Meritor Reports First-Quarter Fiscal Year 2019 Results
First-Quarter Highlights
- Sales of
$1,038 million - Net income attributable to the company and net income from continuing operations attributable to the company of
$90 million - Diluted earnings per share from continuing operations of
$1.03 - Adjusted income from continuing operations attributable to the company of
$69 million , or$0.79 per adjusted diluted share - Adjusted EBITDA of
$119 million and adjusted EBITDA margin of 11.5 percent - Repurchased 3 million common shares
First-Quarter Results
For the first quarter of fiscal year 2019,
Net income attributable to the company was
Adjusted income from continuing operations attributable to the company in the first quarter of fiscal year 2019 was
Adjusted EBITDA was
Cash provided by operating activities in the first quarter of fiscal year 2019 was
First-Quarter Segment Results
Commercial Truck & Trailer sales for the first quarter of fiscal year 2019 were
Segment adjusted EBITDA for the Commercial Truck & Trailer segment was
The Aftermarket & Industrial segment posted sales of
Segment adjusted EBITDA for Aftermarket & Industrial was
Outlook for Fiscal Year 2019
The company is increasing its full-year guidance for revenue, net income, diluted earnings per share and adjusted diluted earnings per share for fiscal year 2019.
- Revenue to be approximately
$4.3 billion . - Net income attributable to the company and net income from continuing operations attributable to the company to be approximately
$265 million (diluted earnings per share of approximately$3.10 ). - Adjusted diluted earnings per share from continuing operations to be approximately
$3.30 . - Adjusted EBITDA margin to be approximately 11.5 percent.
- Operating cash flow to be in the range of
$290 million to $300 million . - Free cash flow to be in the range of
$175 million to $185 million .
"Overall, this was an excellent quarter for
First-Quarter Fiscal Year 2019 Conference Call
To participate, call (844) 412-1003 (within
A replay of the call will be available starting at
About
Forward-Looking Statement
This release contains statements relating to future results of the company (including certain projections and business trends) that are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are typically identified by words or phrases such as "believe," "expect," "anticipate," "estimate," "should," "are likely to be," "will" and similar expressions. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to reliance on major OEM customers and possible negative outcomes from contract negotiations with our major customers, including failure to negotiate acceptable terms in contract renewal negotiations and our ability to obtain new customers; the outcome of actual and potential product liability, warranty and recall claims; our ability to successfully manage rapidly changing volumes in the commercial truck markets and work with our customers to manage demand expectations in view of rapid changes in production levels; global economic and market cycles and conditions; availability and sharply rising costs of raw materials, including steel, and our ability to manage or recover such costs; our ability to manage possible adverse effects on our European operations, or financing arrangements related thereto following the
Non-GAAP Financial Measures
In addition to the results reported in accordance with accounting principles generally accepted in
Adjusted income (loss) from continuing operations attributable to the company and adjusted diluted earnings (loss) per share from continuing operations are defined as reported income (loss) from continuing operations and reported diluted earnings (loss) per share from continuing operations before restructuring expenses, asset impairment charges, non-cash tax expense, including the use of deferred tax assets in jurisdictions with net operating loss carry forwards or tax credits, and other special items as determined by management. Adjusted EBITDA is defined as income (loss) from continuing operations before interest, income taxes, depreciation and amortization, non-controlling interests in consolidated joint ventures, loss on sale of receivables, restructuring expenses, asset impairment charges and other special items as determined by management. Adjusted EBITDA margin is defined as adjusted EBITDA divided by consolidated sales from continuing operations. Segment adjusted EBITDA is defined as income (loss) from continuing operations before interest expense, income taxes, depreciation and amortization, noncontrolling interests in consolidated joint ventures, loss on sale of receivables, restructuring expense, asset impairment charges and other special items as determined by management. Segment adjusted EBITDA excludes unallocated legacy and corporate expense (income), net. Segment adjusted EBITDA margin is defined as segment adjusted EBITDA divided by consolidated sales from continuing operations, either in the aggregate or by segment as applicable. Free cash flow is defined as cash flows provided by (used for) operating activities less capital expenditures. Net debt is defined as total debt less cash and cash equivalents.
Management believes these non-GAAP financial measures are useful to both management and investors in their analysis of the company's financial position and results of operations. In particular, adjusted EBITDA, adjusted EBITDA margin, segment adjusted EBITDA, segment adjusted EBITDA margin, adjusted income (loss) from continuing operations attributable to the company and adjusted diluted earnings (loss) per share from continuing operations are meaningful measures of performance to investors as they are commonly utilized to analyze financial performance in our industry, perform analytical comparisons, benchmark performance between periods and measure our performance against externally communicated targets.
Free cash flow is used by investors and management to analyze our ability to service and repay debt and return value directly to shareholders. Net debt over adjusted EBITDA is a specific financial measure in our current M2019 plan used to measure the company's leverage in order to assist management in its assessment of appropriate allocation of capital.
Management uses the aforementioned non-GAAP financial measures for planning and forecasting purposes, and segment adjusted EBITDA is also used as the primary basis for the Chief Operating Decision Maker ("CODM") to evaluate the performance of each of our reportable segments.
Our Board of Directors uses adjusted EBITDA margin, free cash flow, adjusted diluted earnings (loss) per share from continuing operations and net debt over adjusted EBITDA as key metrics to determine management's performance under our performance-based compensation plans.
Adjusted income (loss) from continuing operations attributable to the company, adjusted diluted earnings (loss) per share from continuing operations, adjusted EBITDA, adjusted EBITDA margin, segment adjusted EBITDA and segment adjusted EBITDA margin should not be considered a substitute for the reported results prepared in accordance with GAAP and should not be considered as an alternative to net income as an indicator of our financial performance. Free cash flow should not be considered a substitute for cash provided by (used for) operating activities, or other cash flow statement data prepared in accordance with GAAP, or as a measure of financial position or liquidity. In addition, this non-GAAP cash flow measure does not reflect cash used to repay debt or cash received from the divestitures of businesses or sales of other assets and thus does not reflect funds available for investment or other discretionary uses. Net debt should not be considered a substitute for total debt as reported on the balance sheet. These non-GAAP financial measures, as determined and presented by the company, may not be comparable to related or similarly titled measures reported by other companies. Set forth below are reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated in accordance with GAAP.
MERITOR, INC. |
|||||||
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS |
|||||||
(Unaudited) |
|||||||
(In millions, except per share amounts) |
|||||||
Three Months Ended |
|||||||
2018 |
2017 (1) |
||||||
Sales |
$ |
1,038 |
$ |
903 |
|||
Cost of sales |
(897) |
(771) |
|||||
GROSS MARGIN |
141 |
132 |
|||||
Selling, general and administrative |
(34) |
(67) |
|||||
Restructuring costs |
— |
(2) |
|||||
Other operating expense, net |
— |
(1) |
|||||
OPERATING INCOME |
107 |
62 |
|||||
Other income, net |
11 |
7 |
|||||
Equity in earnings of affiliates |
9 |
5 |
|||||
Interest expense, net |
(14) |
(24) |
|||||
INCOME BEFORE INCOME TAXES |
113 |
50 |
|||||
Provision for income taxes |
(21) |
(83) |
|||||
INCOME (LOSS) FROM CONTINUING OPERATIONS |
92 |
(33) |
|||||
LOSS FROM DISCONTINUED OPERATIONS, net of tax |
— |
(1) |
|||||
NET INCOME (LOSS) |
92 |
(34) |
|||||
Less: Net income attributable to noncontrolling interests |
(2) |
(2) |
|||||
NET INCOME (LOSS) ATTRIBUTABLE TO MERITOR, INC. |
$ |
90 |
$ |
(36) |
|||
NET INCOME (LOSS) ATTRIBUTABLE TO MERITOR, INC. |
|||||||
Net income (loss) from continuing operations |
$ |
90 |
$ |
(35) |
|||
Loss from discontinued operations |
— |
(1) |
|||||
Net income (loss) |
$ |
90 |
$ |
(36) |
|||
DILUTED EARNINGS (LOSS) PER SHARE |
|||||||
Continuing operations |
$ |
1.03 |
$ |
(0.40) |
|||
Discontinued operations |
— |
(0.01) |
|||||
Diluted earnings (loss) per share |
$ |
1.03 |
$ |
(0.41) |
|||
Diluted average common shares outstanding |
87.5 |
88.6 |
|||||
(1) The prior period has been recast for ASU 2017-07, Compensation-Retirement Benefits (Topic 715). |
MERITOR, INC. |
|||||||
CONDENSED CONSOLIDATED BALANCE SHEET |
|||||||
(Unaudited) |
|||||||
(in millions) |
|||||||
December 31, |
September 30, |
||||||
ASSETS |
|||||||
CURRENT ASSETS: |
|||||||
Cash and cash equivalents |
$ |
127 |
$ |
115 |
|||
Receivables, trade and other, net |
539 |
588 |
|||||
Inventories |
522 |
477 |
|||||
Other current assets |
52 |
46 |
|||||
TOTAL CURRENT ASSETS |
1,240 |
1,226 |
|||||
NET PROPERTY |
481 |
483 |
|||||
GOODWILL |
418 |
421 |
|||||
OTHER ASSETS |
594 |
596 |
|||||
TOTAL ASSETS |
$ |
2,733 |
$ |
2,726 |
|||
LIABILITIES, MEZZANINE EQUITY AND EQUITY |
|||||||
CURRENT LIABILITIES: |
|||||||
Short-term debt |
$ |
172 |
$ |
94 |
|||
Accounts and notes payable |
680 |
700 |
|||||
Other current liabilities |
300 |
290 |
|||||
TOTAL CURRENT LIABILITIES |
1,152 |
1,084 |
|||||
LONG-TERM DEBT |
731 |
730 |
|||||
RETIREMENT BENEFITS |
254 |
262 |
|||||
OTHER LIABILITIES |
233 |
332 |
|||||
TOTAL LIABILITIES |
2,370 |
2,408 |
|||||
MEZZANINE EQUITY: |
|||||||
Convertible debt with cash settlement |
1 |
1 |
|||||
EQUITY: |
|||||||
Common stock (December 31, 2018 and September 30, 2018, 103.7 and 102.2 shares issued |
104 |
102 |
|||||
Additional paid-in capital |
790 |
787 |
|||||
Retained earnings |
290 |
200 |
|||||
Treasury stock, at cost (December 31, 2018 and September 30, 2018, 20.4 and 17.3 shares, |
(286) |
(236) |
|||||
Accumulated other comprehensive loss |
(569) |
(566) |
|||||
Total equity attributable to Meritor, Inc. |
329 |
287 |
|||||
Noncontrolling interests |
33 |
30 |
|||||
TOTAL EQUITY |
362 |
317 |
|||||
TOTAL LIABILITIES, MEZZANINE EQUITY AND EQUITY |
$ |
2,733 |
$ |
2,726 |
MERITOR, INC. |
|||||||
ADJUSTED EBITDA AND SEGMENT ADJUSTED EBITDA-RECONCILIATION |
|||||||
Non-GAAP |
|||||||
AND |
|||||||
CONSOLIDATED BUSINESS SEGMENT SALES INFORMATION |
|||||||
(Unaudited) |
|||||||
(dollars in millions) |
|||||||
Three Months Ended |
|||||||
2018 |
2017 |
||||||
Net income (loss) attributable to Meritor, Inc. |
$ |
90 |
$ |
(36) |
|||
Loss from discontinued operations, net of tax, attributable to Meritor, Inc. |
— |
1 |
|||||
Income (loss) from continuing operations, net of tax, attributable to Meritor, Inc. |
$ |
90 |
$ |
(35) |
|||
Interest expense, net |
14 |
24 |
|||||
Provision for income taxes |
21 |
83 |
|||||
Depreciation and amortization |
22 |
21 |
|||||
Noncontrolling interests |
2 |
2 |
|||||
Loss on sale of receivables |
1 |
2 |
|||||
Asbestos related liability remeasurement |
(31) |
— |
|||||
Restructuring costs |
— |
2 |
|||||
Adjusted EBITDA |
$ |
119 |
$ |
99 |
|||
Adjusted EBITDA margin (1) |
11.5 |
% |
11.0 |
% |
|||
Unallocated legacy and corporate expense (income), net (2) |
(2) |
2 |
|||||
Segment adjusted EBITDA |
$ |
117 |
$ |
101 |
|||
Commercial Truck & Trailer (3) |
|||||||
Segment adjusted EBITDA |
$ |
79 |
$ |
69 |
|||
Segment adjusted EBITDA margin (4) |
9.6 |
% |
9.7 |
% |
|||
Aftermarket & Industrial (3) |
|||||||
Segment adjusted EBITDA |
$ |
38 |
$ |
32 |
|||
Segment adjusted EBITDA margin (4) |
14.8 |
% |
14.0 |
% |
|||
Sales (3) |
|||||||
Commercial Truck & Trailer |
$ |
824 |
$ |
713 |
|||
Aftermarket & Industrial |
257 |
229 |
|||||
Intersegment Sales |
(43) |
(39) |
|||||
Total Sales |
$ |
1,038 |
$ |
903 |
(1) Adjusted EBITDA margin equals adjusted EBITDA divided by consolidated sales from continuing operations. |
(2) Unallocated legacy and corporate expense (income), net represents items that are not directly related to the company's business segments. These items primarily include asbestos-related charges and settlements, pension and retiree medical costs associated with sold businesses, and other legacy costs for environmental and product liability. |
(3) Amounts for the three months ended December 31, 2017 have been recast to reflect reportable segment changes. |
(4) Segment adjusted EBITDA margin equals segment adjusted EBITDA divided by consolidated sales from continuing operations, either in the aggregate or by segment as applicable. |
MERITOR, INC. |
|||||||
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS |
|||||||
(Unaudited, in millions) |
|||||||
Three Months Ended |
|||||||
2018 |
2017 |
||||||
OPERATING ACTIVITIES |
|||||||
Income (loss) from continuing operations |
$ |
92 |
$ |
(33) |
|||
Adjustments to income (loss) from continuing operations to arrive at cash provided by operating activities: |
|||||||
Depreciation and amortization |
22 |
21 |
|||||
Deferred income tax expense |
3 |
73 |
|||||
Restructuring costs |
— |
2 |
|||||
Loss on debt extinguishment |
— |
8 |
|||||
Equity in earnings of affiliates |
(9) |
(5) |
|||||
Pension and retiree medical income |
(9) |
(8) |
|||||
Asbestos related liability remeasurement |
(31) |
— |
|||||
Other adjustments to income (loss) from continuing operations |
5 |
5 |
|||||
Dividends received from equity method investments |
1 |
6 |
|||||
Pension and retiree medical contributions |
(3) |
(12) |
|||||
Restructuring payments |
(1) |
(3) |
|||||
Changes in off-balance sheet accounts receivable securitization and factoring programs |
38 |
55 |
|||||
Changes in receivables, inventories and accounts payable |
(52) |
(46) |
|||||
Changes in other current assets and liabilities |
(40) |
(36) |
|||||
Changes in other assets and liabilities |
(4) |
6 |
|||||
Operating cash flows provided by continuing operations |
12 |
33 |
|||||
Operating cash flows provided by discontinued operations |
(1) |
— |
|||||
CASH PROVIDED BY OPERATING ACTIVITIES |
11 |
33 |
|||||
INVESTING ACTIVITIES |
|||||||
Capital expenditures |
(23) |
(18) |
|||||
Proceeds from sale of equity method investment |
— |
250 |
|||||
Cash paid for investment in Transportation Power, Inc. |
(3) |
(3) |
|||||
Other investing activities |
(1) |
— |
|||||
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES |
(27) |
229 |
|||||
FINANCING ACTIVITIES |
|||||||
Borrowings and securitization |
78 |
(51) |
|||||
Redemption of notes |
— |
(181) |
|||||
Other financing activities |
(1) |
(1) |
|||||
Net change in debt |
77 |
(233) |
|||||
Repurchase of common stock |
(50) |
— |
|||||
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES |
27 |
(233) |
|||||
EFFECT OF CHANGES IN FOREIGN CURRENCY EXCHANGE RATES ON CASH AND CASH EQUIVALENTS |
1 |
(1) |
|||||
CHANGE IN CASH AND CASH EQUIVALENTS |
12 |
28 |
|||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
115 |
88 |
|||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ |
127 |
$ |
116 |
MERITOR, INC. |
|||||||
ADJUSTED INCOME AND EARNINGS PER SHARE — RECONCILIATION |
|||||||
Non-GAAP |
|||||||
(Unaudited) |
|||||||
(in millions, except per share amounts) |
|||||||
Three Months Ended |
|||||||
2018 |
2017 |
||||||
Income (loss) from continuing operations attributable to Meritor, Inc. |
$ |
90 |
$ |
(35) |
|||
Adjustments: |
|||||||
Restructuring costs |
— |
2 |
|||||
Loss on debt extinguishment |
— |
8 |
|||||
Non-cash tax expense (1) |
11 |
5 |
|||||
US. tax reform impacts (2) |
(7) |
77 |
|||||
Income tax expense (benefits) (3) |
6 |
(2) |
|||||
Asbestos related liability remeasurement (4) |
(31) |
— |
|||||
Adjusted income from continuing operations attributable to Meritor, Inc. |
$ |
69 |
$ |
55 |
|||
Diluted earnings (loss) per share from continuing operations |
$ |
1.03 |
$ |
(0.40) |
|||
Impact of adjustments on diluted earnings per share |
(0.24) |
1.02 |
|||||
Adjusted diluted earnings per share from continuing operations |
$ |
0.79 |
$ |
0.62 |
|||
Diluted average common shares outstanding |
87.5 |
88.6 |
(1) Represents tax expense including the use of deferred tax assets in jurisdictions with net operating loss carry forwards or tax credits. |
(2) The three months ended December 31, 2018 includes $11 million of non-cash tax benefit related to the one time deemed repatriation of accumulated foreign earnings and $4 million of non-cash tax expense related to other adjustments. The three months ended December 31, 2017 includes $43 million of non-cash tax expense related to the revaluation of our deferred tax assets and liabilities as a result of the U.S. tax reform and $34 million of non-cash tax expense related to the one time deemed repatriation of accumulated foreign earnings. |
(3) The three months ended December 31, 2018 includes $6 million of income tax expense related to the remeasurement of the Maremont asbestos liability to the Maremont prepackaged plan of reorganization. |
(4) The three months ended December 31, 2018 includes $31 million related to the remeasurement of the Maremont asbestos liability to the Maremont prepackaged plan of reorganization. |
MERITOR, INC. |
|||||||
FREE CASH FLOW — RECONCILIATION |
|||||||
Non-GAAP |
|||||||
(Unaudited, in millions) |
|||||||
Three Months Ended |
|||||||
2018 |
2017 |
||||||
Cash provided by operating activities |
$ |
11 |
$ |
33 |
|||
Capital expenditures |
(23) |
(18) |
|||||
Free cash flow |
$ |
(12) |
$ |
15 |
|||
MERITOR, INC. |
||
OUTLOOK FOR FISCAL YEAR 2019— RECONCILIATIONS |
||
Non-GAAP |
||
(Unaudited) |
||
(in millions, except per share amounts) |
||
Fiscal Year |
||
2019 Outlook (1) |
||
Net income attributable to Meritor, Inc. |
$~265 |
|
Loss from Discontinued Operations, net of tax, attributable to Meritor, Inc. |
— |
|
Income from Continuing Operations, net of tax, attributable to Meritor, Inc. |
$~265 |
|
Interest expense, net |
~60 |
|
Provision for income taxes |
~90 |
|
Depreciation and amortization |
~90 |
|
Restructuring |
~5 |
|
Other (asbestos related liability remeasurement, noncontrolling interests, loss on sale of receivables, etc.) |
~(15) |
|
Adjusted EBITDA |
$~495 |
|
Sales |
$~4,300 |
|
Adjusted EBITDA margin (2) |
~11.5% |
|
Diluted earnings per share from continuing operations |
$~3.10 |
|
Adjustments: |
||
Restructuring costs |
~0.05 |
|
Asbestos related liability remeasurement |
~(0.35) |
|
Non-cash tax expense (3) |
~0.50 |
|
Adjusted diluted earnings per share from continuing operations |
$~3.30 |
|
Diluted average common shares outstanding |
~86 |
|
Cash flows provided by operating activities (4) |
$290-300 |
|
Capital expenditures |
~(115) |
|
Free cash flow (4) |
$175-185 |
(1) Amounts are approximate. |
(2) Adjusted EBITDA margin equals adjusted EBITDA divided by consolidated sales from continuing operations. |
(3) Represents tax expense related to the use of deferred tax assets in jurisdictions with net operating loss carry forwards or tax credits. |
(4) Excludes anticipated cash flow impacts related to the Maremont plan of reorganization. |
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SOURCE
Media Inquiries, Krista Sohm, (248) 435-7115, krista.sohm@meritor.com, Investor Inquiries, Carl Anderson, (248) 435-1588, carl.anderson@meritor.com