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Meritor (MTOR) Up 0.5% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Meritor . Shares have added about 0.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Meritor due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Meritor Q2 Earnings & Sales Top Estimates, Increase Y/Y

Meritor posted adjusted earnings per share of 98 cents in second-quarter fiscal 2022, increasing 44.12% from 68 cents in the year-ago quarter. The metric marginally beat the Zacks Consensus Estimate of 96 cents. Adjusted income from continuing operations was $70 million in the reported quarter, increasing from $50 million recorded in the prior-year quarter.

Sales grew 17.4% year over year to $1,154 million in the fiscal second quarter. The top line also beat the Zacks Consensus Estimate of $1,074.9 million.

Adjusted EBITDA went up to $127 million from the year-earlier quarter’s $111 million. The upside stemmed from higher sales volumes, partially offset by higher steel and freight costs. Adjusted EBITDA margin decreased to 11% from 11.3%.

Segment Results

In the reported quarter, revenues from the Commercial Truck & Trailer segment amounted to $938 million, growing 21% year over year on higher global truck production in all markets and pricing actions. The segment reported an adjusted EBITDA of $78 million, rising $5 million from the year-ago quarter level. EBITDA margin came in at 8.3% during the quarter, down from 9.4%. The decline was due to higher net steel and freight costs, which unfavorably impacted the conversion on sales.

Quarterly revenues in the Aftermarket & Industrial segment totaled $262 million, up 6% from the year-ago level on higher pricing in the quarter. The segment’s adjusted EBITDA was $44 million, an increase of $10 million from the year-ago quarter. EBITDA margin came in at 16.8%, up from 13.8% recorded in the prior-year quarter, primarily due to pricing actions.

Financial Position

In the reported quarter, Meritor’s cash and cash equivalents summed $115 million as of Mar 31, 2022, rising from $101 million as of Sep 30, 2021. Long-term debt was $1,025 million at the end of the quarter, up from $1,008 million reported on Sep 30, 2021.

During the fiscal second quarter, Meritor’s cash used for operating activities was $17 million against $63 million of cash provided by operating activities in the year-ago quarter.

Free cash flow (FCF) in the reported quarter was a negative $38 million against a positive FCF of $47 million recorded in the same period last year. In the reported quarter, capital expenditure was $21 million compared with $16 million incurred in the year-ago quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Meritor has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Meritor has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

Performance of an Industry Player

Meritor belongs to the Zacks Automotive - Original Equipment industry. Another stock from the same industry, Magna (MGA - Free Report) , has gained 2.4% over the past month. More than a month has passed since the company reported results for the quarter ended March 2022.

Magna reported revenues of $9.64 billion in the last reported quarter, representing a year-over-year change of -5.3%. EPS of $1.28 for the same period compares with $1.86 a year ago.

For the current quarter, Magna is expected to post earnings of $1.10 per share, indicating a change of -21.4% from the year-ago quarter. The Zacks Consensus Estimate has changed -2.8% over the last 30 days.

Magna has a Zacks Rank #4 (Sell) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of A.


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