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Meritor (MTOR) to Cut Labor Costs Amid Industry Headwinds

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While 2018 was a banner year for the U.S. trucking industry, trade tensions and slowdown in global economic growth are currently weighing on it. Amid sluggish freight volumes, truck makers are logging lower orders. While production for heavy trucks is still going strong to fill the orders booked last year, new purchases and production rates are on the decline. In response to the anticipated decline in sales volumes for heavy trucks and trailers, Meritor, Inc. (MTOR - Free Report) recently launched a restructuring plan to trim salaried and hourly headcount on a global basis.

Reportedly, truck giants in North America like PCCAR Inc. (PCAR - Free Report) , Navistar International Corporation (NAV - Free Report) , Volvo Trucks USA and Daimler Trucks North America — a subsidiary of Daimler AG (DDAIF - Free Report) — have witnessed a sharp decline in year-over-year orders for heavy-duty models in 2019. Amid macroeconomic headwinds, the truck manufactures are not expecting market conditions and sales to improve in the near term as well. Amid the industry headwinds, the commercial truck and industrial parts maker is contemplating to slash labor costs. Notably, the company expects to incur $20 million in severance costs across both its reporting units —Commercial Truck & Trailer and Aftermarket & Industrial. The restructuring is expected to be completed by the end of first-quarter fiscal 2020.

Meritor reported adjusted income from continuing operations of $103 million in the last reported quarter compared with $80 million in the year-ago period.During the quarter, it also completed the acquisition of AxleTech that enhanced Meritor’s growth platform. The buyout led to the introduction of a complementary product portfolio, providing full line of independent suspensions, material handling axles, new braking solutions and drivetrain components.It also diversified Meritor’s exposure in adjacent end markets, which will support its target of realizing more than $15 million in annual cost synergies by fiscal 2020. 

In fiscal 2019, the Zacks Rank #3 (Hold) firm expects sales of approximately $4.4 billion compared with previous expectation of $4.3 billion. Net income is anticipated to be approximately $290 billion compared with the prior view of $265 million. Adjusted earnings per share from continuing operations are projected to be $3.70, up from $3.30 forecast earlier. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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