Technology

Why Is Meritor (MTOR) Up 1.5% Since Last Earnings Report?

It has been about a month since the last earnings report for Meritor (MTOR). Shares have added about 1.5% in that time frame, underperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.

Meritor Q3 Earnings Loss Narrower-Than-Expected

Meritor posted an adjusted loss of 47 cents per share in third-quarter fiscal 2020 (ended Jun 30, 2020), narrower than the Zacks Consensus Estimate of loss of 69 cents. Higher-than-anticipated revenues from the Commercial Truck & Trailer segment resulted in this narrower-than-estimated loss. Revenues from the segment came in at $336 million, beating the consensus mark of $222 million.

The bottom line declined from the year-ago adjusted earnings of $1.20 a share. Adjusted loss from continuing operations was $34 million as against the adjusted income of $103 million recorded in third-quarter fiscal 2019.

Sales plummeted 56% year over year to $514 million in the fiscal third quarter. This year-over-year decline was due to lower market volumes resulting from weak customer demand and government mandates amid the coronavirus pandemic. However, the reported figure surpassed the Zacks Consensus Estimate of $456 million in the quarter.

Adjusted EBITDA tanked to $7 million from the year-earlier quarter’s $146 million. Adjusted EBITDA margin was 1.4% compared with the prior year’s 12.5%.

Segment Results

Revenues in the Commercial Truck & Trailer segment amounted to $336 million in the fiscal third quarter, slumping 64% year over year on lower market volumes, resulting from decreased customer demand and government mandates amid the pandemic. However, the figure outpaced the Zacks Consensus Estimate of $222 million. The segment reported negative adjusted EBITDA of $23 million as against the positive EBITDA of $97 million witnessed in the year-ago quarter. EBITDA margin declined to negative 6.8% during the quarter from the positive 10.5% recorded in the prior-year quarter.

Revenues in the Aftermarket & Industrial segment totaled $203 million, down 28% from the year-ago level, primarily on dismal production volumes across most markets served, partly offset by revenues generated from the AxleTech acquisition. The revenue figure also missed the Zacks Consensus Estimate of $222 million. The segment’s adjusted EBITDA was $31 million compared with the year-ago quarter’s $50 million. EBITDA margin declined to 15.3% from the prior-year period’s 17.7%.

Financial Position

In the reported quarter, Meritor’s cash and cash equivalents summed $280 million as of Jun 30, 2020, compared with $108 million as of Sep 30, 2019. Long-term debt was $1,193 million at the end of the fiscal third quarter, marking a rise from $902 million as of Sep 30, 2019.

Meritor’s cash outflow from operating activities as of Jun 30, 2020, was $102 million, as against the inflow of $143 million witnessed in the year-ago quarter. For the quarter ended Jun 30, 2020, capital expenditure was $12 million compared with the year-ago quarter’s $19 million.

Outlook

For fourth-quarter fiscal 2020, Meritor projects sales of $700 million approximately. Cash flow from operations and free cash flow are anticipated to be around $65 million and $25 million, respectively. Further, the firm anticipates adjusted net loss from continuing operations of approximately 10 cents.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision flatlined during the past month. The consensus estimate has shifted 54.54% due to these changes.

VGM Scores

Currently, Meritor has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. 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.

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