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Why Is Meritor (MTOR) Down 1.8% Since Last Earnings Report?

It has been about a month since the last earnings report for Meritor (MTOR). Shares have lost about 1.8% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Meritor due for a breakout? 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 Q4 Earnings Surpass Estimates, Increase Y/Y

Meritor recorded adjusted earnings of 82 cents per share in fourth-quarter fiscal 2018 (ended Sep 30, 2018) compared with 62 cents a year ago. The figure comfortably surpassed the Zacks Consensus Estimate of 78 cents.

Adjusted income from continuing operations was $73 million compared with $56 million in fourth-quarter fiscal 2017.

Sales increased approximately 17% year over year to $1.08 billion. The top line also beat the Zacks Consensus Estimate of $1.03 billion. This rise was due to improved market share, new business wins and improved production across all the key markets.

In fiscal 2018, Meritor recorded revenues $4.2 billion, marking 25% rise from the prior fiscal year. Net income from continuing operations was $120 million or $1.31 per share.

Meritor's adjusted EBITDA (earnings before interest, tax, depreciation and amortization) increased to $118 million from $98 million a year ago. Adjusted EBITDA margin was 10.9% compared with 10.6% a year ago. Gain in adjusted EBITDA margin was driven by an increase in revenues and the positive impact of changes in the company's retiree medical benefits. These positives were partly offset by the sale of Meritor's interest in Meritor WABCO joint venture along with elevated material and freight costs.

Segment Results

Revenues from the Commercial Truck & Trailer segment increased to $854 million, up 18% from the same period of the last fiscal year. The segment's adjusted EBITDA increased to $77 million, up $6 million from the year-ago quarter. EBITDA margin declined to 9% in comparison with 9.8% in the same period of the last fiscal year.

Revenues from the Aftermarket & Industrial segment were $266 million, up 10% from the year-ago quarter. This gain was primarily due to higher volume in the Industrial business. The segment's adjusted EBITDA was $39 million, up $9 million from the same time frame a year ago. EBITDA margin moved up to 14.7% in comparison with 12.4% in the preceding year.

Financial Position

Meritor's cash and cash equivalents totaled $115 million as of Sep 30, 2018, compared with $88 million as of Sep 30, 2017. Long-term debt slumped to $730 million at the end of fiscal 2018 from $750 million recorded in fiscal 2017.

At the end of fiscal 2018, Meritor's cash inflow from operating activities was $129 million compared with the cash inflow of $329 million in the same period a year ago. Capital expenditure was $104 million compared with $95 million recorded a year ago.

Share Repurchase

During fiscal 2018, the company repurchased 4.5 million shares for $100 million. The amount invested to buy back shares was almost 68% of Meritor's free cash flow in fiscal 2018.

In November 2018, the company's board approved new $200-million share repurchase program to return excess free cash flow directly to shareholders.

Outlook

For fiscal 2019, Meritor expects revenues of $4.25 billion. Net income from continuing operations are anticipated to be approximately $230 million and adjusted earnings are projected to be $2.6 per share. Adjusted EBITDA margin is estimated to be approximately 11.5%.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.

VGM Scores

At this time, Meritor has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Meritor has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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