Why is Meritor (MTOR) Up 5.3% Since Its Last Earnings Report?

A month has gone by since the last earnings report for Meritor, Inc. MTOR. Shares have added about 5.3% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is MTOR 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 Q2 Earnings Beat Estimates, Guidance Upbeat

Meritor recorded adjusted earnings of 75 cents per share in second-quarter fiscal 2018 (ended Mar 31, 2018) compared with 35 cents a year ago. The figure comfortably surpassed the Zacks Consensus Estimate of 65 cents.

Adjusted income from continuing operations was $68 million compared with $32 million in second-quarter fiscal 2017.

Revenues increased approximately 32% year over year to $1.07 billion. The top line also beat the Zacks Consensus Estimate of $921.7 million. This rise was primarily due to higher production across all markets, business wins and favorable foreign currency.

Meritor’s adjusted EBITDA (earnings before interest, tax, depreciation and amortization) increased to $122 million from $82 million a year ago. Adjusted EBITDA margin was 11.4% compared with 10.2% a year ago. Both adjusted EBITDA and EBITDA margin increased on a year-over-year basis, driven by high revenue increase and a positive impact of changes in the company's retiree medical benefits. These positives were partly offset by a $5-million decrease in earnings due to the selling of the company's interest in the Meritor WABCO joint venture and increased environmental reserves of $8 million correlated to a legacy site.

On Mar 12, 2018, Meritor’s reportable segments were changed to Commercial Truck & Trailer, and Aftermarket & Industrial.

Segment Results

Revenues from the Commercial Truck & Trailer segment increased to $854 million, up $236 million from the same period last year. This upside was primarily driven by higher production across all major markets and new business wins. Segment adjusted EBITDA jumped to $96 million, up $44 million from the year-ago quarter. EBITDA margin rose to 11.2% in comparison with 8.4% in the same period last year.

Revenues from the Aftermarket & Industrial segment were $256 million, up $30 million from the year-ago quarter. The gain was primarily due to higher volumes in the Industrial business. Segment adjusted EBITDA was $36 million, up $4 million from the same time frame a year ago. This rise in adjusted EBITDA was due to high material and freight costs, and the favorable impact of changes in retiree medical benefits. EBITDA margin edged down to 14.1% in comparison with 14.2% in the preceding year.

Financial Position

Meritor’s cash and cash equivalents totaled $100 million as of Mar 31, 2018, compared with $88 million as of Sep 30, 2017. Long-term debt slumped to $728 million as of Mar 31, 2018, from $750 million as of Sep 30, 2017.

At the end of second-quarter fiscal 2018, Meritor’s cash flow from operating activities was $39 million compared with $44 million used for operating activities in the same period a year ago. Capital expenditures decreased to $17 million from the year-ago figure of $23 million.

Outlook

For fiscal 2018, Meritor expects revenues of $4-$4.1 billion compared with the previous expectation of $3.8-$3.9 billion. Adjusted earnings per share from continuing operations are anticipated to be $2.7-$2.85 per share compared with the past projection of $2.5-$2.7. Adjusted EBITDA margin is estimated at 11.2%.

Further, the company anticipates free cash flow for fiscal 2018 of $120-$135 million, up from the previous guidance of $110-$125 million. Similarly, operating cash flow is likely to be $220-$235 million, up from the previous view of $210-$225 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. There has been one revision higher for the current quarter compared to one lower.

Meritor, Inc. Price and Consensus

 

Meritor, Inc. Price and Consensus | Meritor, Inc. Quote

VGM Scores

At this time, MTOR has a nice Growth Score of B, however its Momentum is doing a bit better with an A. The stock was also allocated a grade of A on the value side, putting it in the top quintile 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.

Based on our scores, the stock is more suitable for value and momentum investors than growth investors.

Outlook

MTOR has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.

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