Meritor cuts outlook on rising costs

Reuters (Detroit) - Commercial truck parts maker Meritor (MTOR.N) on Thursday reduced its second-quarter earnings outlook, citing rising steel prices and higher-than-expected costs, sending its shares down 10.5 percent.

The company, which makes drivetrain, braking and replacement parts for the commercial vehicle and industrial markets, now expects second-quarter adjusted earnings before interest, taxes, depreciation and amortization in the range of $77 million to $83 million.

In February, it had forecast $85 million to $95 million.

The Troy, Michigan-based company also said it expects adjusted income from continuing operations in the quarter of $2 million to $10 million, down from its February forecast of $5 million to $15 million.

It expects free cash flow in the second quarter to be slightly negative instead of the break-even forecast it previously provided.

Meritor raised its revenue outlook, however. It now sees a range of $1.18 billion to $1.21 billion, up from its previous forecast of $1.13 billion to $1.18 billion. Analysts polled by Thomson Reuters I/B/E/S were expecting $1.13 billion.

"Dramatically rising steel prices combined with increasing volumes in the North America commercial truck market, and greater-than-anticipated Caiman launch costs are impacting our ability to convert on higher revenue this quarter," Chief Financial Officer Jay Craig said in a statement.

"In addition, our expectations for the second quarter are negatively affected by an unresolved dispute regarding royalty income," he added.

Meritor reiterated that it expects capital spending for the 2011 fiscal year to be $75 million to $90 million.

Also on Thursday, Meritor said it will close its European trailer axle business on July 31, because it was not large enough in a competitive market. It expects charges of $17 million to $23 million over the next year for the action, with $12 million to $18 million of that in cash.

The company said 171 employees are affected at its operation in Cwmbran, Britain, as well as in France, Italy and Spain. Meritor said its trailer axle manufacturing operations in North and South America are unaffected.

Meritor on Wednesday officially changed its name from ArvinMeritor Inc following its divestiture of its light vehicle business, and began trading under the ticker symbol "MTOR" on the New York Stock Exchange.