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Meritor Inc. (MTOR - Analyst Report) reported a significant fall in adjusted income to $6.0 million or 6 cents per share in the second quarter of fiscal 2013 compared with $32.0 million or 33 cents in the year-ago quarter. However, earnings per share surpassed the Zacks Consensus Estimate by 5 cents.

On a reported basis, the company posted a net profit of $4.0 million or 4 cents per share in the second quarter of fiscal 2013 compared with $29.0 million or 30 cents in the corresponding quarter last year.

Revenues went down 21.7% to $908.0 million, missing the Zacks Consensus Estimate of $934.0 million. The decline in revenues was due to lower sales volumes in global markets excluding South America.

Adjusted EBITDA was $58.0 million compared with $95.0 million in the second quarter of fiscal 2012. Adjusted EBITDA margin declined to 6.4%, from 8.2% in the year-ago quarter. However, EBITDA margin was higher than the prior-quarter level by 120 basis points. The improvement in EBITDA margin over the quarter was driven by positive margin mix, seasonal aftermarket pricing actions and benefits of structural cost reductions.

Segment Results

Revenues from the Commercial Truck & Industrial segment fell 25.2% to $712.0 million in the reported quarter. Segment EBITDA decreased 50.7% to $37.0 million from $75.0 million in the year-ago quarter, due to lower sales in all regions excluding South America. EBITDA margin went down to 5.2% from 7.9% in the prior-year quarter.

Revenues from the Aftermarket & Trailer segment decreased 7.8% to $224.0 million, due to lower volumes in North America. Segment EBITDA dropped 8.3% to $22.0 million from $24.0 million a year ago. EBITDA margin declined marginally to 9.8% from 9.9% in the second quarter of fiscal 2012.

Financial Position

Meritor’s cash and cash equivalents decreased to $117.0 million as of Mar 31, 2013 from $257.0 million as of Sep 30, 2012. Total debt remained flat at $1.1 billion as of Mar 31, 2013.

In the first half of fiscal 2013, the company had cash outflow of $109.0 million from operating activities compared with $46.0 million in the year-ago period. Capital expenditures declined to $23.0 million from $43.0 million a year ago. The company had free cash outflow from continuing operations of $119.0 million in the period compared with $81.0 million in the first half of fiscal 2012.


For fiscal 2013, the company has reiterated its revenue guidance of $3.8 billion. Adjusted EBITDA margin is likely to be 7.0% and adjusted earnings per share are expected between 25 cents and 35 cents for the year.

In addition, the company expects capital expenditures between $65.0 million and $75.0 million for the fiscal year. Interest expense is projected in the range of $95.0 million to $105.0 million for the year.

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). Currently, Meritor retains a Zacks Rank #4 (Sell).

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