ArvinMeritor Tops Estimates - Analyst Blog

ArvinMeritor Inc. (ARM) posted a profit of $8 million or 8 cents per share during the fourth quarter of its fiscal year ended September 30, 2010 in contrast to a loss of $11 million or 16 cents per share in the same period a year ago. The company fared well compared with the Zacks Consensus Estimate of breakeven results.

Revenues in the quarter grew 37% to $956 million due to strong truck demand in Europe and the U.S. Operating income increased $20 million to $31 million.

Adjusted EBITDA went up 63% to $70 million, reflecting a 1.1 percentage point improvement in margins to 7.3% from the last year quarter. Higher sales volumes in the company's Commercial Truck segment and strong demand in Asia Pacific favorably impacted the adjusted EBITDA margins, despite reduced demand for certain military OEM and service products.

For fiscal 2010, ArvinMeritor reported a profit of $4 million or 5 cents per share compared with a loss of $30 million or 42 cents per share in the prior fiscal year. Sales went up 17% to $3.6 billion from the prior fiscal year.

Segment Performance

In the Commercial Truck segment, revenues soared 68% $547 million. EBITDA rose by $31 million to $32 million due to higher sales.

In the Industrial segment, revenues fell $1 million to $220 million. EBITDA was halved to $14 million due to lower military sales with production of the Family of Medium Tactical Vehicles (FMTV) having been shifted to a new prime contractor.

In the Aftermarket & Trailer segment, revenues scaled up 15% to $252 million. EBITDA reduced by $1 million to $17 million due to a decline in Mine Resistant Ambush Protected (MRAP) service parts, which benefited the segment in the prior year.

Financial Position

ArvinMeritor had cash and cash equivalents of $343 million as of September 30, 2010, a significant improvement from $95 million in the same period of 2009. Long-term debt increased by $34 million to $1.03 billion as of the above date. The company had a shareholder deficit of $1.05 billion in the period under study.

In fiscal 2010, ArvinMeritor's operating cash flow improved to $137 million compared with an outflow of $163 million, primarily due to higher income. Free cash flow was $122 million compared to a negative free cash flow of $429 million in fiscal 2009.

Capital expenditures reduced to $56 million from $82 million in the prior fiscal year. For fiscal 2011, the company anticipates capital expenditures in the range of $75 million to $90 million, assuming an organic expansion to take place.

Outlook

Compared with the quarter under study, ArvinMeritor anticipates sales to be flat due to seasonal factors, adjusted EBITDA as well as adjusted profit to be slightly lower in the first quarter of fiscal 2011. The company also expects free cash flow to be negative during the upcoming quarter.

Our Take

We are optimistic about ArvinMeritor's focus on cost saving programs and its reliance on OEMs in low cost countries across Asia and South America to generate revenues. However, based on the company's lower guidance and higher customer concentration the shares of the company carries  Zacks #3 Rank (Hold) for the short term (1–3 months).