November 29, 2017 1:15 PM, EST

Meritor Reports Revenue Gains

Tax Reversal Cuts Net Income
Meritor BoothJohn Sommers II for Transport Topics

Commercial vehicle supplier Meritor Inc. reported fourth-quarter and full-year net income fell primarily due to a tax-related change, but revenue jumped in both periods.

In the quarter ended Sept. 30, net income dropped to $239 million, or $2.63 per share, compared with $474 million, or $5.34, in the 2016 period.

Meritor attributed the drop to a $438 million reversal of the company’s tax valuation allowance in the United States in 2016 that did not repeat in 2017. That reversal was partially offset by a $154 million after-tax gain on the sale of the company’s interest in the Meritor Wabco Vehicle Control Systems joint venture.

Quarterly revenue rose 27% year-over-year to $922 million.

Its Commercial Truck & Industrial unit had sales of $728 million, up $187 million or about 35%, compared with the same period last year — driven by higher production in all of the global company’s regions and new business wins, according to the Troy, Mich.-based company.

Its Aftermarket & Trailer segment posted sales of $226 million, up $14 million or about 7%, from the same period last year, due primarily to higher aftermarket volumes in North America and Europe.

For the full year, net income fell to $324 million, or $3.59, compared with $573 million, or $6.23, in the same period last year. Revenue climbed to $3.3 billion compared with $3.1 billion in the 2016 period.

“Overall, we had an excellent year of financial performance as we expanded adjusted earnings per share by 15%, drove revenue growth of approximately 5% and generated $81 million of free cash flow. We also significantly improved the balance sheet as we reduced our total debt and retirement liabilities by more than $600 million,” Meritor Chief Financial Officer Kevin Nowlan said during the earnings call with analysts. “As a result, we now have a positive book equity for the first time since 2008.”

Meritor supplies drivetrain systems and components, including axles, drivelines, brakes and suspension systems, for new medium- and heavy-duty trucks and other vehicles.

The company supplies axles, brakes and braking systems, drivelines, suspension parts and other replacement and remanufactured parts to commercial vehicle aftermarket customers in North America and Europe. This segment also supplies a wide variety of undercarriage products and systems for trailer applications in North America.

The company is projecting North America Class A production of 260,000 to 280,000 units in 2018, up 10% to 18% from 2017 levels. It also says the medium-duty market will be between 230,000 to 250,000 units in 2018, similar to last year.

Meritor’s M2019 strategic plan set an overall quality target of 25 parts per million. “We believe this will further differentiate us in the commercial vehicle industry. In fiscal year 2017, a number of strategic customers, including Paccar, Hino Motors Manufacturing USA and Daimler Trucks North America, recognized several of Meritor’s manufacturing facilities for outstanding quality,” according to the company’s 2017 annual report.

“We are increasing our market share with key customers, renewing long-term contracts and winning new business in all of our regions around the globe across both of our reportable segments,” the report said.