Meritor’s Q3 earnings another victim of COVID-19

Stock-Stylized-Data-Image-700×400

Meritor this week announced sales fell approximately 56 percent in the third fiscal quarter of this year, compared with Q3 2019. The company posted sales of $514 million for the quarter, ended June 30, 2020, compared with $652 million from the same period last year.

The decrease in sales was primarily due to lower market volumes driven by decreased customer demand and government mandates as a result of the COVID-19 pandemic, the company says. The majority of the company’s manufacturing facilities were idled during the month of April with production increasing throughout the remainder of the quarter.

Net loss attributable to Meritor was $36 million, compared with net income attributable to Meritor of $86 million in the prior year. Net loss from continuing operations attributable to Meritor was $36 million compared with net income from continuing operations attributable to Meritor of $85 million in the same period of 2019.

Lower net income year over year was driven primarily by lower revenues as a result of significantly lower market volumes due to the COVID-19 pandemic, as well as higher restructuring costs related to programs announced in June 2020, Meritor reports.

During the quarter, certain actions were executed in order to decrease the impact of the significantly lower production levels. These actions included temporary salary reductions, employee headcount reductions, hourly employee layoffs and other discretionary spend reductions.

Adjusted loss from continuing operations attributable to the company in the third quarter of fiscal year 2020 was $34 million, compared with adjusted income from continuing operations attributable to the company of $103 million in the same period last year.

Adjusted EBITDA was $7 million, compared with $146 million in the third quarter of fiscal year 2019. Adjusted EBITDA margin for the third quarter of fiscal year 2020 was 1.4 percent, compared to 12.5 percent in the same period last year.

Meritor says the decrease in adjusted EBITDA year over year was driven primarily by lower revenues as a result of lower market volumes due to the COVID-19 pandemic. Cost reduction actions executed in the quarter partially offset the impact from lower revenue.

Cash used for operating activities in the third quarter of fiscal year 2020 was $102 million compared with cash provided by operating activities of $143 million in the same period a year ago. Free cash flow was negative $114 million, compared with $124 million in the same period last year.

The decrease in operating cash flow year over year was driven primarily by lower revenue as a result of significantly lower market volumes due to the impact of the COVID-19 pandemic. Of the total decline in operating cash flow, $124 million of the reduction was due to the impact of accounts receivable factoring as a result of lower balances available under the factoring programs, the company says.

Commercial truck sales for the third quarter of fiscal year 2020 were $336 million, down $589 million, or 64 percent, compared with the same period last year. The decrease in sales in the third quarter of fiscal year 2020 was primarily due to lower market volumes driven by decreased customer demand and government mandates as a result of the COVID-19 pandemic. The majority of the company’s production facilities were idled during the month of April with production increasing throughout the remainder of the quarter.

Segment adjusted EBITDA for Commercial Truck was negative $23 million, or negative 6.8 percent of sales for the quarter, compared with $97 million, or 10.5 percent of sales in the prior year. The decrease in segment adjusted EBITDA and segment adjusted EBITDA margin was driven primarily by significantly decreased market volumes for most regions across the segment due to the COVID-19 pandemic, partially offset by cost actions executed in the quarter.

The aftermarket and industrial segment posted sales of $203 million, down $79 million, or 28 percent, from the same period a year ago. While aftermarket facilities were not idled during the third quarter of fiscal year 2020, sales were lower in comparison with fiscal year 2019 because of changes in customer demand and the impact from the termination of the WABCO distribution arrangement. Industrial sales were also down, driven by decreased volumes as a result of the impact of the COVID-19 pandemic, partially offset by the revenue generated from the AxleTech business.

Segment adjusted EBITDA for aftermarket and industrial was $31 million, or 15.3 percent of sales for the quarter, compared with $50 million, or 17.7 percent of sales, a year ago. The decrease in segment adjusted EBITDA and segment adjusted EBITDA margin was driven primarily by the lower volumes partially offset by the cost reduction actions executed in the quarter.

The company is providing the following guidance for the fourth quarter, of fiscal year 2020:

  • Sales of approximately $700 million
  • Net loss attributable to the company and net loss from continuing operations attributable to the company to be approximately $10 million
  • Diluted loss per share from continuing operations to be approximately $0.15
  • Adjusted EBITDA margin of approximately 6 percent
  • Adjusted diluted EPS from continuing operations of approximately negative $0.10
  • Operating cash flow to be approximately $65 million
  • Free cash flow of approximately $25 million

“We took aggressive actions to reduce our cost structure in the short-term to preserve liquidity and stabilize cash flow,” says Jay Craig, Meritor president and CEO. “At the same time, we are making the appropriate investments to ensure the company is in a strong product position for the future.”

For additional earnings information, CLICK HERE.

Learn how to move your used trucks faster
With unsold used inventory depreciating at a rate of more than 2% monthly, efficient inventory turnover is a must for dealers. Download this eBook to access proven strategies for selling used trucks faster.
Download
Used Truck Guide Cover