MTOR - Earnings call transcript Q4 2019

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Operator

Good day ladies and gentlemen, and welcome to the fourth quarter 2019 Meritor earnings conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session, and instructions will follow at that time. If anyone should require operator assistance, please press star then zero on your touchtone telephone.

As a reminder, this call may be recorded.

to host like Mr. today’s now would introduce for your conference, I Chirillo, Relations. Investor Director Todd of Senior

You sir. may begin,

Todd Chirillo

Thank you call. Catherine. Meritor’s fourth Good morning everyone and year and full XXXX earnings quarter welcome to

Craig, morning. On today, in to Anderson, Vice available accompanying and the President the at our slides President, Financial The call we Jay slides Senior Officer. call Chief today’s and CEO have meritor.com. Carl this and discussion are refer We’ll

Inc., the is content protected of may call, conference and to property consent our copyright by We is The consent be Meritor international which we’re U.S. to participation Meritor. recording. the not of recording, your be express this law, of continued your consider and rebroadcast written without

Securities Act Our Litigation XXXX. discussion contain the Reform statements may of forward-looking as defined Private in

for measures refer complete to the call, our results. reconciliation now you more our website. the that refer X we in the GAAP non-GAAP extent in Slide to to could a risks me any our To affect slides of on disclosure find Let you’ll the

turn Now over Jay. to call the I’ll

Jay Craig

for good and today joining us XXXX fourth look full at appreciate our you Todd morning. quarter results. We and Thanks a year

Slide X. to go Let’s

Our was year excellent. performance this

have from years. continuing You has operations is was EPS consistently improvement see XXX%. past XX% meaningful or three by expanded we can XX%, adjusted the and points, Since diluted adjusted over revenue MXXXX, margin launching delivered up EBITDA XXX basis up

during of few achievements some In comments year. highlight past MXXXX, first a this let moment, want I make about our but me a to

that to fulfilled. If despite customer would been than year-over-year, XX per the regional we XXX that the up was and this level vehicle million. delivery orchestrated chain, short levels, out that XX at year proud issue arose say parts score XXX.XXX our excluded years. level facility the I ensure at quality coordination was of on the nothing market this XX% to greater and production peak million. the highly have highest puts company supply an commercial for are saw our per requires in stress XX% one quality impressive cross-functional in performance requirements am entire our volumes Production of an at We units, closing total year, parts

pleased overall I recordable diligence significant all X.XX safety to you This our achieved time required that we rate am of tell injuries rate total of hours this XXX,XXX employees an case per frame. during safety worked. by

required progress of the offerings, we to In convert markets. in effort in peak and incredible on adjacent several revenue, manage efficiently new addition electrified AxleTech, increased made drive our to core acquisition products the completed the and launched train great the also and

the announced Technologies, Steve’s We directors. Beringhause, addition. industry for an will application background CTO excellent our of board transportation the advanced that Steve also technology and him join make of of in expertise recently Sensata

We has are to us that pleased begin join he agreed MXXXX. as we

adjacent acquisitions. about of XX%, X, business including markets revenue MXXXX from highlights most We Slide and scorecard had than in targets. Now talk driven our financial outperformance let’s the the around against three we results million or our new more by $XXX revenue performance. recent world, On

per almost did a performance North high from by share, also were our $X.XX we share axle we with XXXX. cycle, America. As result it it to gain diluted exceeded able by customers of during increasing adjusted the Not our peak target, EPS rear we in only beat $X

MXXXX. believed we improvement. We XXX% was said we At aggressive we that delivered at You success goal an year time, will in actually announced end an measure this adjusted EPS it of improvement the XX% fiscal of was remember the ultimate XXXX. when for

was net to to target X.X debt Our EBITDA. times third financial achieve adjusted

cash we the associated financing include over flow X.X term if times the liabilities. X.X reduced plan legacy strong times we free that achieved with or the of generated acquisition, AxleTech the it. Excluding We

a to for Slide capital summary allocation go strategy. X our of Let’s

free are are and generating mentioned, we now I strong returning cash to a As flow Meritor’s significant shareholders. percentage

returned equity during which fiscal our MXXXX double share flow more aggressive of year XX% MXXXX, returning established through intend frame. to That of frame. in than XXXX. that repurchases, rate $XXX maintain of XX% target cash free shareholders cash represents time During we the is We since million we time an of the to repurchases

that December to you of our value drive drive a shareholder our and This where told last we our cash day value for strategy. analyst deploy expect tremendous the ability next shareholders. is that critical at generation cash underpinning We to to is

detail will discussion. later more provide the in We

a to XXXX. three of acquisitions the and completed by AxleTech customer with These we cyclicality acquisition synergies in us that Slide our line be summary annual help the $XX diversify that streams than in expanded the We X provides highway, markets. technology and off expect products acquisitions base portfolio offset our service, of revenue completed haul new and strategic We to AxleTech severe run rate defense. million recent more most is still from transactions. July.

our reinforced several is the months. of the well this strategic in value belief Our transaction past and process along integration moving in has been

pay exercised know, further interest flexibility sold the exclusive arrangement. between million XXXX our distribution our Under of option this joint we in in million, you and terms and recently will that the allocation. WABCO $XXX WABCO announced which As us we aftermarket $XXX to agreement, for capital Meritor former venture the have terminate provides

electric has interest with solutions of TransPower have in the as accelerant show programs applications. look an range drive our for electric as of investment forward for we served train collaboration OEMs. many We to continued a major increasing our in Finally, customers

products shows Slide of variety for examples have XX a launched a applications. we of the during few X MXXXX

the most in launch aggressive one history. company’s current of cycle Our is the

axles heavy and trailers, a New products case duty an for transfer drive medium market. for disc air and in line brake optimized include rear front construction, haul, buses addition applications, and all-wheel the to medium and

accounted business driven that for new you revenue XX% Moving offerings. see of new to outperformance, largely product our Slide X, by

wide a to for manufacturing efforts end will areas markets, and of MXXXX. and under is and our applications our traction and designing range gaining continue grow in these business are We

position leader to solutions. the as company drive in efforts our reflects X market a electrified train Slide

MXXXX, we customers. which than and under we past introduced advanced years technology progressed alone, delivering more preproduction a XX In third to are single solutions two During of years through Meritor’s Horizon, of the XXXE have consolidates reflecting brand, major leadership. Blue the generation samples a

duty We applications have a accumulated cycles. across of thousands of range testing miles and

over we Show, X,XXX awarded electric trucks been program begin This train XXX next vehicles with over expect programs equipped launch to of have few and by Brazil to in We years. it in vehicles be the the e-mobility with addition Vehicle commercially XXX will deploy gearing Commercial XXXX available. XXXE American XX-ton end e-delivery the power as XX and the announced award, will will Meritor’s OEM’s which with North electric for the our at e-optimized truck becomes with Volkswagen substituted

two announced introduction of e-axles, medium the also the at for NACV We and heavy for new other one applications. duty

most new Meritor in heavy medium trucks With has axles, portfolio of the believe we e-axle comprehensive the and for the addition two anyone now world. these duty of

the turn more will detail it on financials. I that, to Carl over for With

Carl Anderson

our will year morning. with review then our and On along of fiscal Jay, our I quarter XXXX an performance financial overview good results. segment provide fourth I’ll guidance. XXXX you with call, today’s Thanks

plan repurchase outstanding In we of four basis our the margin to points, XX% continuing years $XXX $XX we free to that generated flow we had of plan, to increased our performance and cash million flow, diluted expanded and the ago. another operations per Overall, EBITDA committed financial we year last of over year adjusted common almost successfully by from free XX MXXXX earnings of $X.XX, of stock. share adjusted cash completed million deployed

saw for in a and year. turn million ever prior from higher Sales case full was financial results North a transfer a We last from production. to the from in segment perspective, up truck largest increased continued revenue revenue we From increase and from volumes North outperformance. $XXX $XXX across industrial of segment, where see you’ll Let’s launch drive year million and year XX, driven market, the up gear aftermarket, driven Slide to benefited all-wheel and were strong American production, compared the trailer our aftermarket Navistar, prior year. industrial our trailer by America, which first the trailer the X% increase

segment million production XX% The America, In Class up X the revenue. up truck was truck North in commercial was year. $XX from prior

almost We increasing also duty, by demand units last mile XX% in XXX,XXX to for saw medium demand driven strong deliveries.

medium North growth combined In compared truck fact, XXXX has heavy for market. since the America duty grown our revenue XX% in and of over by XX% to

significantly the impacted year. pending quarter. have of implementation were new economy impacted China. sales In India, slowdown by emissions significantly impacted seen of sales we lower the back In a and India our in the negatively which half sales however both in standard in a the fourth China, in We

down revenue when started XX% full from our million, the was For China’s year, year. expectations we $XXX the

revenue by major offset was an against The unfavorable $XXX U.S. overall partially most increase approximately as exchange impact strengthened foreign translation currencies. dollar the in million

right mix adjusted truck result net which as of translates we higher XX%, performance, we we layer as in in other million these America the million EBITDA inefficiencies, were higher underlying view well That and the markets net other, faced $XX to North to slide, with primarily and a very as approximately costs good volume like $XXX of steel the capacity side as the can market. Moving labeled you conversion see line of revenue of on had on increase.

Additionally, charge compare which to to not previous $X as year, site related and XXXX we a environmental did XXXX the we one-time had in results legacy million a occurred repeat.

These the and walk margin adjusted FX of million. adjusted headwinds EBITDA the EBITDA $XXX by impacted the year, of provide in XX.X%. to items adjusted was Given $XX our negatively million EBITDA

income the to increase see per or from $X.XX operations operating adjusted diluted earnings on left, can in adjusted our performance of drove table the that an share. million continuing you $XXX In

also to higher generated tax lower addition had EBITDA In adjusted we a year, the this expense. overall

from tax operating credits XX% taxable have we which is coming last lower effective to we from which offset losses rate tax as income. approximately Our or rate benefited year X%, percentage net jurisdictions the a higher earnings of saw than was

had Finally, drove million capital $X.XX about outstanding, less of due to shares which average allocation, EPS. diluted our on continued we adjusted X focus common diluted approximately

almost All dollar. $X.XX per share allowed to our us of exceed of items these a MXXXX adjusted of by full target earnings

of the we a and hourly by Additionally, salaried million approximately as restructuring. declines. globally market $XX related plan September million a announced incurred anticipation basis recognized result $X primarily reduce This in to was restructuring driven headcount to of in costs GAAP on

fiscal expect We be costs the year to remainder in restructuring XXXX. of incurred the

AA We $X also we to the relationship customer assets acquired intangible million to business related gear last year. charge recognized a certain impair

this of the the of that year. bankruptcy is part we made Finally, reorganization $XXX free in free $XX completed flow, generated prior as the in $XX July. million was of cash Exclusive entity, cash million inclusive of This a flow cash the for $XXX increase transaction, Maremont, we XXXX. contribution we non-operating generated of million million from

In for in production China. XX Europe our and fourth by year. segments. segment, million, adjusted $XXX Slide The details were our EBITDA and our sales truck commercial down in quarter decrease XX% sales driven from last India, was sales lower reporting

was adjusted truck for While segment X%, period adjusted the EBITDA over XX points same $XX down EBITDA increased margin segment last commercial year. basis million, our

adjusted aftermarket in with The was we revenue. freight up which industrial decreased segment was quarter, the to America EBITDA material continued impact to $X compared from steel markets costs by same and the net basis inclusion As record lower the million our of the was driven AxleTech. sales period year, trend. last and points results the compared than year. to last lower premium of million, XX increase Segment previously more by this from offset million, from AxleTech. third This in to EBITDA driven this $XX margin revenue In EBITDA and last the associated began and performance, primarily abate discussed, by consolidation $XX period due Segment up higher quarter’s trailer costs in adjusted adjusted North segment, same margin year. were XX%

fully synergies, year the of We the realized. have expect been certain this not overlap, primarily targeted elimination acquisition calendar to end of the margins as be cost from through decretive to yet

continued XXXX dealer America market XX. which are outlook production intake projecting with XXX,XXX lower seeing market, higher in X we Class the I’ll units. the inventory, XXXX. order our for quarters levels between is this fiscal review on Fundamentally, are is to over step-down Next, North driving production XXX,XXX to In the past combined due year Slide current several we

several in will economic units, Europe look we XXX,XXX As to anticipate the down of XXX,XXX markets, other years pointing X% range a our markets to that following Europe. we truck be strong conditions last slowdown from XXXX are of approximately modest year. to in in Overall

XXXX Moving the in year believe with year to significant when the emission prior first to liquidity transition be of constraints year. we the compared XXX,XXX continued abate year. registered The deadline. market. impacting half April the X, to as XX% all approximately down impact we full India, the we the of we are continued the seeing trucks, pass regulations, in of along the fiscal of vehicles new credit Ahead BSX should contract in last will for the half second XXX,XXX must and fiscal to of with of BSX the the our standard market year, the implementation range new the headwinds comply our impact from Overall expect deadline

slide, to Also, I while did discuss want market. this our we on have briefly not included outlook China

the significant where a off-highway impacting in I As region is economic we slowdown mentioned seen which compete. market the we have earlier,

our we year. in and from the China result, sales million is to approximately between be million down previous fiscal a expect $XX which $XX As XX%,

On financial year Slide XX, outlook I’ll for review fiscal our XXXX.

sales to of for in the forecast is range $X.X expected be to billion. Our $X.X billion

We are in right to lower from this actuals. our The markets of the to number projecting most call-out XXXX. walks to be our XXXX box

million markets lower to reduce million. revenue to expect between $XXX $XXX We global

we are $XX to estimate headwinds also seeing which million from million. We continued of range be in exchange, the foreign $XX to

distribution impact and will WABCO Offsetting agreement million second revenue in markets the we anticipate be half the WABCO transaction distribution headwind AxleTech. the full global year, our an year. a terminating resulting approximately quarter year the aftermarket in in of Additionally, second of fiscal revenue $XX the from of of the

table our adjusted in the be forecast the to margin EBITDA range of back left, Moving on to we that will the XX.X%. XX%

in to box, lower capacity see prices our offset the operating can markets. costs expect declining significantly performance, call-out steel and you we As net layer

agreement. point basis the distribution expect Additionally, the XX termination an approximately from WABCO of we impact aftermarket

This the planning electrification a seeing electrification in within point in are margin We our XX year. compared last including of downside even is basis XXXX the and investment does conversion double increase to conversion, approximately are given to the Overall, distribution in market. also we is opportunities in XX%. XX% significant which as impact investments XX%, the well of our to our rate downside agreement, typical in termination result

to include $X.XX Moving discuss plan impact share, that of earnings to the expect to range our of we diluted up. $X.XX, which XXXX does repurchase will adjusted coming per be the in share Jay

rate we around of consistent planning an XX%, expect previously the provided. Additionally, effective MXXXX tax we with adjusted guidance

$XX flow, Finally, we expect increase to million generate $XXX million to the $XXX million Maremont year. of be of free to the an funding of will This trust cash last one-time by normalization. flow from plan. million achieve XXXX, to increase of $XX not our XX% and on target due to MXXXX first this, Based the working in repeating in cash market free capital we expect conversion improvements three-year new of driven in our year

global is aggressively to investments line bottom even electrification, deliver the our with as expect in as solid we we are deploy results continue strategy markets perspective, the three-year financial and a consecutive MXXXX, this: we second XXXX, and to capital in MXXXX. pivot and delivered From achieved softening,

the Now turn to back I’ll call over Jay.

Jay Craig

Carl. Thanks

at Slide Let’s XX. look

have the X left operational slide, global positioned the On upturn. Class to MXXXX the the transactions, market for launches side and management demonstrated we These well we competencies new strategic have of highlight cycle exceptional peak during business product from MXXXX. our awards and through competencies us

ability or We down needed that to in we adjust for flex major up have to as the production. shown have the fluctuations organization

growing in adjacent We in North the X markets. outside of business haul by have Class market diversified our line America

that allocation shareholders. directly is set improved a have to value returning We sheet and our motion plan our in capital balance

been economic launched allow even MXXXX most will effectively has to manage we dramatic and have profitably. transformation undertaken negative us environments we The the since

of EBITDA indicates example, and Class a Europe the we were that to $X.X For units our X in units, modeling billion maintain expect to even market level would sales decline if North America and to a XX.X% to XXX,XXX margin. generate XXX,XXX

fully generate that productivity product type in have our our flow of advanced that earnings while of We investments anticipate advantage we established flow take future this expect allocation and increased Therefore, capital also plan. of our to environment will maintaining we our and $XXX would ability under to new MXXXX ensure opportunities capabilities. cash free in cash million

to XX. Let’s go Slide

our for to indicated, the XX% Carl of range margin year fiscal XX.X%. XXXX EBITDA adjusted As in guidance is

Our MXXXX target is XX.X%.

the burden, XXXX. adjusted XX.X% We adjusted have acquisition demonstrated of we from achieve expect ability along of to our synergies improve to the during the focus plans. EBITDA labor costs, additional each execution last EBITDA and business new margin two margin continued by material and on AxleTech Through with wins,

allocation to minute XX. MXXXX Slide discuss a capital take as on our strategy, Let’s shown

Our recently $XXX share increased utilize repurchase we which board current $XXX million XXXX. in authorization fully our million, to of directors to intend

have million fourth the $XX $XX XXXX. We already quarter repurchased October shares in addition to executed in in of of the million

We are XXXX. the adjusted of The planning to EPS that diluted Carl repurchases. the impact remainder repurchase anticipated these the year in guidance another includes for $XXX referenced million of fiscal

we cash going XXXX another for to also Given flow our $XXX forward, an million opportunity have free expectations repurchases and XXXX. in future utilize

believe accelerate opportunity have to we in to continue strongly our in commitment a capital we market and plan prices deploy our significant to of to aggressively take equity, that repurchases. share current We fact advantage therefore

timed this through market We strategically open purchases. plan will execute

long over strong should term. retains company period. additional retaining range profile are years. We internal external, committed through themselves present hold leverage buffer the to a opportunities, or for flexibility investment credit to The significant We three-year also intend and invest a the the similar coming in liquidity to

to the as look slide, are forward of company, world talented the future our become. we have recognize one the to X,XXX what dedication ramp success. executing we due role MXXXX. for for responsible Moving area In every up every to region the I last of our we well employees in Meritor employees in Each world. for the their want is the to our of we around has

investors. have excellent We our and suppliers relationships with also customers,

and team for one our them and long-term of with strategy. capital our we customers, term largest feedback provided allocation our shareholders. who and plans from worked as our MXXXX appreciate the has our performance has Over which opportunities Capital, aligned Glenview the our past We support are value with of drive fully employees, month, for for long all input on management shareholders, our owners our

let’s Now your questions. take

Operator

[Operator instructions]

Picariello first Our James from Markets. Capital with question comes Keybanc

open. is line Your

James Picariello

guys. morning good Hey,

Jay Craig

James. Morning

James Picariello

expectations decrementals as It Just digging the in electrification - fourth plan sound solidly truck year, in came know, almost spend. for promised you at quarter your and on this commercial double the margins the you around like does decremental XX%. to

wondering cadence lumpiness the any the of electrification spend, maybe timing the Just there. year if is just and there the on

Carl Anderson

Yes morning. Carl. James, it’s Good

I on in the relatively the if I margin Then quarter that, spending as as commercial each look at relates XXXX. and it where as think think to ratable planned go electrification, performance look we truck in you forward segment, the at you it’s the well go to as offset just some well tailwinds costs, in of that will forward. as volumes by steel layer we lower cost costs we related the be as quarter as capacity the it obviously fourth revenue lower had freight as and

James Picariello

Then fourth the it. were Got segment, this pretty in elevated. about quarter your other thinking decrementals

and Just wondering or the again as related year one-time offset the next next year. to for synergy on what favorable that segment decrementals we pull-through, related what’s into might be your think about thoughts just AxleTech

Carl Anderson

revenue, attributable all performance the would a the to you if really have very within out the it’s so to on margin if basis margin, at were and actually quarter. James, year-over-year performance been AxleTech look similar strip you AxleTech, Yes

the as will of we continuing line previously, we we various we’re we synergies be think in expect QX we get remarks, first that and the AxleTech, that fully with the of to get expectations quarter that beyond. prepared on in our into the right we execute more As as out outlined and in process said

James Picariello

quarter? What was the the AxleTech contribution, revenue contribution in

Carl Anderson

It was million. right $XX around

James Picariello

thanks guys. Okay,

Carl Anderson

Thanks James.

Operator

you. Thank

Our next comes with question from Brian Barclays. Johnson

open. line Your is

Jason Stuhldreher

Stuhldreher Jason is this Brian. Hi, on for

I little markets plan quickly, are Going I guidance, was conservative the guidance I which look guided the potentially fine. think at and for I guess least was more I party a to looking revenue so at revenue wins. than in $XXX end estimates, of third is some if of significant, key by driven for revenue new million know any tenets outperformance pretty XXXX, the the potential at outperformance MXXXX or

outperformance seeing we’re back if if in wondering the markets that of that of any more bucket, end Just or is maybe cadence little global weighted. a that

Jay Craig

Jay. Thanks for the question, Jason. This is

revenue, revenue through. we’re AxleTech of full first think of seeing targets, new that again flow I included we the in seeing benefit benefit year all, which so our you’re

globe, I difficult and from how think are. of we that’s are at I because us for outside global times expecting some we significant the downturns the know company analyzing people around

the the revenue X running step-downs Class particularly bit, we’re that’s of these XX to majority outperformance that to of vast some above our a prices in return obligations increase some out but and China declining in markets, our looking also continuing of North now penetration steel as to trucks axles new We’re at increasing down X hold for penetration our market, in on continuing or contractual American off-highway, bring see productivity, of on but X Class well. so our tamped business we’re still

Jason Stuhldreher

Then I that’s the by little of year, costs if mentioned, just sort you of complicated and costs, help tailwind we from clauses you the as the with was think because with a escalation you next could I with that I steel assume sort if helpful. pass-through clauses was here, year, us--you just cadence layer steel costs, to can and be steel know prices lower flat which you within customers. know is first about capacity the it’s indices wondering offset if and help wondering bucket us maybe of know, guided Okay, we a any stay next have tailwinds secondly,

the spread evenly strange be of? we aware or cadence should year, quarters are is throughout assume any of should tailwinds we there next So, sort

Carl Anderson

first kind as steel, in tailwinds be of expect on from half we that. will think the I it most the of

XXXX millions as assessed is we’ve high-single-digit you the our probably tailwind compare ’XX. it, expectations it’s As what in is to for

Jason Stuhldreher

a understood. Okay, Thanks lot.

Operator

while questions moment Instructions]. [Operator up. queue One

for time. call this the Todd further like remarks. Chirillo I’d at back questions closing any to to I’m Mr. showing turn no

Todd Chirillo

reach you. you any joining. for out quarter Please our if Thank me call. fourth much This directly to Thank you questions. very concludes have

Operator

Ladies and concludes conference. gentlemen, thank program. This you for today’s participating in today’s

have great Everyone, disconnect. day. a all may You

Meritor (MTOR) 13 Nov 192019 Q4 Earnings call transcript