Meritor announced lower sales and net profit in its financial results for its fourth quarter and full fiscal year ending 30 September, 2020. Results were dented by the impact of the COVID-19 pandemic on its markets.

Fourth-Quarter Highlights

  • Sales were US$758m, down 26% on last year
  • Net income attributable to Meritor and net income from continuing operations attributable to Meritor were each $1m
  • Diluted earnings per share from continuing operations was $0.01
  • Adjusted income from continuing operations attributable to Meritor was $11m, or $0.15 of adjusted diluted earnings per share
  • Adjusted EBITDA was $60m
  • Adjusted EBITDA margin was 7.9 percent

Fourth-Quarter Results

For the fourth quarter of fiscal year 2020, Meritor posted sales of $758m, down $270m, or approximately 26 percent, from the same period last year. This decrease in sales was driven by lower market volumes primarily due to decreased customer demand as a result of the COVID-19 pandemic.

Net income attributable to Meritor was $1m, or $0.01 per diluted share, compared to net income attributable to Meritor of $43m, or $0.51 per diluted share in the prior year. Net income from continuing operations attributable to the company was $1m, or $0.01 per diluted share, compared to net income from continuing operations attributable to the company of $42m, or $0.50 per diluted share, in the prior year. Lower net income year over year was driven primarily by lower revenues as a result of lower market volumes due to the COVID-19 pandemic, partially offset by decreased SG&A due to cost reduction actions executed primarily in the second half of the year, reduced incentive compensation costs and operational performance.

Adjusted income from continuing operations attributable to the company in the fourth quarter was $11m, or $0.15 of adjusted diluted earnings per share, compared with $70m, or $0.83 of adjusted diluted earnings per share, in the prior year.

Adjusted EBITDA was $60m, compared to $116m in the fourth quarter of fiscal year 2019. Adjusted EBITDA margin for the fourth quarter of fiscal year 2020 was 7.9 percent, compared with 11.3 percent in the same period last year. 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. The impact from lower revenue was partially offset by cost reduction actions executed primarily in the second half of the year, reduced incentive compensation costs and operational performance.

Cash flow provided by operating activities in the fourth quarter of fiscal year 2020 was $77m, compared to $62m in the same period last year. Free cash flow for the fourth quarter of fiscal year 2020 was $37m, compared to free cash flow of $22m in the same period last year. The increase in operating cash flow and free cash flow year over year was driven by improved working capital performance and a one-time $48-million cash contribution and loan repayment to fund the Maremont 524(g) Trust made in fiscal year 2019, which did not repeat.

Fourth-Quarter Segment Results

Commercial Truck sales were $560m in the fourth quarter of fiscal year 2020, down 28 percent compared to the fourth quarter of fiscal year 2019. The decrease in sales was driven by lower volumes primarily due to decreased customer demand as a result of the COVID-19 pandemic.

Commercial Truck segment adjusted EBITDA was $24m in the fourth quarter of fiscal year 2020, down $48m from the same period in the prior fiscal year. Segment adjusted EBITDA margin decreased to 4.3 percent from 9.3 percent in the same period of the prior fiscal year. The decrease in segment adjusted EBITDA and segment adjusted EBITDA margin were driven primarily by lower market volumes for most regions due to COVID-19 and higher costs incurred to support electrification initiatives, partially offset by the cost reduction actions, reduced incentive compensation costs and operational performance.

Aftermarket and Industrial sales were $226m in the fourth quarter of fiscal year 2020, down 22 percent compared to the fourth quarter of fiscal year 2019. The decrease in sales was driven by lower volumes across the segment. Aftermarket sales decreased due to lower customer demand and the impact from the termination of the distribution arrangement with WABCO Holdings, Inc. ("WABCO"), which occurred in the second quarter of fiscal year 2020. Industrial sales also decreased, driven by lower market volumes primarily as a result of the impact of the COVID-19 pandemic.

Segment adjusted EBITDA for Aftermarket and Industrial was $34m in the fourth quarter of fiscal year 2020, down $7m from the same period in the prior year. Segment adjusted EBITDA margin increased to 15.0 percent in the fourth quarter of fiscal year 2020, compared to 14.2 percent in the same period of the prior year. The decrease in segment adjusted EBITDA was driven primarily by lower volumes and the impact from the termination of the WABCO distribution arrangement, partially offset by cost reduction actions, reduced incentive compensation costs and operational performance. Segment adjusted EBITDA margin increased due to cost reduction actions that more than offset the volume reductions and impact of the WABCO termination.

Fiscal Year 2020 Results

For fiscal year 2020, Meritor posted sales of $3.0 billion, down $1.3 billion, or approximately 31 percent from the prior year. The decrease in sales was driven by lower market volumes primarily due to decreased customer demand, as a result of the COVID-19 pandemic.

Net income attributable to Meritor was $245m, or $3.24 per diluted share, compared to $291m, or $3.37 per diluted share, in the same period last year. Net income from continuing operations attributable to the company was $244m, or $3.23 per diluted share, compared to net income from continuing operations attributable to the company of $290m, or $3.36 per diluted share, in the same period last year. Lower net income year over year was driven primarily by lower revenues as a result of significantly reduced market volumes due to the COVID-19 pandemic, as well as higher restructuring costs related to actions taken in fiscal year 2020. This decrease was partially offset by $203m of after tax income associated with the termination of the company's distribution arrangement with WABCO in fiscal year 2020.

Adjusted income from continuing operations in fiscal year 2020 was $85m, or $1.12 per adjusted diluted share, compared to $330m, or $3.82 per adjusted diluted share, in the prior year. The decrease in adjusted income year over year was driven primarily by lower revenues as a result of reduced market volumes due to the COVID-19 pandemic.

Adjusted EBITDA was $272m in fiscal year 2020, compared with $520m in fiscal year 2019. Adjusted EBITDA margin was 8.9 percent in fiscal year 2020, down 300 basis points compared with the prior fiscal year. The decrease in adjusted EBITDA year over year was driven primarily by lower revenues as a result of reduced market volumes due to the COVID-19 pandemic. Cost reduction actions executed primarily in the second half of fiscal year 2020 partially offset the impact from lower revenue.

Cash flow from operating activities in the fiscal year was $265m, compared to $256m in fiscal year 2019. Free cash flow for the full fiscal year was $180m, compared to $153m in fiscal year 2019. The increase in cash provided by operating activities was driven primarily by $265m of cash received from the termination of the distribution arrangement with WABCO in fiscal year 2020 and a one-time $48m cash contribution and loan repayment to fund the Maremont 524(g) Trust made in fiscal year 2019, which did not repeat, largely offset by lower fiscal year 2020 revenues as a result of significantly reduced market volumes primarily due to the impact of the COVID-19 pandemic.

Fiscal Year 2020 Highlights

Capital Return

In fiscal year 2020, the company repurchased 10.4m shares of common stock for $241m, representing more than 12 percent of the average shares outstanding at the beginning of the fiscal year.

Advanced Technology Investment

Meritor acquired all the outstanding common shares of Transportation Power, Inc. ("TransPower") in fiscal year 2020. Through the addition of TransPower's product portfolio, the company continues to advance its M2022 priorities through increased investment in next-generation electrification technologies, and it further establishes the value of Meritor's Blue Horizonbrand across the industry.

Outlook for Fiscal Year 2021

The company is providing the following guidance for fiscal year 2021:

  • Revenue to be in the range of $3.1 billion to $3.35 billion
  • Net income attributable to Meritor and net income from continuing operations attributable to Meritor to be in the range of $45m to $75m
  • Diluted earnings per share from continuing operations to be in the range of $0.60 to $1.05
  • Adjusted diluted earnings per share from continuing operations to be in the range of $1.10 to $1.75
  • Adjusted EBITDA margin to be in the range of 9.2 percent to 10.2 percent
  • Operating cash flow to be in the range of $145m to $185m
  • Free cash flow to be in the range of $60m to $100m

 "While fiscal year 2020 brought unforeseen headwinds, Meritor implemented cost containment actions early, bolstered our liquidity and maintained a strong balance sheet, which helped offset the financial impact of the pandemic and enabled us to continue making long-term investments," said Jay Craig, president and CEO. "We remain confident that our M2022 plan remains on track."