It has been about a month since the last earnings report for Meritor (MTOR). Shares have added about 0.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Meritor due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Meritor Q1 Earnings Top, Down Y/Y
Meritor recorded adjusted earnings of 64 cents per share in first-quarter fiscal 2020 (ended Dec 31, 2019), surpassing the Zacks Consensus Estimate of 56 cents. The outperformance resulted from higher-than-anticipated EBITDA (earnings before interest, tax, depreciation and amortization) from the Commercial Truck & Trailer segment. Precisely, EBITDA from the segment came in at $56 million, topping the consensus mark of $52 million.
The bottom line declined from the year-ago adjusted earnings of 79 cents a share. Adjusted income from continuing operations was $52 million compared with $107 million in first-quarter fiscal 2019.
Sales declined 13.2% year over year to $901 million and missed the Zacks Consensus Estimate of $918 million. The year-over-year decline was due to lower production volumes, partly offset by sales from Axle Tech, which was acquired by Meritor in fourth-quarter fiscal 2019.
Its adjusted EBITDA dropped to $98 million from $119 million in the year-ago quarter. Adjusted EBITDA margin was 10.9% compared with 11.5% a year ago.
Segment Results
Revenues at the Commercial Truck & Trailer segment amounted to $622 million in first-quarter fiscal 2020, down 20% from the year-ago level due to lower production volumes across most markets served. The segment’s adjusted EBITDA fell to $56 million from $77 million in the year-ago quarter. EBITDA margin fell to 9% from 9.9% in the prior-year quarter.
Revenues at the Aftermarket & Industrial segment totaled $317 million, up 5% from the year-ago level, primarily backed by revenues generated from the AxleTech acquisition. The segment’s adjusted EBITDA was $40 million, unchanged from the year-ago quarter. EBITDA margin declined to 12.6% from 13.2% in the prior-year period as targeted synergies from the AxleTech buyout were not fully realized in the quarter.
Financial Position
In the reported quarter, Meritor’s cash and cash equivalents totaled $108 million as of Dec 31, 2019. Long-term debt was $901 million at the end of fiscal first-quarter 2020, representing a debt-to-capital ratio of 70.1%.
Meritor’s cash outflow from operating activities was $19 million versus inflow of $11 million in the year-ago quarter. During the quarter under review, capital expenditure was $16 million compared with $23 million in the year-ago quarter.
Share Repurchase
In the quarter under review, Meritor repurchased 4.9 million shares of common stock for $100 million. Additionally, the company bought back 3.9 million shares for $100 million through Jan 29, bringing the total to 8.8-million shares repurchased for $200 million. Investors should note that Meritor has completed two-thirds of the $300-million share buyback target for fiscal 2020.
Downwardly Revised Fiscal 2020 Outlook
Meritor has revised down its fiscal 2020 guidance amid weakening global markets. For fiscal 2020, Meritor expects sales to total $3.7 billion, down from the previous guided range of $3.7-$3.8 billion. Net income from continuing operations is anticipated to be $150 million vis a vis the prior forecast of $145-$155 million. Adjusted earnings per share from continuing operations are now projected at $2.75 versus the earlier forecast of $2.75-$2.85. Free cash flow is anticipated to be $165 million compared with the prior guided range of $165-$175 million.
How Have Estimates Been Moving Since Then?
Estimates revision followed a downward path over the past two months. The consensus estimate has shifted -9.21% due to these changes.
VGM Scores
At this time, Meritor has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Meritor has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
Meritor, Inc. (MTOR): Free Stock Analysis Report
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