftermarket & Trailer was $37 million, compared to $34 million in the fourth quarter of fiscal year 2014. Segment EBITDA margin was 16%, up 1.8 percentage points from the same period last year. The increases in Segment EBITDA and Segment EBITDA margin were attributable to material, labor and burden performance and pricing actions that were executed during the 2015 fiscal year.
Equity and Equity-Linked Repurchase Program
In the fourth quarter, Meritor repurchased 1.9 million shares of common stock for $25 million, for a total of 4.2 million common shares repurchased during the fiscal year 2015. Through the end of September, the company had repurchased $74 million of equity and equity-linked notes under its $210 million repurchase program and is on track to complete its repurchase by the end of fiscal 2016.
Fiscal Year Results
In fiscal year 2015, Meritor posted sales of $3.505 billion, down 7% from the prior year, primarily due to the unfavorable impact of foreign currency exchange rates relative to the U.S. dollar. Weaker end markets in Brazil and China also contributed to the revenue decline, partially offset by the strong Class 8 truck market in North America.
Net income attributable to Meritor was $64 million compared to $249 million in the prior fiscal year. Net income attributable to Meritor in fiscal year 2014 included a gain of $209 million from the settlement of the Eaton antitrust litigation. Adjusted income from continuing operations in fiscal year 2015 was $155 million, or adjusted diluted earnings per share of $1.55, compared to $101 million, or adjusted diluted earnings per share of $1.02, in the prior year.
Adjusted EBITDA was $334 million in fiscal year 2015, compared to $314 million in fiscal year 2014, driven primarily by improved material and operating performance and pricing initiatives. Adjusted EBITDA margin was 9.5% in fiscal year 2015, up 120 basis points compared to the prior fiscal year.
Free cash flow for the full fiscal year was $18 million, as compared to $138 million in fiscal year 2014. Free cash flow for fiscal year 2015 included an outflow of $94 million to fund the company's voluntary buyout of its German and Canadian pension plan obligations. Free cash flow in fiscal year 2014 included $209 million of proceeds from the settlement of the Eaton antitrust litigation, partially offset by $134 million associated with the voluntary pre-funding of three years of mandatory pension contributions to the company's U.S. and U.K. pension plans.
Outlook for Fiscal Year 2016
Meritor expects the following from continuing operations:
- Revenue to be in the range of $3.4 billion to $3.5 billion.
- Adjusted EBITDA margin of 10%.
- Adjusted diluted earnings per share in the range of $1.60 to $1.70.
- Total free cash flow to be approximately $115 million.
For the entire company, Meritor expects:
- Capital expenditures to be approximately $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 tax rate to be approximately 15%.
"We are continuing to demonstrate strong performance against our transformational M2016 objectives as shown by our results this past year," says Jay Craig, CEO and President of Meritor. "By doing so, we believe the company will be better positioned to capitalize on meaningful growth opportunities as we look beyond 2016."
