Meritor Inc. has reported financial results for its third fiscal quarter ended June 30, 2018.
Third-Quarter Highlights
- Sales of $1,129 million
- Net income attributable to the company of $64 million and net income from continuing operations attributable to the company of $66 million
- Diluted earnings per share from continuing operations of $0.73
- Adjusted income from continuing operations attributable to the company of $80 million, or $0.89 of adjusted diluted earnings per share
- Adjusted EBITDA of $135 million and adjusted EBITDA margin of 12.0%
- Repurchased 1.4 million common shares
Third-Quarter Results
For the third quarter of fiscal year 2018, Meritor posted sales of $1,129 million, up $209 million or approximately 23%, from the same period last year. The increase in sales was driven primarily by higher production in all of its major markets. Sales for the quarter were also favorably impacted by revenue outperformance, primarily through increased market share and new business wins.
Net income attributable to the company was $64 million, or $0.71 per diluted share, compared to $48 million, or $0.51 per diluted share, in the same period last year. Net income from continuing operations attributable to the company was $66 million, or $0.73 per diluted share, compared to $49 million, or $0.52 per diluted share, in the same quarter last year. Higher net income year over year was driven primarily by conversion on increased revenue.
Adjusted income from continuing operations attributable to the company in the third quarter of fiscal year 2018 was $80 million, or $0.89 of adjusted diluted earnings per share, compared to $60 million, or $0.64 of adjusted diluted earnings per share, in the same period last year.
Adjusted EBITDA was $135 million compared to $103 million in the same period last year. Adjusted EBITDA margin for the third quarter of fiscal year 2018 was 12.0 percent, compared to 11.2% in the same period last year.
Higher adjusted EBITDA and adjusted EBITDA margin year over year were driven primarily by conversion on higher revenue and $11 million of lower pension and retiree medical benefits. These increases were partially offset by $8 million of Meritor WABCO Vehicle Control Systems affiliate earnings in the prior year that did not repeat.
Cash provided by operating activities was $119 million in the third quarter of fiscal year 2018 compared to $106 million in the third quarter of fiscal year 2017. Higher earnings helped drive cash flow performance in the third quarter of fiscal year 2018.
Third-Quarter Segment Results
Commercial Truck & Trailer sales were $904 million in the third quarter of fiscal year 2018, up 24% compared to the third quarter of fiscal year 2017. The increase in sales was driven primarily by higher production in all of its major markets and revenue outperformance.
Commercial Truck & Trailer segment adjusted EBITDA was $103 million in the third quarter of fiscal year 2018, up $32 million from the same period in the prior fiscal year. Segment adjusted EBITDA margin increased to 11.4% compared to 9.8% in the same period in the prior fiscal year. The increases in both segment adjusted EBITDA and segment adjusted EBITDA margin were driven primarily by conversion on higher revenue and the favorable impact of changes to retiree medical benefits, partially offset by lower affiliate earnings.
Aftermarket & Industrial sales were $273 million in the third quarter of fiscal year 2018, up 15% compared to the third quarter of fiscal year 2017. The increase in sales was driven by increased Aftermarket volumes in North America and higher sales in its Industrial business, which included sales from the business acquired in the fourth quarter of fiscal year 2017.
Aftermarket & Industrial segment adjusted EBITDA was $35 million in the third quarter of fiscal year 2018, up $5 million from the same period in the prior fiscal year. Segment adjusted EBITDA margin increased to 12.8% compared to 12.7% in the third quarter of fiscal year 2017. The increases in both segment adjusted EBITDA and segment adjusted EBITDA margin were driven primarily by the favorable impact of changes to retiree medical benefits and conversion on higher sales, partially offset by higher material and freight costs.
Outlook for Fiscal Year 2018
The company's guidance for fiscal year 2018 has been revised from the prior quarter as follows:
- Revenue to be approximately $4.1 billion.
- Net income attributable to the company to be in the range of $145 million to $155 million (diluted earnings per share of $1.60 to $1.70).
- Adjusted EBITDA margin to be approximately 11.3%.
- Adjusted diluted earnings per share from continuing operations to be in the range of $2.90 to $3.00.
- Operating cash flow to be in the range of $230 million to $240 million.
- Free cash flow to be in the range of $135 million to $145 million.
"In our third quarter of fiscal year 2018, we continued to successfully capitalize on higher commercial vehicle volumes and revenue outperformance in the majority of our end markets globally," says Jay Craig, CEO and President. "The strength in our markets, combined with excellent operating performance by our global team, is reflected in higher revenue, expanded EBITDA margin and strong free cash flow generation."
