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Meritor (MTOR) Up 9.5% Since Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Meritor, Inc. . Shares have added about 9.5% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock’s next earnings release, or is it 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 catalysts.

Meritor Q1 Earnings Beat, Revenues Miss Estimates

Meritor logged adjusted income of $0.25 per share in the first quarter of fiscal 2017 (ended Dec 31, 2016) that surpassed the Zacks Consensus Estimate of $0.19. However, earnings decreased from the year-ago figure of $0.33. Adjusted net income fell to $22 million from the year-ago level of $31 million.

Revenues fell 13.6% year over year to $699 million and missed the Zacks Consensus Estimate of $735 million. The decrease in sales was primarily due to lower production in the North America Class 8 truck market.

Meritor’s adjusted EBITDA decreased to $64 million from $76 million recorded in the year-ago quarter. Adjusted EBITDA margin was 9.2%, compared with 9.4% in the year-ago quarter. Decline in revenues adversely impacted adjusted EBITDA and EBITDA margin, partially offset by material, labor and burden performance.

Segment Results

Revenues from the Commercial Truck & Industrial segment fell by $94 million to $539 million in the reported quarter. Segment EBITDA was $42 million, down $10 million from the year-ago quarter. EBITDA margin decreased to 7.8% from 8.2% in the prior-year quarter. The decrease in segment EBITDA margin was primarily due to lower sales in North America, partially offset by material, labor and burden performance.

Revenues from the Aftermarket & Trailer segment fell $19 million to $184 million in the reported quarter due to lower volumes across the segment. Segment EBITDA was $22 million, up $2 million from the year-ago quarter. EBITDA margin was 12%, compared to the year-ago quarter figure of 9.9%. The margin improvement was backed by material, labor and burden performance.

Financial Position

Meritor’s cash and cash equivalents totaled $125 million as of Dec 31, 2016, compared with $128 million as of Dec 31, 2015. Total debt amounted to $994 million as of Dec 31, 2016, compared with $1.06 billion as of Dec 31, 2015.

In first-quarter fiscal 2017, Meritor’s cash outflow from operating activities was $14 million, compared with an outflow of $5 million in the prior-year period. Capital expenditures decreased to $17 million from the year-ago figure of $22 million. Free cash flow was a negative $31 million compared with a negative $27 million in the year-ago quarter.

Share Repurchases

The company didn’t repurchase any shares in the reported quarter.

Outlook

Meritor is on track to meet its guidance for fiscal 2017. The company expects revenues to range from $3−$3.1 billion, lower than $3.2 billion earned in fiscal 2016. Adjusted EBITDA margin is likely to be 9.6–10%. Adjusted earnings from continuing operations are expected in the range of $1.25–$1.40 per share, also lower than the year-ago period earnings of $1.64 per share.

Further, for fiscal 2017, the company expects free cash flow of $50–$70 million and operating cash flow of $140–$160 million.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last one month period as none of them issued any earnings estimate revisions.

Meritor, Inc. Price and Consensus

 

Meritor, Inc. Price and Consensus | Meritor, Inc. Quote

VGM Scores

At this time, Meritor's stock has a poor Growth Score of 'F', however its Momentum is doing a bit better with a 'C'. However, the stock was allocated a grade of 'B' on the value side, putting it in the top 40% for this investment strategy.

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

The stock is suitable for value investors, based on our styles scores.

Outlook

Interestingly, the stock has a Zacks Rank #1 (Strong Buy). We are looking for an above average return from the stock in the next few months.

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