ArvinMeritor has reported a stronger than expected quarterly profit, helped by cost-cutting and currency gains that boosted sales. Net income in its second quarter was USD20m or USD0.28 per diluted share, compared to a net loss of USD94m or USD1.34 per diluted share in the second quarter of fiscal year 2007.

Sales in the quarter ended 31 March were USD1.8bn - approximately USD150m higher than the same period last year primarily due to the effects of changes in foreign currency.

"In spite of the downturn in the North American commercial vehicle market that has lasted longer than we anticipated, and volume declines in the light vehicle market in North America, we delivered strong results this quarter," said Chairman, CEO and President Chip McClure.

"Initiatives driven through Performance Plus, including lean improvements in our global manufacturing operations, are helping us put in place a solid foundation for continued earnings growth."

EBITDA, before special items, was USD104m, up USD27m from the same period last year. The company said that this increase is primarily due to improved pricing and commodity cost recovery actions; cost reductions in direct material, overhead, labour and burden; increased throughput in the company's European facilities resulting from improved operational performance; stronger volumes in South America and higher sales of off-highway products in China and U S military products - all partially offset by lower vehicle volumes in North America and sharply rising commodity prices.

As previously announced, ArvinMeritor expects cost reductions driven by its Performance Plus transformation program to generate USD150m in net savings by 2009, with USD75m occurring by the end of fiscal year 2008.

ArvinMeritor highlighted problems from volatility in commodity markets.

It said scrap steel, iron ore, and coking coal prices have simultaneously risen faster and higher than levels seen in the past. Other factors contributing to the volatility include:

  • Weak dollar resulting in a decline in imported steel
  • Global consolidation in the steel industry
  • Fuel and energy costs
  • Global demand

The combined impact of these factors has created a situation more significant to the global transportation industry than the effect of steel price increases encountered in 2004, ArvinMeritor said.

While ArvinMeritor continues to drive lean improvement actions throughout the company's global operations, and strives to implement Performance Plus initiatives to gain additional efficiencies, it will not be possible to mitigate increases of this proportion through existing cost reduction programs alone, it said. The company has steel cost recovery programs with most major OEMs, and will aggressively pursue additional recovery actions to address these extraordinary costs.

Outlook

The company's calendar year 2008 forecast for light vehicle sales is 15.2m vehicles in North America, down from the previous forecast. The company's forecast for Western Europe is 17.1m, unchanged from the prior forecast.

ArvinMeritor's fiscal year 2008 forecast for North American Class 8 truck production is in the range of 200,000 to 220,000 units. The company's fiscal year 2008 forecast for heavy and medium truck volumes in Western Europe is 565,000 to 575,000. On a calendar year basis, the company anticipates North America Class 8 truck production to be in the range of 220,000 to 240,000 units; and heavy and medium truck volumes in Western Europe to be in the range of 580,000 to 590,000.

The outlook for full-year EBITDA from continuing operations, before special items, is expected to be in the range of USD390m to USD410m for the fiscal year.

ArvinMeritor reaffirmed its forecast for diluted earnings per share from continuing operations, before special items, to be in the range of USD1.40 to USD1.60. This guidance is based on the assumption of 1.4% U.S. GDP growth, and excludes gains or losses on divestitures and restructuring costs.

"Commodity prices are spiking in a dramatic fashion," said McClure. "These increases, combined with resulting higher energy costs, require us to take additional recovery actions to mitigate future impact. For fiscal year 2008, we remain focused on our strategy to deliver results and are confident we will achieve our full-year guidance."