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Meritor (MTOR) Q3 Earnings & Revenues Drive Past Estimates

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Shares of Meritor, Inc. (MTOR - Free Report) have gained 10% in a day’s trading, following its third-quarter fiscal 2018 earnings release. The company recorded adjusted earnings of 89 cents per share in third-quarter fiscal 2018 (ended Jun 30, 2018) compared with 64 cents a year ago. The figure comfortably surpassed the Zacks Consensus Estimate of 78 cents.

Adjusted income from continuing operations was $80 million compared with $60 million in third-quarter fiscal 2017.

Sales increased approximately 23% year over year to $1.13 billion. The top line also beat the Zacks Consensus Estimate of $1.06 billion. This rise was due to revenue outperformance through improved market share and business wins.

Meritor, Inc. Price, Consensus and EPS Surprise


Meritor’s adjusted EBITDA (earnings before interest, tax, depreciation and amortization) increased to $135 million from $103 million a year ago. Adjusted EBITDA margin was 12% compared with 11.2% a year ago. The gain in adjusted EBITDA and EBITDA margin was driven by an increase in revenues and the positive impact of changes in the company's pension, and retiree medical benefits. These positives were partly offset by a decrease of $8 million in earnings, due to the selling of the company's interest in Meritor WABCO joint venture.

Segment Results

Revenues from the Commercial Truck & Trailer segment increased to $904 million, up 24% from the same period last year. This upside was primarily driven by higher production across all major markets. Segment adjusted EBITDA jumped to $103 million, up $32 million from the year-ago quarter. EBITDA margin rose to 11.4% in comparison with 9.8% in the same period last year.

Revenues from the Aftermarket & Industrial segment were $273 million, up 15% from the year-ago quarter. The gain was primarily due to higher volumes in the Aftermarket business. Segment adjusted EBITDA was $35 million, up $4 million from the same time frame a year ago. EBITDA margin moved up to 12.8% in comparison with 12.7% in the preceding year. Rise in both adjusted EBITDA and EBITDA margin were due to higher sales and the favorable impact of changes in retiree medical benefits. The gain was partly offset by elevated material and freight costs.

Financial Position

Meritor’s cash and cash equivalents totaled $100 million as of Jun 30, 2018, compared with $88 million as of Sep 30, 2017. Long-term debt slumped to $728 million as of Jun 30, 2018, from $750 million as of Sep 30, 2017.

At the nine-month end of fiscal 2018, Meritor’s cash inflow from operating activities was $191 million compared with the cash inflow of $136 million in the same period a year ago. Capital expenditure was $52 million, similar to the year-ago figure.

Fiscal 2018 Outlook

For fiscal 2018, Meritor expects revenues of $4.1 billion compared with the previous expectation of $4-$4.1 billion. Adjusted earnings per share from continuing operations are anticipated to be $2.9-$3 per share compared with the past projection of $2.7-$2.85. Adjusted EBITDA margin is estimated to be approximately 11.3%, marking a slight increase from the prior expectation of 11.2%.

Further, the company anticipates free cash flow of $135-$145 million for fiscal 2018 compared with the prior guidance of $120-$135 million. Similarly, operating cash flow is likely to be $230-$240 million, up from the previous view of $220-$235 million.

Zacks Rank & Other Key Picks

Meritor currently carries a Zacks Rank #2 (Buy). Some other top-ranked stocks in the auto space are Honda Motor Co., Ltd. (HMC - Free Report) , AB Volvo (VLVLY - Free Report) and Allison Transmission Holdings, Inc. (ALSN - Free Report) , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Honda has an expected long-term growth rate of 3%. Over a year, shares of the company have gained 6%.

Volvo has an expected long-term growth rate of 15%. Over a year, shares of the company have gained 1.3%.

Allison Transmission has an expected long-term growth rate of 10%. Shares of the company have risen 23.3% in the past year.

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