Meritor Inc. reported financial results for its fourth quarter and full fiscal year ended September 30, 2016.
Fourth-Quarter Highlights
- Sales were $728 million.
- Net income attributable to Meritor and net income from continuing operations attributable to Meritor were each $452 million.
- Diluted earnings per share from continuing operations was $5.10.
- Adjusted income from continuing operations attributable to Meritor was $30 million, or $0.34 per adjusted diluted share from continuing operations.
- Adjusted EBITDA was $74 million.
- Adjusted EBITDA margin was 10.2%.
Fourth-Quarter Results
For the fourth quarter of fiscal year 2016, Meritor posted sales of $728 million, down $125 million, or 15%, from the same period last year. This decrease was primarily due to lower commercial truck production in North America.
Net income attributable to Meritor was $452 million, or $5.10 per diluted share, compared with a net loss of $21 million, or $0.22 per diluted share, in the prior year. Net income from continuing operations attributable to Meritor was $452 million, compared to a loss of $21 million in the same quarter last year. In fiscal year 2016, the company recognized $405 million from the partial release of tax valuation allowances in the United States.
Adjusted income from continuing operations attributable to the company in the fourth quarter was $30 million, or adjusted diluted earnings per share from continuing operations of $0.34, compared with $38 million, or adjusted diluted earnings per share from continuing operations of $0.40, in the prior year.
Adjusted EBITDA was $74 million, compared with $81 million in the fourth quarter of fiscal year 2015. Adjusted EBITDA margin for the fourth quarter of fiscal year 2016 was 10.2%, compared with 9.5% in the same period last year. The Adjusted EBITDA margin improvement was driven primarily by material, labor and burden performance and asbestos insurance settlements partially offset by lower revenue in North America.
Cash flow from operating activities in the fourth quarter of fiscal year 2016 was $60 million, compared with cash used of $25 million in the same period last year. Free cash flow for the fourth quarter of fiscal year 2016 was $33 million, compared to cash used of $59 million in the same period last year. The year-over-year improvements were driven by $32 million of asbestos insurance settlement recoveries in the fourth quarter of fiscal year 2016 and an outflow of $94 million used to fund the company's voluntary buyout of its German and Canadian pension plan obligations in fiscal year 2015.
Fourth-Quarter Segment Results
Commercial Truck & Industrial sales were $541 million, down $109 million, or 17%, compared with the same period last year. Revenue was primarily impacted by lower Class 8 truck production in North America.
Segment EBITDA for the Commercial Truck & Industrial segment was $39 million for the quarter, down $6 million from the fourth quarter of fiscal year 2015. Segment EBITDA margin was 7.2%, compared to 6.9% from the same period last year. The increase in Segment EBITDA margin was primarily driven by material, labor and burden performance and asbestos insurance settlements partially offset by lower revenue.
The Aftermarket & Trailer segment posted sales of $212 million, down $19 million or 8% from the same period last year, due primarily to lower revenue in North America.
Segment EBITDA for Aftermarket & Trailer was $29 million, compared with $37 million in the fourth quarter of fiscal year 2015. Segment EBITDA margin was 13.7%, down 2.3 percentage points from the same period last year. The decreases in Segment EBITDA and Segment EBITDA margin were attributable to lower revenue and unfavorable product mix.
Fiscal Year Results
For fiscal year 2016, Meritor posted sales of $3.199 billion, down 9% from the prior year, primarily due to lower commercial truck production in North and South America and unfavorable foreign currency exchange rates relative to the U.S. dollar.
Net income attributable to Meritor was $551 million, or $5.99 per diluted share (net income of $555 million and $6.03 per diluted share from continuing operations), compared to $64 million, or $0.64 per diluted share (net income of $65 million and $0.65 per diluted share from continuing operations), in the same period last year. The increases in net income attributable to Meritor and income from continuing operations were due primarily to a partial release of tax valuation allowances in the United States of $405 million.
Adjusted income from continuing operations in fiscal year 2016 was $151 million, or adjusted diluted earnings per share from continuing operations of $1.64, compared to $159 million, or adjusted diluted earnings per share from continuing operations of $1.59 in the prior year.
Adjusted EBITDA was $327 million in fiscal year 2016, compared with $334 million in fiscal year 2015. Adjusted EBITDA margin was 10.2% in fiscal year 2016, up 70 basis points compared with the prior fiscal year. This margin increase was primarily driven by material, labor and burden performance and asbestos insurance settlements partially offset by lower revenue in North and South America.
Cash flow from operating activities in the full fiscal year was $204 million, compared to $97 million in fiscal year 2015. Free cash flow for the full fiscal year was $111 million, as compared to $18 million in fiscal year 2015. Cash flow from operating activities and free cash flow were higher in fiscal year 2016 primarily due to the $94 million used to fund the company's voluntary buyout of its German and Canadian pension plan obligations in fiscal year 2015 and $52 million in asbestos insurance recoveries in fiscal year 2016.
In fiscal year 2016, Meritor repurchased 8.7 million common shares using $81 million of cash and also repurchased $55 million of convertible debt. These repurchases were part of the company's $210 millionrepurchase program, which is now fully completed.
Outlook for Fiscal Year 2017
Meritor expects the following from continuing operations:
- Revenue to be in the range of $3.0 billion and $3.1 billion.
- Net income attributable to Meritor and net income from continuing operations attributable to Meritor to be in the range of $80 million to $85 million (diluted earnings per share of $0.90 to $0.95).
- Adjusted EBITDA margin of 9.6-10.0%.
- Adjusted diluted earnings per share from continuing operations in the range of $1.25 to $1.40.
- Operating cash flow in the range of $140 million to $160 million.
- Free cash flow to be in the range of $50 million to $70 million.
"Through the efforts of our leadership team and each of our employees, we made tremendous progress over the past 3 years to fundamentally transform the company," says Jay Craig, CEO and President of Meritor. "The changes we made enabled us to achieve our M2016 financial objectives and establish the foundation for sustainable growth in the future. Despite the challenging end markets we anticipate for fiscal year 2017, we remain confident that we will maintain our strong margin and bottom-line earnings performance."
