Meritor Automotive Reports Strong First Quarter 1999 Results
21 January 1999
Meritor Automotive Reports Strong First Quarter 1999 Results Earnings Per Share Increase 23 Percent; Sales Up 4 Percent
TROY, Mich., Jan. 21 -- Meritor Automotive, Inc. ,
today reported a fiscal 1999 first quarter EPS gain of 23 percent on sales
growth of 4 percent. Sales for the first quarter of $944 million, an increase
of $33 million over the same period last year, generated operating earnings of
$69 million compared to $63 million last year, an increase of 10 percent. Net
income was $40 million, or $.58 per share, compared to $32 million, or $.47
per share last year.
"We are very pleased with our first quarter results which continue the
strong earnings performance demonstrated in fiscal 1998," said Meritor
Chairman and Chief Executive Officer, Larry D. Yost. "Our sales growth for
the quarter was primarily driven by market penetration gains from new LVS
product introductions and by continued strong demand in our primary HVS
markets. This growth was offset, in part, by a decline in our government
products sales driven by government program changeovers and weaker sales in
Brazil."
First quarter operating margins improved to 7.3 percent from last year's
6.9 percent, with gross margins improving to 13.5 percent from 13.2 percent in
last year's quarter. The improved operating performance was driven by the
ongoing impact of productivity and cost improvement programs and new business
growth initiatives. Selling, general and administrative expenses, as a
percentage of sales, improved from 6.3 percent to 6.1 percent. Other income
for the first quarter was $7 million higher than last year primarily due to
increased equity income from joint ventures pertaining to heavy truck and
trailer markets and a $2.5 million non-recurring asset gain.
Meritor has been aggressively pursuing growth initiatives to further
strengthen its position in the global automotive original equipment and
aftermarket segments. In late December 1998, Meritor completed the
acquisitions of Euclid Industries, a leading supplier of aftermarket
replacement parts for medium- and heavy-duty vehicles and the European heavy
truck axle manufacturing operations of Volvo Truck Corporation. The Company's
long-term debt to capitalization ratio increased to 63 percent at December 31,
1998 from 51 percent at September 30, 1998, reflecting the impact of these
acquisitions. The acquisition of the Heavy Vehicle Braking Systems business
of LucasVarity plc is expected to be completed by the end of January 1999.
After consideration of all three strategic acquisitions, Standard & Poor's and
Moody's have reaffirmed their "BBB/Baa2" respective credit ratings for
Meritor's debt.
Heavy Vehicle Systems
Heavy Vehicle Systems sales in the first quarter of fiscal 1999 and 1998
were $558 million and $557 million, respectively. Sales increased across all
of the Company's core heavy truck products, including axles, transmissions,
clutches, drivelines and brake systems, reflecting the continued strength of
the North American heavy truck market. These increases, however, were
substantially offset by a decline in government product sales related to
planned government program changeovers and weaker sales in Brazil due to lower
heavy truck volumes.
Light Vehicle Systems
Light Vehicle Systems sales improved by 9 percent in the first quarter to
$386 million, an increase of $32 million over the same period in 1998. Sales
growth for this business was driven by penetration gains, principally in the
door and seat adjusting systems product lines due to Meritor's new door module
and seat adjusting system products. This growth was partially offset by lower
sales in roof systems due to customer platform launch delays in Mexico, lower
vehicle product sales in Brazil and the adverse impact of currency
translation.
Outlook
Yost said, "We expect Meritor to perform well in fiscal 1999 with revenue
growth, before considering the impact of acquisitions, in the single digit
range and continued improvement in operating margins. This expected
performance reflects the strength, diversity and balance of our product
portfolio and served markets. In addition, the three strategic acquisitions
are expected to add about $475 million in revenue in fiscal 1999 with modest
earnings accretion, including the impact of acquisition financing and
intangibles."
Yost continued, "Our North American and European markets show strength for
the near term, although we continue to evaluate the overall global economic
outlook, in particular, the Asian and Brazilian economies. Our sales in the
Asia/Pacific region comprised 3 percent and South America 6 percent of our
total sales in fiscal 1998."
Meritor, with 1998 sales of more than $3.8 billion, is a global supplier
of a broad range of components and systems for commercial, specialty and light
vehicle OEMs and the aftermarket. Meritor consists of two businesses: Heavy
Vehicle Systems, a leading supplier of drivetrain systems and components for
medium- and heavy-duty trucks, trailers and off-highway equipment and
specialty vehicles, including military, bus and coach, and fire and rescue;
and Light Vehicle Systems, a major supplier of roof, door, access control,
suspension and seat adjusting systems, and wheels for passenger cars, light
trucks and sport utility vehicles.
This news release contains statements relating to future results that are
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. Actual results may differ materially from those projected
as a result of certain risks and uncertainties, including but not limited to
those detailed from time to time in the Company's Securities and Exchange
Commission filings.
For more information, visit the Meritor website at
http://www.meritorauto.com
MERITOR AUTOMOTIVE, INC.
CONSOLIDATED SALES AND EARNINGS INFORMATION
(Unaudited,$ in millions, except per share amounts)
Quarter Ended
December 31,
1998 1997
Sales
Heavy Vehicle Systems $558 $557
Light Vehicle Systems 386 354
Total Sales $944 $911
Gross Margin $127 $120
Selling, General and Administrative 58 57
Operating Earnings $69 $63
Other Income-Net 8 1
Interest Expense (11) (10)
Income Before Income Taxes 66 54
Provision for Income Taxes (26) (22)
Net Income $40 $32
Basic and Diluted Earnings Per Share $0.58 $0.47
Average Shares Outstanding (in millions) 69.1 69.0
MERITOR AUTOMOTIVE, INC.
SUMMARY CONSOLIDATED BALANCE SHEET
(Unaudited, $ in millions)
December 31, September 30,
1998 (1) 1998
ASSETS
Cash $88 $65
Other Current Assets 1,153 1,151
Property, Net 726 666
Goodwill, Net 155 39
Other Assets 172 165
Total $2,294 $2,086
LIABILITIES & SHAREOWNERS' EQUITY
Short-term Debt $44 $34
Current Liabilities 907 1,020
Accrued Retirement Benefits 393 378
Other Liabilities 77 44
Long-term Debt 547 313
Equity & Minority Interests 326 297
Total $2,294 $2,086
(1) The December 31, 1998 Summary Consolidated Balance Sheet includes the
balances of Euclid Industries and Volvo's heavy truck axle manufacturing
operations, both of which were acquired by the company in late December 1998.
MERITOR AUTOMOTIVE, INC.
SUMMARY STATEMENT OF CONSOLIDATED CASH FLOWS
(Unaudited, $ in millions)
Quarter Ended
December 31,
1998 1997
OPERATING ACTIVITIES
Net Income $40 $32
Adjustments to Net Income
Depreciation and Amortization 27 24
Pension Contributions - (5)
Other 6 6
Changes in Assets and Liabilities
Receivables 51 35
Inventories (2) (18)
Accounts Payable (80) (21)
Other Assets and Liabilities (24) 12
CASH PROVIDED BY OPERATING
ACTIVITIES 18 65
INVESTING ACTIVITIES
Capital Expenditures (19) (23)
Acquisition of Businesses and Other (180) (4)
CASH USED FOR INVESTING ACTIVITIES (199) (27)
FINANCING ACTIVITIES
Net Increase in Debt 242 11
Cash Dividends (7) (7)
Payment of Interest Rate Settlement Cost(1) (31) -
Distribution Tax Obligation - (72)
Net Transfers from Rockwell - 14
CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES 204 (54)
INCREASE (DECREASE) IN CASH 23 (16)
CASH AT BEGINNING OF PERIOD 65 133
CASH AT END OF PERIOD $88 $117
(1) Represents payment of the one-time charge of $31 million ($19 million
after-tax or $.27 per share) relating to the settlement of interest rate
agreements which was accrued in the fourth quarter of fiscal 1998.