On May 13, we maintained our Neutral recommendation on
), based on its expansion of global manufacturing footprint by
outsourcing to low-cost countries. These outsourcing efforts
allow the company to adjust its production levels.
However, we are concerned about the high customer
concentration, recent turmoil in the global economy and the
year-over-year decline in the company's profits in the second
quarter of fiscal 2013.
On Apr 30, Meritor Inc. reported a significant fall in the
adjusted income to $6.0 million or 6 cents per share in the
second quarter of fiscal 2013 compared with $32.0 million or 33
cents in the year-ago quarter. However, earnings per share
surpassed the Zacks Consensus Estimate by 5 cents.
Revenues went down 21.7% to $908.0 million, missing the Zacks
Consensus Estimate of $934.0 million. The decline in revenues was
due to lower sales volumes in global markets, excluding South
Following the release of the second-quarter results, the Zacks
Consensus Estimate for fiscal 2013 increased 19.2% to 31 cents
per share, but the same for fiscal 2014 dropped 2.9% to 66 cents.
Currently, shares of Meritor maintain a Zacks Rank #3 (Hold).
Meritor will benefit from its focus on OEMs based in Asia and
South America. The company plans to extend its footprint in the
low-cost countries with new plants, especially in China and
The company also plans to develop several significant business
projects in South America. In addition to this, Meritor aims to
boost revenues and earnings by focusing on improving its
research, development, engineering and product design
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However, Meritor faces challenges from its high customer
concentration. About 71% of its revenues are generated from the
top ten customers, with AB Volvo,
) and Daimler AG contributing about 22%, 15% and 11%,
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). Both the companies carry a Zacks Rank #1 (Strong Buy).