Meritor Reports Fiscal Year Q2 Net Income Up, Revenue Down
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Meritor Inc. reported fiscal second-quarter net income rose and revenue declined.
Additionally, Meritor announced a majority of the company’s operations in North America and Europe are now running limited production (after a temporary shutdown). It said it expects facilities in India and South America will restart in early May. Meritor’s operations in China are fully operational.
For the quarter ended March 31, net income climbed to $241 million, or $3.20 per diluted share, compared with $72 million, or 84 cents, a year earlier.
The higher net income year-over-year was driven by $203 million of after-tax income associated with the termination of its longtime distribution arrangement with Wabco Holdings Inc.
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In 2017, Wabco agreed to a buyout of Meritor’s stake in their Meritor-Wabco joint venture. That deal ended a 27-year, 50-50 partnership but allowed Meritor to continue to provide sales, service and training to Meritor-Wabco customers for two years. That ended March 13. Meritor was paid $265 million in connection with the termination.
“We have a much smaller relationship here through our aftermarket business as a distributor for certain [Waabco] products. But I don’t want to misrepresent it, it’s a fraction of what the business was previously,” Meritor CEO Jay Craig said in an earnings conference call with financial analysts.
Meritor said fiscal second-quarter revenue dropped to $871 million compared with $1.1 billion a year earlier. The decrease was driven by lower global production volumes, including changes in customer demand and the impact of government mandates as a result of COVID-19.
The decrease was partially offset by revenue from Meritor’s AxleTech business, which was acquired in the fourth quarter of fiscal year 2019, according to Meritor.
The Troy, Mich.-based company is a supplier of drivetrain, mobility, braking and aftermarket solutions for commercial vehicle and industrial markets. It has 9,100 employees and manufacturing facilities, engineering centers, joint ventures, distribution centers and global offices in 19 countries.
AxleTech’s products include independent suspensions, axles, brake products and electric drivetrain components marketed to the off-highway, defense, specialty and aftermarket segments. In May 2019, Meritor announced it entered into an agreement to acquire AxleTech from an affiliate of The Carlyle Group for $175 million in a move to accelerate global sales and growth.
Quarterly revenue at Meritor’s commercial truck segment was $588 million, down $288 million, or 33%, compared with the same 2019 period, due to lower market volumes for most regions across the segment.
“The COVID-19 pandemic has dramatically impacted the global commercial vehicle industry and economies around the world,” Craig said. “I am confident that our financial position, strengthened by the cost containment actions we are implementing, will enable us to successfully navigate this challenging period. I want to share my appreciation for our teams around the world who have done extraordinary work under the conditions of an uncertain business environment. As a committed and connected global team, we expect to regain the momentum we had prior to this health crisis.”
The company’s aftermarket, industrial and trailer segment posted revenue of $319 million, down $10 million, or 3%, from a year earlier — primarily driven by the same events as with its commercial truck segment.
Beginning late in its fiscal second quarter and continuing into the third fiscal quarter, Meritor suspended production in most of its global commercial truck manufacturing facilities.
Meritor’s aftermarket business remained fully operational to maintain the supply of critical replacement parts to the truck and trailer transportation network. The company’s industrial businesses also remained operational throughout March and April at varying levels to support the production of vehicles deemed critical to the nation, including defense, bus and coach, terminal tractor, fire and rescue, and off-highway applications.
A view of the Meritor exhibit at an industry show. (John Sommers II for Transport Topics)
Meritor also reported it has established and begun execution of a safe-start plan for the reopening of plants, in addition to test labs, distribution centers and administrative facilities. It will operate under the plan’s enhanced safety guidelines for the foreseeable future.
To ensure consistent application and compliance with these safety protocols, the company has expanded the role of Jim Misiak, vice president and general auditor, to include responsibilities as chief safety compliance officer.
As of March 31, Meritor had overall liquidity of $829 million, comprised of $508 million in cash on hand and $321 million in undrawn commitments on its revolving credit facility.
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