It has been about a month since the last earnings report for Meritor, Inc. . Shares have lost about 6.6% in the past month, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Meritor Q2 Earnings Miss, Revenues Beat Estimates
Meritor recorded adjusted earnings of $0.35 per share in the second quarter of fiscal 2017 (ended Mar 31, 2017), which missed the Zacks Consensus Estimate of $0.36. Adjusted net income was $22 million compared with $32 million in the second quarter of fiscal 2016.
Revenues fell 2% year over year to $806 million. However, the top line surpassed the Zacks Consensus Estimate of $793 million. The decrease in sales was primarily due to a decline in the commercial truck volume in North America, caused by lower production of Class 8 trucks.
Meritor’s adjusted EBITDA increased to $82 million from $81 million in the year-ago quarter. Adjusted EBITDA margin was 10.2% compared with 9.9% in the year-ago quarter. The fiscal second-quarter figure includes a charge of $10 million for a legal contingency related to a dispute with a joint venture. Despite this charge, adjusted EBITDA and EBITDA margin increased on a year-over-year basis, driven by good material, labor and burden performance, favorable foreign exchange and mix.
Segment Results
Revenues from the Commercial Truck & Industrial segment fell $11 million to $620 million in the reported quarter. Segment-adjusted EBITDA declined $2 million to $54 million. EBITDA margin decreased to 8.7% from 8.9% in the prior-year quarter, primarily due to legal charges and higher steel prices. This was partially offset by operational performance, foreign exchange and favorable mix.
Revenues from the Aftermarket & Trailer segment was $215 million compared with $218 million in a year-ago quarter due to lower U.S. trailer production, partially offset by higher aftermarket revenues. Segment EBITDA was $30 million, up $2 million from the year-ago quarter. EBITDA margin was 14% compared with 12.8% a year ago. The margin improvement was backed by robust labor and burden performance.
Financial Position
Meritor’s cash and cash equivalents totaled $138 million as of Mar 31, 2017 compared with $160 million as of Sep 30, 2016. Total debt decreased to $857 million as of Mar 31, 2017 from $982 million as of Sep 30, 2016.
In the first half of fiscal 2017, Meritor’s cash inflow from operating activities was $30 million down from $39 million in the year-ago period. Capital expenditures decreased to $40 million from the year-ago figure of $47 million. Free cash outflow was a $10 million compared with $8 million in the year-ago quarter.
Share Repurchases
The company didn’t repurchase any share in the reported quarter.
Guidance
Meritor remains on track to meet its guidance for fiscal 2017. The company expects revenues to be approximately $3.1 billion as against $3.2 billion generated in fiscal 2016. Adjusted EBITDA margin is likely to be 10%. Adjusted earnings from continuing operations are anticipated to be roughly $1.40 per share compared with the year-ago earnings of $1.64 per share.
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?
Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter.
Meritor, Inc. Price and Consensus
VGM Scores
At this time, Meritor's stock has a poor Growth Score of 'F'. However, its Momentum is doing a lot better with an 'A'. 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 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is suitable for momentum and value investors.
Outlook
While estimates have been broadly trending downward for the stock, the magnitude of these revisions is net zero. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.
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Why Is Meritor (MTOR) Down 6.6% Since the Last Earnings Report?
It has been about a month since the last earnings report for Meritor, Inc. . Shares have lost about 6.6% in the past month, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Meritor Q2 Earnings Miss, Revenues Beat Estimates
Meritor recorded adjusted earnings of $0.35 per share in the second quarter of fiscal 2017 (ended Mar 31, 2017), which missed the Zacks Consensus Estimate of $0.36. Adjusted net income was $22 million compared with $32 million in the second quarter of fiscal 2016.
Revenues fell 2% year over year to $806 million. However, the top line surpassed the Zacks Consensus Estimate of $793 million. The decrease in sales was primarily due to a decline in the commercial truck volume in North America, caused by lower production of Class 8 trucks.
Meritor’s adjusted EBITDA increased to $82 million from $81 million in the year-ago quarter. Adjusted EBITDA margin was 10.2% compared with 9.9% in the year-ago quarter. The fiscal second-quarter figure includes a charge of $10 million for a legal contingency related to a dispute with a joint venture. Despite this charge, adjusted EBITDA and EBITDA margin increased on a year-over-year basis, driven by good material, labor and burden performance, favorable foreign exchange and mix.
Segment Results
Revenues from the Commercial Truck & Industrial segment fell $11 million to $620 million in the reported quarter. Segment-adjusted EBITDA declined $2 million to $54 million. EBITDA margin decreased to 8.7% from 8.9% in the prior-year quarter, primarily due to legal charges and higher steel prices. This was partially offset by operational performance, foreign exchange and favorable mix.
Revenues from the Aftermarket & Trailer segment was $215 million compared with $218 million in a year-ago quarter due to lower U.S. trailer production, partially offset by higher aftermarket revenues. Segment EBITDA was $30 million, up $2 million from the year-ago quarter. EBITDA margin was 14% compared with 12.8% a year ago. The margin improvement was backed by robust labor and burden performance.
Financial Position
Meritor’s cash and cash equivalents totaled $138 million as of Mar 31, 2017 compared with $160 million as of Sep 30, 2016. Total debt decreased to $857 million as of Mar 31, 2017 from $982 million as of Sep 30, 2016.
In the first half of fiscal 2017, Meritor’s cash inflow from operating activities was $30 million down from $39 million in the year-ago period. Capital expenditures decreased to $40 million from the year-ago figure of $47 million. Free cash outflow was a $10 million compared with $8 million in the year-ago quarter.
Share Repurchases
The company didn’t repurchase any share in the reported quarter.
Guidance
Meritor remains on track to meet its guidance for fiscal 2017. The company expects revenues to be approximately $3.1 billion as against $3.2 billion generated in fiscal 2016. Adjusted EBITDA margin is likely to be 10%. Adjusted earnings from continuing operations are anticipated to be roughly $1.40 per share compared with the year-ago earnings of $1.64 per share.
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?
Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter.
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 lot better with an 'A'. 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 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is suitable for momentum and value investors.
Outlook
While estimates have been broadly trending downward for the stock, the magnitude of these revisions is net zero. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.