ArvinMeritor (ARM) showed a loss of $20 million or 28 cents per share, before special items, in the fourth quarter of its fiscal year ended Sep 30, 2009. This is wider than the quarter-ago loss of 25 cents per share and compared to year-ago profit of $26 million or 35 cents per share.
The loss was attributed to incremental tax expenses during the quarter due to the inability to recognize the tax benefit of losses in certain countries. However, the loss was narrower than the Zacks Consensus Estimate of 32 cents per share.
Sales in the quarter totaled $984 million, a decline of 36% from the year-ago level of $1.5 billion. This was driven by continued weakness across the global markets. However, sales increased by 4% compared to the previous quarter of fiscal year 2009 due to improved conditions in global markets, particularly in China, India and Brazil.
Cost Reductions
ArvinMeritor achieved cost savings of $195 million in fiscal 2009, exceeding the target of $125 million under its Performance Plus plan. The cost savings were helped by layoffs and temporary salary reductions, curtailment in capital spending, extended manufacturing shutdowns, elimination of training programs, suspension of the quarterly dividend and elimination of all non-critical discretionary spending.
The company also announced the closure of its assembly, machining and casting facility in Carrollton, Kentucky and the braking systems facility in Tilbury, Ontario, Canada.
Divestitures
ArvinMeritor completed the sale of its entire ownership interest in Gabriel de Venezuela and Meritor Suspension Systems Company joint ventures, Wheels business and Gabriel Ride Control Products in North America.
These transactions largely completed the divestiture of Chassis Systems business under the company’s Light Vehicle Systems (LVS) business segment. The divestments reduced the company’s overall light vehicle business to 25% of total sales at the end of its fiscal year.
Business Segments Redefined
ArvinMeritor redefined its reporting segments following the recent divestiture of most of its LVS businesses. For continuing operations, the company has informed that it will report results as defined within Commercial Truck, Industrial, Aftermarket & Trailer and Light Vehicle Systems. Of these four segments, the first three have been considered core to the company.
Financial Position
ArvinMeritor had cash and cash equivalents of $95 million as of Sep 30, 2009. Long-term debt amounted to $1.1 billion as of that date. The company had a shareholder deficit of $1.3 billion as of the same period.
Free cash flow was $22 million in the fourth quarter compared to $103 million in the prior fiscal year quarter. The company had $95 million in cash balance and an unutilized commitment of $611 million under its revolving credit facility as of Sep 30, 2009.
In fiscal 2009, ArvinMeritor had a net cash outflow of $295 million from operating activities, in sharp contrast to an inflow of $163 million in the previous fiscal year. Meanwhile, capital expenditure reduced to $111 million from $138 million in fiscal 2008.
Looking Ahead
In the upcoming fiscal year, ArvinMeritor expects revenue to be higher and free cash flow to breakeven. In addition, the company expects capital expenditures in the range of $90 million to $110 million.
Despite its efficient cost management and commendable global footprint, we believe difficult market conditions across the global automotive markets will continue to adversely affect the company. This has led us to maintain our Neutral recommendation for the stock.
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