TROY, MI — ArvinMeritor, Inc. has reported financial results for its third quarter ended June 30.
Sales from continuing operations was $1.7 billion, 4 percent lower than the same period last year. The primary factor that drove this decrease was the downturn in the North American Class 8 market, partially offset by strong Western Europe and Asia Pacific volumes. Net loss from continuing operations on a GAAP basis was $4 million, or 6 cents per diluted share, reflecting the impact of ongoing restructuring programs. Diluted earnings per share was 25 cents from continuing operations, before special items. The company experienced continued year-over-year margin improvement in Light Vehicle Systems (LVS) business. Commercial Vehicle Systems (CVS) was profitable in the trough of the North American Class 8 downturn. Fiscal year 2007 diluted earnings per share guidance, before special items, revised to 75 cents to 80 cents from the previous range of 70 cents to 80 cents. The free cash flow guidance reduced to a range of $50 million to $100 million outflow, compared to the previous guidance of $50 million to $100 million inflow.
"As we continue to work our way through a challenging operating environment, we are making solid progress in implementing our strategic initiatives," said Chairman, CEO and President Chip McClure. "As a result of the restructuring activities underway at ArvinMeritor and a focus on improving our operational performance, our CVS business maintained respectable margins despite the decline in the North American heavy truck market and we saw continued margin improvement in our LVS business."
McClure continued, "Also during the quarter, we moved forward with plans to optimize our manufacturing footprint, announced new military contracts, and entered into a significant joint venture with Chery Motors in China. Although we continue to face the challenges we anticipated, we are taking the necessary actions to manage through the rough seas while competitively positioning ourselves for 2008 and 2009."
Operating income, before special items, was $45 million, down 31 percent, compared to $65 million in the prior year’s third quarter. EBITDA, before special items, was $85 million, down $16 million from the same period last year, reflecting lower commercial vehicle sales volume in North America. Income from continuing operations, excluding special items, was $18 million, or 25 cents per diluted share, compared to $31 million, or 44 cents per diluted share, a year ago. Special items primarily included restructuring charges and totaled $22 million net of related tax benefits.
ArvinMeritor reported negative free cash flow of $156 million. Free cash flow was a positive $155 million in the third quarter of fiscal year 2006. The decline in free cash flow reflects increases in working capital of discontinued operations prior to the sale of the Emissions Technologies business group, a portion of which will be recovered in post-closing purchase price adjustments. Also contributing to the negative free cash flow was increases in working capital outside of North America, resulting from the strong commercial vehicle volumes in Western Europe and Asia Pacific.
The company expects restructuring and cost reductions resulting from its Performance Plus initiatives to generate $150 million in savings by 2009. The company said it remains on track to achieve that goal. Accomplishments this quarter include achieved growth in specialty business through contracts with International Military and Government, LLC, a wholly-owned subsidiary of International Truck & Engine Corporation, and Armor Holdings, which represent 58 percent of the total Mine Resistant Ambush Protected Vehicles (MRAP) business awarded to date; the entry into a significant joint venture with Chery Motors in China to produce light vehicle chassis products in Wuhu, China, which the company expects to represent $150 million of business by 2010 when related door and wheel businesses launch; the closure of three plants in Brussels, Belgium; Frankfurt, Germany; and St. Thomas, Ontario, Canada; the implementation of lean manufacturing across the company to build a stronger culture of operational excellence.
The company’s fiscal year 2007 outlook for light vehicle production in North America is 15.1 million vehicles, down from 15.3 million vehicles in the previous forecast, and 16.5 million vehicles in Western Europe, up from the company’s prior forecast of 16.1 million vehicles.
The outlook for North American Class 8 truck production is 238,000 units in fiscal year 2007, up from 224,000 units in the previous forecast. The company’s fiscal year 2007 forecast for medium and heavy truck production in Western Europe is 510,000 units, up from 475,000 units in the previous forecast.
The company now expects sales from continuing operations in fiscal year 2007 to be in the range of $6.2 to $6.3 billion, up from $6 to $6.2 billion, and is narrowing its outlook for full-year earnings per share from continuing operations to be in the range of 75 cents to 80 cents. This guidance excludes gains or losses on divestitures, restructuring costs, and other special items, including potential extended customer shutdowns or production interruptions.
In addition, free cash flow guidance is being lowered for fiscal year 2007 to a range of $50 million to $100 million outflow, due to working capital increases outside of North America driven by higher commercial vehicle volumes and the use of cash by the Emissions Technologies business prior to sale.
"Although we anticipated that the third fiscal quarter of 2007 would be a challenge, we were pleased to report positive results of 25 cents per share, before special items," said McClure. "Going forward, we will build on the strength of our global leadership team and the Performance Plus initiatives we are implementing to continually improve shareowner value."
