Raises Full Year Outlook
TROY, Mich. (May 3, 2018) — Meritor, Inc. (NYSE: MTOR) today
reported financial results for its second fiscal quarter ended March 31, 2018.
- Sales of $1,066 million
- Net income attributable to the company and net income from continuing operations attributable
to the company of $57 million, or $0.63 per diluted share
- Adjusted income from continuing operations attributable to the company of $68 million, or $0.75
per adjusted diluted share
- Adjusted EBITDA of $122 million and adjusted EBITDA margin of 11.4 percent
For the second quarter of fiscal year 2018, Meritor posted sales of $1,066 million, up $260
million or approximately 32 percent, from the same period last year. The increase in revenue was
primarily driven by higher production in all of our major markets. Sales for the quarter were also
favorably impacted by new business wins and favorable foreign currency.
Net income attributable to the company and net income from continuing operations attributable to
the company were $57 million, or $0.63 per diluted share, compared to $22 million, or $0.24 per
diluted share, in the same period last year. Higher net income year over year was driven primarily
by conversion on increased revenue.
Adjusted income from continuing operations attributable to the company in the second quarter of
fiscal year 2018 was $68 million, or $0.75 per adjusted diluted share, compared to $32 million, or
$0.35 per adjusted diluted share, in the same period last year.
Adjusted EBITDA was $122 million, compared to $82 million in the second quarter of fiscal year
2017. Adjusted EBITDA margin for the second quarter of fiscal year 2018 was 11.4 percent, compared
to 10.2 percent in the same period last year. Higher adjusted EBITDA and adjusted EBITDA margin
year over year were driven primarily by conversion on higher revenue, $11 million of lower pension
and retiree medical benefits and a one-time $10 million legal charge related to a dispute with a
joint venture in the prior year that did not repeat. These increases were partially offset by
incremental environmental reserves of $8 million principally related to a legacy site and $5
million of lower affiliate earnings arising from the sale of the company’s interest in the Meritor
WABCO joint venture in the previous year.
Cash flow provided by operating activities in the second quarter of fiscal year 2018 was $39
million, a decrease of $5 million from the same period a year ago. Free cash flow was $22 million
compared to $21 million in the same period last year.
Reportable Segment Changes
On March 12, 2018, the company’s reportable segments were modified. As of the second quarter of
fiscal year 2018, Meritor’s reportable segments are:
- Commercial Truck & Trailer
- Aftermarket & Industrial
Prior year reportable segment financial results have been recast for these changes.
Second-Quarter Segment Results
Commercial Truck & Trailer sales for the second quarter of fiscal year 2018 were $854 million,
up $236 million or 38 percent, compared to the same period last year. The increase in sales was
primarily driven by higher production in all of our major markets. Higher sales in the quarter were
also driven by the continued benefits from new business wins, as well as favorable foreign
Segment adjusted EBITDA for the Commercial Truck & Trailer segment was $96 million for the
quarter, up $44 million from the second quarter of fiscal year 2017. Segment adjusted EBITDA margin
was 11.2 percent, up from 8.4 percent in the same period last year. The increase in segment
adjusted EBITDA was driven primarily by conversion on higher revenue, a one-time legal charge
related to a dispute with a joint venture in the prior year that did not repeat and the favorable
impact of changes to retiree medical benefits, partially offset by higher variable compensation and
lower affiliate earnings arising from the sale of the company’s interest in the Meritor WABCO joint
venture in the previous year.
The Aftermarket & Industrial segment posted sales of $256 million, up $30 million from the same
period a year ago. The increase in sales was primarily driven by higher sales in our Industrial
business, which included sales from the business that was acquired in the fourth quarter of fiscal
Segment adjusted EBITDA for Aftermarket & Industrial was $36 million for the quarter, up $4
million from the second quarter of fiscal year 2017. Segment adjusted EBITDA margin decreased to
14.1 percent from 14.2 percent in the same period last year. The increase in segment adjusted
EBITDA was driven primarily by the favorable impact of changes to retiree medical benefits,
partially offset by higher material and freight costs.
Outlook for Fiscal Year 2018
The company’s guidance for fiscal year 2018 has been revised from the prior quarter as follows:
- Revenue to be in the range of $4.0 billion to $4.1 billion.
- Net income attributable to the company to be in the range of $130 million to $145 million.
- Adjusted EBITDA margin to be approximately 11.2 percent.
- Adjusted diluted earnings per share from continuing operations to be in the range of $2.70 to
- Operating cash flow to be in the range of $220 million to $235 million.
- Free cash flow to be in the range of $120 million to $135 million.
“With the revenue tailwinds we expect to continue in the second half, in addition to new
business and market share wins, our full year guidance has improved measurably,” said Jay Craig,
CEO and president. “We believe that our performance in fiscal 2018 will put us very close to
achieving our M2019 earnings per share target a year early.”
Second-Quarter Fiscal Year 2018 Conference Call
Meritor, Inc. will host a conference call and webcast to discuss the company's second-quarter
results for fiscal year 2018 on Thursday, May 3 at 9 a.m. ET.
To participate, call (844) 412-1003 (within the United States) or (216) 562-0450 (international) at
least 10 minutes prior to the start of the call. Please reference conference ID 6496728 when
registering. Investors can also listen to the conference call in real time or access a recording of
the call for seven days after the event by visiting the Investors page on meritor.com.
A replay of the call will be available starting at 12 p.m. ET on May 3, until 12 p.m. ET on May 10
by calling (855) 859-2056 (within the United States) or (404) 537-3406 for international calls.
Please refer to replay conference ID 6496728. To access the listen-only audio webcast, visit
meritor.com and select the webcast link from the Investors page.
Meritor, Inc. is a leading global supplier of drivetrain,
mobility, braking and aftermarket solutions for commercial vehicle and industrial markets. With
more than a 100-year legacy of providing innovative products that offer superior performance,
efficiency and reliability, the company serves commercial truck, trailer, off-highway, defense,
specialty and aftermarket customers around the world. Meritor is based in Troy, Mich., United
States, and is made up of approximately 8,200 diverse employees who apply their knowledge and
skills in manufacturing facilities, engineering centers, joint ventures, distribution centers and
global offices in 19 countries. Meritor common stock is traded on the New York Stock Exchange under
the ticker symbol MTOR.
This release contains statements relating to future results of the
Company that are “forward-looking statements” as defined in the Private Securities Litigation
Reform Act of 1995. Forward-looking statements are typically identified by words or phrases such as
“believe,” “expect,” “anticipate,” “estimate,” “should,” “are likely to be,” “will” and similar
expressions. Actual results may differ materially from those projected as a result of certain risks
and uncertainties, including but not limited to reliance on major OEM customers and possible
negative outcomes from contract negotiations with our major customers, including failure to
negotiate acceptable terms in contract renewal negotiations and our ability to obtain new
customers; the outcome of actual and potential product liability, warranty and recall claims; our
ability to successfully manage rapidly changing volumes in the commercial truck markets and work
with our customers to manage demand expectations in view of rapid changes in production levels;
global economic and market cycles and conditions; availability and sharply rising costs of raw
materials, including steel, and our ability to manage or recover such costs; our ability to manage
possible adverse effects on our European operations, or financing arrangements related thereto
following the United Kingdom's decision to exit the European Union or, in the event one or more
other countries exit the European monetary union; risks inherent in operating abroad (including
foreign currency exchange rates, restrictive government actions regarding trade, implications of
foreign regulations relating to pensions and potential disruption of production and supply due to
terrorist attacks or acts of aggression); risks related to our joint ventures; rising costs of
pension benefits; the ability to achieve the expected benefits of strategic initiatives and
restructuring actions; our ability to successfully integrate the products and technologies of Fabco
Holdings, Inc. and AA Gear Mfg., Inc. and future results of such acquisitions, including their
generation of revenue and their being accretive; the demand for commercial and specialty vehicles
for which we supply products; whether our liquidity will be affected by declining vehicle
productions in the future; OEM program delays; demand for and market acceptance of new and existing
products; successful development and launch of new products; labor relations of our Company, our
suppliers and customers, including potential disruptions in supply of parts to our facilities or
demand for our products due to work stoppages; the financial condition of our suppliers and
customers, including potential bankruptcies; possible adverse effects of any future suspension of
normal trade credit terms by our suppliers; potential impairment of long-lived assets, including
goodwill; potential adjustment of the value of deferred tax assets; competitive product and pricing
pressures; the amount of our debt; our ability to continue to comply with covenants in our
financing agreements; our ability to access capital markets; credit ratings of our debt; the
outcome of existing and any future legal proceedings, including any litigation with respect to
environmental, asbestos-related, or other matters; the actual impacts of our modifications to
benefits provided to certain former union employee retirees on the company’s balance sheet,
earnings and amount of cash payments; possible changes in accounting rules; ineffective internal
controls; and other substantial costs, risks and uncertainties, including but not limited to those
detailed in our Annual Report on Form 10-K for the year ended September 30, 2017, as amended and
from time to time in other filings of the Company with the SEC. These forward-looking statements
are made only as of the date hereof, and the Company undertakes no obligation to update or revise
the forward-looking statements, whether as a result of new information, future events or otherwise,
except as otherwise required by law. All earnings per share amounts are on a diluted basis. The
company's fiscal year ends on the Sunday nearest Sept. 30, and its fiscal quarters generally end on
the Sundays nearest Dec. 31, March 31 and June 30. All year and quarter references relate to the
company's fiscal year and fiscal quarters, unless otherwise stated.
Non-GAAP Financial Measures
In addition to the results reported in accordance with accounting principles generally accepted
in the United States (“GAAP”), we have provided information regarding non-GAAP financial measures.
These non-GAAP financial measures include adjusted income (loss) from continuing operations
attributable to the company, adjusted diluted earnings (loss) per share from continuing operations,
adjusted EBITDA, adjusted EBITDA margin, segment adjusted EBITDA, segment adjusted EBITDA margin,
free cash flow and net debt.
Adjusted income (loss) from continuing operations attributable to the company and adjusted
diluted earnings (loss) per share from continuing operations are defined as reported income (loss)
from continuing operations and reported diluted earnings (loss) per share from continuing
operations before restructuring expenses, asset impairment charges, non-cash tax expense related to
the use of deferred tax assets in jurisdictions with net operating loss carry forwards, and other
special items as determined by management. Adjusted EBITDA is defined as income (loss) from
continuing operations before interest, income taxes, depreciation and amortization, non-controlling
interests in consolidated joint ventures, loss on sale of receivables, restructuring expenses,
asset impairment charges and other special items as determined by management. Adjusted EBITDA
margin is defined as adjusted EBITDA divided by consolidated sales from continuing operations.
Segment adjusted EBITDA is defined as income (loss) from continuing operations before interest
expense, income taxes, depreciation and amortization, noncontrolling interests in consolidated
joint ventures, loss on sale of receivables, restructuring expense, asset impairment charges and
other special items as determined by management. Segment adjusted EBITDA excludes unallocated
legacy and corporate expense (income), net. Segment adjusted EBITDA margin is defined as segment
adjusted EBITDA divided by consolidated sales from continuing operations, either in the aggregate
or by segment as applicable. Free cash flow is defined as cash flows provided by (used for)
operating activities less capital expenditures. Net debt is defined as total debt less cash and
Management believes these non-GAAP financial measures are useful to both management and
investors in their analysis of the company's financial position and results of operations. In
particular, adjusted EBITDA, adjusted EBITDA margin, segment adjusted EBITDA, segment adjusted
EBITDA margin, adjusted income (loss) from continuing operations attributable to the company and
adjusted diluted earnings (loss) per share from continuing operations are meaningful measures of
performance to investors as they are commonly utilized to analyze financial performance in our
industry, perform analytical comparisons, benchmark performance between periods and measure our
performance against externally communicated targets.
Free cash flow is used by investors and management to analyze our ability to service and repay
debt and return value directly to shareholders. Net debt over adjusted EBITDA is a specific
financial measure in our current M2019 plan used to measure the company’s leverage in order to
assist management in its assessment of appropriate allocation of capital.
Management uses the aforementioned non-GAAP financial measures for planning and forecasting
purposes, and segment adjusted EBITDA is also used as the primary basis for the chief operating
decision maker to evaluate the performance of each of our reportable segments.
Our Board of Directors uses adjusted EBITDA margin, free cash flow, adjusted diluted earnings
(loss) per share from continuing operations and net debt over adjusted EBITDA as key metrics to
determine management’s performance under our performance-based compensation plans.
Adjusted income (loss) from continuing operations attributable to the company, adjusted diluted
earnings (loss) per share from continuing operations, adjusted EBITDA, adjusted EBITDA margin,
segment adjusted EBITDA and segment adjusted EBITDA margin should not be considered a substitute
for the reported results prepared in accordance with GAAP and should not be considered as an
alternative to net income as an indicator of our financial performance. Free cash flow should not
be considered a substitute for cash provided by (used for) operating activities, or other cash flow
statement data prepared in accordance with GAAP, or as a measure of financial position or
liquidity. In addition, this non-GAAP cash flow measure does not reflect cash used to repay debt or
cash received from the divestitures of businesses or sales of other assets and thus does not
reflect funds available for investment or other discretionary uses. Net debt should not be
considered a substitute for total debt as reported on the balance sheet. These non-GAAP financial
measures, as determined and presented by the company, may not be comparable to related or similarly
titled measures reported by other companies. Set forth below are reconciliations of these non-GAAP
financial measures to the most directly comparable financial measures calculated in accordance with
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