Meritor Reports Fourth-Quarter and Fiscal Year 2019 Results

TROY, Mich. — Meritor, Inc. (NYSE: MTOR) today reported financial results for its fourth quarter and full fiscal year ending Sept. 30, 2019.

Fourth-Quarter Highlights

  • Sales were $1,028 million
  • Net income attributable to Meritor was $43 million and net income from continuing operations attributable to Meritor was $42 million
  • Diluted earnings per share from continuing operations was $0.50
  • Adjusted income from continuing operations attributable to Meritor was $70 million, or $0.83 of adjusted diluted earnings per share
  • Adjusted EBITDA was $116 million
  • Adjusted EBITDA margin was 11.3 percent

Fourth-Quarter Results

For the fourth quarter of the fiscal year 2019, Meritor posted sales of $1,028 million, down $52 million or approximately 5 percent, from the same period last year. This decrease in sales was driven primarily by lower production in India, Europe and China, partially offset by revenues from AxleTech, which was acquired in July 2019.

Net income attributable to Meritor was $43 million or $0.51 per diluted share, compared to net income attributable to Meritor of $32 million or $0.36 per diluted share in the prior year. Net income from continuing operations attributable to the company was $42 million or $0.50 per diluted share, compared to $32 million or $0.36 per diluted share, in the prior year. The increase in net income was primarily attributable to a lower provision for income taxes.

The adjusted income from continuing operations attributable to the company in the fourth quarter was $70 million, or $0.83 of adjusted diluted earnings per share, compared with $73 million, or $0.82 of adjusted diluted earnings per share, in the prior year.

The adjusted EBITDA was $116 million, compared to $118 million in the fourth quarter of the fiscal year 2018. The adjusted EBITDA margin for the fourth quarter of the fiscal year 2019 was 11.3 percent, compared with 10.9 percent in the same period last year.

The increase in adjusted EBITDA margin was primarily driven by lower net steel, premium and freight costs, pricing initiatives and material performance that more than offset the conversion impact from lower revenue in the quarter.

Cash flow provided by operating activities in the fourth quarter of the fiscal year 2019 was $62 million, compared to $60 million in the same period last year. Lower working capital investments were mostly offset by the $48 million contribution of cash and repayment of a loan to fund the Maremont 524(g) Trust following the confirmation of the bankruptcy filing.

Free cash flow for the fourth quarter of the fiscal year 2019 was $22 million, compared to the free cash flow of $8 million in the same period last year. The increase in free cash flow was driven by lower capital expenditures as compared to the same period last year.

Fourth-Quarter Segment Results

Commercial Truck sales were $728 million in the fourth quarter of the fiscal year 2019, down 11 percent compared to the fourth quarter of the fiscal year 2018. The decrease in sales was driven primarily by lower production in India, Europe and China.

The Commercial Truck segment adjusted EBITDA was $69 million in the fourth quarter of the fiscal year 2019, down $5 million from the prior fiscal year. Segment adjusted EBITDA margin increased to 9.5 percent from 9.1 percent in the same period in the prior fiscal year.

The increase in segment adjusted EBITDA margin was driven primarily by lower net steel, premium, and freight costs and material performance which more than offset the conversion impact from lower revenue.

Aftermarket, Industrial and Trailer sales were $341 million in the fourth quarter of the fiscal year 2019, up 11 percent compared to the fourth quarter of the fiscal year 2018. The increase in sales was primarily attributable to revenue from the acquisition of AxleTech.

Segment adjusted EBITDA for Aftermarket, Industrial and Trailer was $44 million in the fourth quarter of the fiscal year 2019, up $2 million from the same period in the prior year.

Segment adjusted EBITDA margin decreased to 12.9 percent compared to 13.7 percent in the fourth quarter of the fiscal year 2018. Segment adjusted EBITDA margin was down primarily due to the acquisition of AxleTech which was decretive to margins as certain targeted synergies, primarily from the elimination of cost overlap, have not yet been fully realized.

Fiscal Year 2019 Results

For the fiscal year 2019, Meritor posted sales of $4.4 billion, up $210 million or approximately 5 percent from the prior year, driven by higher truck production, primarily in North America, and increased Aftermarket and Industrial volumes across North America partially offset by the strengthening of the U.S. dollar against most currencies. Sales were also favorably impacted by revenue outperformance.

Net income attributable to Meritor was $291 million, or $3.37 per diluted share (net income of $290 million or $3.36 per diluted share from continuing operations), compared to $117 million or $1.28 per diluted share (net income of $120 million or $1.31 per diluted share from continuing operations), in the same period last year.

The increase in net income attributable to Meritor was the result of $89 million of tax expense related to the enactment of the Tax Cuts and Jobs Act in the fiscal year 2018, that did not repeat. In the fiscal year 2019, the company recognized $31 million of income related to remeasuring the Maremont asbestos liability.

Adjusted income from continuing operations in the fiscal year 2019 was $330 million, or $3.82 of adjusted diluted earnings per share, compared to $276 million, or $3.03 of adjusted diluted earnings per share, in the prior year.

Adjusted EBITDA was $520 million in the fiscal year 2019, compared with $474 million in the fiscal year 2018. The adjusted EBITDA margin was 11.9 percent in the fiscal year 2019, up 60 basis points compared with the prior fiscal year.

Higher adjusted EBITDA and adjusted EBITDA margin year over year were driven primarily by conversion on higher revenue and the impact of Aftermarket pricing actions implemented earlier this year, partially offset by higher material costs and the strengthening of the U.S. dollar against most currencies.

Cash flow from operating activities in the fiscal year was $256 million, compared to $251 million in the fiscal year 2018. Free cash flow for the full fiscal year was $153 million, as compared to $147 million in the fiscal year 2018.

Higher earnings in the fiscal year 2019 were offset by the $48 million contribution of cash and repayment of a loan to fund the Maremont 524(g) Trust following the confirmation of the bankruptcy filing.

Fiscal Year 2019 Highlights

Capital Return and New Share Repurchase Authorization

In the fiscal year 2019, the company repurchased 5.3 million shares of common stock for $95 million, representing 62 percent of Meritor’s free cash flow for the period. Additionally, Meritor repurchased 3.2 million shares of common stock for $60 million to date in the fiscal year 2020.

Since the beginning of the fiscal year 2019 to date, Meritor has repurchased a total of 8.5 million shares for $155 million. Meritor’s Board of Directors has also approved an increase to the equity share repurchase authorization from $250 million to $325 million, effective immediately.

Advanced Technology Accomplishments

Meritor achieved major milestones in the fiscal year 2019 related to next-generation technologies engineered to fit multiple vehicle applications for customers’ needs now and in the future.

Through new business awards with global manufacturers and continued evolution of its Blue Horizon powertrain solutions, the company continued to establish itself as a leader in transformative technologies for the commercial vehicle industry.

Specific achievements included:

  • 22 electrification programs for a total of 130 fully electric medium- and heavy-duty commercial trucks to be on the road through 2020
  • Completion of two multi-year projects for the development, testing and evaluation of advanced, zero-emission electric yard tractors and Class 8 trucks supported with grants from the California Energy Commission
  • A contract to supply all-electric drivetrain systems for 38 terminal tractors to be used at the Port of Long Beach and the Port of Oakland, California
  • An award to supply drivetrain components including front- and rear-drive steer axles, air disc brakes and an innovative right angle gearbox for an electric urban bus developed by Alstom
  • Participation in VWCO’s (Volkswagen Caminhões e Ônibus) e-Consortium to collaborate in the development of electric commercial vehicles in Brazil, beginning with the planned launch of the OEM’s 11-ton e-Delivery truck
  • Expansion of its electric drivetrain solutions to include the 12Xe for Class 4-7 and the 17Xe for heavy-duty 4×2 and 6×2 trucks

M2019 Highlights

Meritor successfully completed its three-year M2019 plan by achieving financial metrics as follows:

With a target of 20 percent, the company achieved market outperformance of 16 percent or $604 million through diversified growth in the truck, off-highway, specialty and defense businesses as well as revenue from acquisitions

The company increased its adjusted diluted earnings per share by $2.23 against its $1.25 target for a 140-percent increase

Meritor achieved 1.6 times net debt to adjusted EBITDA compared to the objective of 1.5 times net debt to adjusted EBITDA. This does include the impact related to the AxleTech acquisition. Excluding this impact, the company would have achieved a 1.3 times net debt to adjusted EBITDA ratio.

In addition, Meritor returned 56 percent of free cash flow to shareholders as compared to its target of returning 25 percent of its free cash flow.

Outlook for Fiscal Year 2020

Meritor expects the following from continuing operations in the fiscal year 2020:

  • Revenue to be in the range of $3.7 billion to $3.8 billion
  • Net income attributable to Meritor and net income from continuing operations attributable to Meritor to be in the range of $145 million to $155 million
  • Diluted earnings per share from continuing operations in the range of $1.95 to $2.05
  • Adjusted diluted earnings per share from continuing operations to be in the range of $2.75 to $2.85
  • Adjusted EBITDA margin to be in the range of 11.0 percent to 11.2 percent
  • Operating cash flow to be in the range of $280 million to $290 million
  • Free cash flow to be in the range of $165 million to $175 million

“Fiscal 2019 was a great year for Meritor,” said Jay Craig, CEO and president. “New business, strong operational execution and conversion on higher revenue drove excellent performance. We are pleased to have successfully completed our M2019 plan and we remain confident in our ability to drive even more shareholder value as we build on this momentum for M2022.”

Fourth-Quarter and Fiscal Year 2019 Conference Call

Meritor will host a conference call and webcast to discuss the company’s fourth-quarter and full-year results for the fiscal year 2019 on Wednesday, Nov. 13 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: 8140606 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 at www.meritor.com.

A replay of the call will be available starting at 12 p.m. ET on Nov. 13, until 12 p.m. ET on Nov. 20 by calling 855-859-2056 (within the United States) or 404-537-3406 for international calls. Please refer to replay conference ID 8140606.

To access the listen-only audio webcast, visit www.meritor.com and select the webcast link from the Investors page.

About Meritor

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., and is made up of approximately 9,100 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. www.meritor.com