Meritor Scraps '20 View & Halts Buyback On Coronavirus Woes

The COVID-19 pandemic has crippled the U.S. auto industry, with closure of factories, lower footfall at dealerships and disruptions in global supply chains.Firms are facing unprecedented challenges and taking stringent measures to tackle the emergency. To preserve cash and maintain ample liquidity, automakers have started resorting to cost cutting and dividend and share purchase suspension. The pandemic has prompted many automakers to withdraw 2020 guidance.

On Mar 25, Meritor, Inc. (NYSE:MTOR) announced the decision to pull fiscal 2020 outlook amid the virus-induced uncertainty. As it is, during the first-quarter fiscal 2020 earnings call in January, Meritor downwardly revised its fiscal 2020 guidance due to weakening global markets. Now, with the COVID-19 outbreak posing serious operational and financial challenges, Meritor finds it difficult to come up with a reliable 2020 guidance

The firm will be temporarily halting production at most of its global commercial truck manufacturing facilities across North and South America, Europe and India. However, Meritor’s Trailer and Industrial business, and Aftermarket unit will remain operational.

As coronavirus concerns have dimmed earnings and sales prospects of the company, Meritor is resorting to temporary cost-reduction measures to preserve financial flexibility. It would be slashing the base salary of each of its named executive officers by 50-60%, and all employees in the United States and Canada by 40-50%. Meritor has also suspended the share-repurchase program to shore up the company’s balance sheet, as it braces for a period of revenue slump amid the virus mayhem. The company expects that these measures would position it to manage cash flow from operations in the range of negative $25 million to breakeven in the fiscal third quarter. Notably, as of Mar 24, Meritor had overall liquidity of $791 million, including $470 million cash on hand and $321 million in undrawn commitments under the revolving credit facility.

Meritor currently carries a Zacks Rank #4 (Sell). Some better-ranked players in the same industry include Spartan Motors, Inc. (NASDAQ:SPAR) , Gentherm Inc. (NASDAQ:THRM) and Veoneer, Inc. (NYSE:VNE) . While Spartan Motors sports a Zacks Rank #1 (Strong Buy), Veoneer and Gentherm carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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