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Meritor Inc.’s (MTOR - Analyst Report) adjusted income dropped to $33 million or 34 cents per share in the third quarter of fiscal 2013 from $37 million or 38 cents a share in the year-ago quarter. However, earnings per share surpassed the Zacks Consensus Estimate of 20 cents.

On a reported basis, the company posted a net profit of $37 million or 38 cents per share in the third quarter of fiscal 2013 compared with $50 million or 51 cents in the corresponding quarter last year.

Revenues went down 10.8% year on year to $993 million and also missed the Zacks Consensus Estimate of $1.03 billion. The decline in revenues was due to lower sales in military business in North America and China.

Adjusted EBITDA declined to $87 million compared with $92 million in the third quarter of fiscal 2012. Meanwhile, adjusted EBITDA margin was 8.8% compared with 8.3% in the year-ago quarter. EBITDA margin was higher than the prior-quarter level by 240 basis points. The improvement in EBITDA margin was driven by better net material performance and higher volumes.

Segment Results

Revenues from the Commercial Truck & Industrial segment fell 13.1% to $784 million in the reported quarter as all regions, but South Africa, registered lower sales. Segment EBITDA decreased 5.6% to $67 million from $71 million in the year-ago quarter. EBITDA margin was 8.5% compared with 7.9% in the prior-year quarter, due to lower material costs, variable labor and structural cost reductions, partially offset by lower volumes.

Revenues from the Aftermarket & Trailer segment decreased 2.9% to $238 million, due to lower volumes in North America. Segment EBITDA increased 13.6% to $25 million from $22 million a year ago. EBITDA margin improved to 10.5% from 9% in the third quarter of fiscal 2012, driven by better pricing actions and lower material and structural costs.

Financial Position

Meritor’s cash and cash equivalents decreased to $228 million as of Jun 30, 2013 from $257 million as of Sep 30, 2012. Total debt increased to $1.17 billion as of Jun 30, 2013 from $1.06 billion as of Sep 30, 2012.

In the first nine months of fiscal 2013, the company had cash outflow of $73 million from operating activities compared with cash inflow of $22 million in the year-ago period. Capital expenditures declined to $31 million from $65 million a year ago. The company had free cash outflow from continuing operations of $104 million in the period compared with $43 million in the first nine months of fiscal 2012.

Outlook

For fiscal 2013, the company expects revenues in the range of $3.725 billion to $3.775 billion, down from the previous estimate of $3.8 billion. Adjusted EBITDA margin is likely to be 7.0% and adjusted earnings per share are expected between 30 cents and 35 cents, increasing from the previous guidance of 25 cents to 35 cents.

In addition, the company expects capital expenditures between $50 million and $60 million for the fiscal year. Interest expense is projected to be $105 million.

Our Take

Headquartered in Troy, Mich., Meritor is a global automotive parts manufacturer and supplier to various customers in North America, Europe and other parts of the world. The company operates manufacturing facilities in North America, South America, Europe and Asia-Pacific.

Some of its big customers include AB Volvo (VOLVY), Navistar International Corporation (NAV - Analyst Report) and Daimler AG (DDAIF). Meritor retains a Zacks Rank #3 (Hold).
 

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