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Meritor, Inc. (MTOR - Free Report) recorded a 12.3% year-over-year increase in the adjusted earnings of 64 cents per share in the third quarter of 2017 (ended Jun 30, 2017), comfortably surpassing the Zacks Consensus Estimate of 44 cents.

Adjusted net income was $48 million compared with $41 million in the third quarter of 2016.

Revenues increased 9% year over year to $920 million. The top line also surpassed the Zacks Consensus Estimate of $841 million.

Meritor’s adjusted EBITDA (earnings before interest, tax, depreciation and amortization) increased to $103 million from $96 million in the year-ago quarter. Adjusted EBITDA margin was 12.2% compared with 11.4% in the year-ago quarter. Adjusted EBITDA and EBITDA margin increased on a year-over-year basis, driven by high revenue growth and a continued material performance, partly offset by variable compensation accruals.

Meritor, Inc. Price, Consensus and EPS Surprise

Segment Results

Revenues from the Commercial Truck & Industrial segment shot up to $728 million, up $88 million from the same period, last year. This increase in revenue was primarily driven by higher Class 8 truck production in North America, Europe and China. Segment adjusted EBITDA jumped by $14 million to $75 million. EBITDA margin inched up to 10.3% from 9.5% in the prior-year quarter.

Revenues from the Aftermarket & Trailer segment were $228 million, a slight increase from the year-ago quarter. Segment EBITDA was $26 million, down 12% from the year-ago quarter. EBITDA margin decreased to 11.4% compared with 16.7 % a year ago. This reduction in Segment EBITDA and EBITDA margin was due to a supplier’s settlement recognized in the third quarter of fiscal year 2016 that did not repeat further.

Financial Position

Meritor’s cash and cash equivalents totaled $231 million as of Jun 30, 2017 compared with $160 million as of Sep 30, 2016. Total debt decreased to $858 million as of Jun 30, 2017 from $982 million as of Sep 30, 2016.

In the first nine months, Meritor’s cash flow from operating activities fell to $91 million, in comparison to $105 million, recorded in the year-ago period. Capital expenditures decreased to $52 million from the year-ago figure of $66 million.

Share Repurchases

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


For 2017, Meritor expects revenues to be approximately $3.25 billion compared with the previous projection of $3.1 billion. Adjusted EBITDA margin is likely to be 10.2%. Adjusted earnings from continuing operations are anticipated to be roughly $1.70 per share compared with the previous view of $1.40 per share.

For fiscal 2017, the company increased its free cash flow estimate to $80-$90 million from $50–$70 million expected earlier. Similarly, operating cash flow is expected to be in the range of $165-$175 million compared with the previous guidance of $140–$160 million.

Price Performance

Meritor’s shares have climbed 18% in the last six months, outperforming the 10.6% increase of the industry it belongs to.

Zacks Rank & Other Key Picks

Meritor currently carries a Zacks Rank #2 (Buy).

Some other automobile stocks worth considering are Fox Factory Holding Corp. (FOXF - Free Report) , Wabco Holdings Inc. (WBC - Free Report) and Westport Fuel Systems Inc. (WPRT - Free Report) , all currently carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Fox Factory has a long-term growth rate of 15.9%.

Wabco has an expected long-term earnings per share growth rate of 17.5%.

Westport Fuel has an expected earnings growth rate of 30% over the long term.

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