Summary:
We are upgrading Meritor to Outperform from Neutral based on strong fourth-quarter and fiscal 2014 earnings, along with an impressive guidance for fiscal 2015 and favorable long-term agreements. Moreover, the company is expected to benefit from its new business collaborations and success of the M2016 plan. Meritor reported adjusted income of $0.35 per share in the fourth quarter of fiscal 2014, which surpassed the Zacks Consensus Estimate of $0.16. Revenues increased 3.4% year over year to $933 million, beating the Zacks Consensus Estimate of $918 million. The year-over-year increase was due to higher sales in North America, partially offset by lower revenues in Europe, Defense and South America.
Overview:
Meritor, Inc. (MTOR), headquartered in Troy, MI, is a global automotive parts manufacturer and supplier. The company supplies a broad range of integrated systems, modules and components for commercial and specialty vehicles worldwide with leading positions in most of its markets. Meritor serves a broad range of original equipment manufacturers (OEMs) worldwide, including commercial truck, trailer, military, bus and coach, other industrial OEMs and certain aftermarkets in more than 70 countries.
The company now operates in two main segments after divesting its light vehicle systems business:
Commercial Truck & Industrial (79.1% of revenues in fiscal 2014): The Commercial Truck business supplies drivetrain systems and components, including axles, drivelines and braking and suspension systems, primarily for medium- and heavy-duty trucks in North America, South America and Europe. The Industrial business supplies drivetrain systems including axles, brakes, drivelines and suspension for off-highway, military, construction, bus and coach, fire and emergency and other industrial applications. This segment also includes the company's businesses in Asia Pacific, including all on- and off-highway activities.
Aftermarket & Trailer (24.4%): This segment supplies axle, brakes, drivelines, suspension parts and other replacement and remanufactured parts, including transmissions to commercial vehicle aftermarket customers. This segment also supplies a wide variety of undercarriage products and systems for trailer applications.
Note: The percentage share of segment revenues in total revenue includes inter-segment sales.
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