ArvinMeritor Inc. (ARM) plans to invest $42 million to expand its braking business in Europe. The move will enhance the company’s ELSA air disc brake and S-Cam product lines.
In addition, ArvinMeritor will invest in engineering capabilities in order to develop advanced brake technology including electro-mechanical actuation, active adjustment and smart heat management.
The product development will be supported by establishment of additional test and validation capabilities ― including a new NVH and thermal imaging dynamometer capable of testing complete corner modules including axle, suspensions, wheel-ends, a new three-axis vibration rig and a highly advanced vehicle test fleet that will help to analyze products in real operating environments.
In July, ArvinMeritor announced its plan to invest $23 million over the next five years in order to enhance its research and development capabilities at a technical center in its Troy, Michigan headquarter. Through the investment, ArvinMeritor will develop advanced technologies related to fuel efficiency, braking system, suspensions and vehicle dynamics.
ArvinMeritor is focused on improving its research, development, engineering and product design capabilities. The company spent $103 million in fiscal year 2009, $122 million in fiscal year 2008 and $116 million in fiscal year 2007 on company-sponsored research, development and engineering programs.
For the third quarter of its fiscal year 2010, ended June 30, 2010, ArvinMeritor showed a profit of $2 million or 2 cents per share, falling behind the Zacks Consensus Estimate of 7 cents per share.
However, earnings improved from a loss of $24 million or 33 cents per share in the same quarter of last year. This reflected an effective tax rate of about 82%, driven by strong earnings in the emerging markets and the ongoing impact of valuation allowances in the U.S. and Europe.
Sales in the quarter rose 35% to $1.28 billion, attributable to a strong truck demand in Europe and the U.S. Operating income improved to $43 million in contrast to an operating loss of $4 million a year ago. EBITDA went up $48 million to $76 million from the same period last year.
Despite its improved results, we remain concerned about ArvinMeritor’s high customer concentration and slower recovery in its key markets in 2010. Compared with the third quarter, ArvinMeritor expects sales to be slightly lower due to seasonal customer shutdowns, adjusted EBITDA to be slightly lower and adjusted profit to be slightly lower in the fourth quarter of its fiscal year.
The company also expects free cash flow to be slightly negative, primarily due to the company’s semi-annual interest payment on its fixed debt securities, during the quarter. As a result, the company retains a Zacks #5 Rank (Strong Sell) on its stock in the short term (1–3 months).
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