Commercial driveline supplier Meritor Inc. (NYSE: MTOR) reported higher sales and earnings for its fiscal second quarter despite a tough comparison with the year-ago period.

The Troy, Michigan-based company reported sales of $993 million compared to $871 million in the year-ago quarter. Adjusted income was $50 million, or 68 cents per diluted share, compared to $48 million, or 64 cents, a year ago. Meritor booked a $203 million after-tax gain a year ago from terminating a distribution deal with WABCO Inc.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $111 million, or 11.3% of sales, compared to $107 million or 12.3% last year. 

Freight and steel costs rise

Meritor said higher freight costs because of supply chain shortages was mostly responsible for the lower EBITDA margin in this year’s Q2. Cost cutting, including temporary salary reductions, were implemented at the beginning of the pandemic a year ago. Incentive compensation was higher in the quarter this year.

Steel costs rose $25 million to $30 million in the quarter. Meritor expects to pass about $20 million of that cost onto customers.

Higher global truck production across all markets carried the quarter, Meritor President and CEO Chris Villavarayan said. Commercial truck sales for the three months ending March 31 were $777 million, up 23% from $631 million a year ago.

Meritor reached extension agreements with several major customers in the quarter, including Navistar International Corp. (NYSE: NAV) that will purchase axles, brakes and drivelines through 2026. A supply agreement with European truck manufacturer IVECO was extended through 2024 for medium-duty and heavy-duty single reduction axles.

Spending on electrification programs will grow up to $10 million in the current quarter to support electronic axle development. 

Meritor said Tuesday it will collaborate beginning this year with Hexagon Purus, a producer of  zero-emission trucks, to integrate Meritor’s Blue Horizon 14Xe powertrain into Hexagon Purus’ Class 6-8 trucks.  

“This award builds on the commitment we’ve made to invest in advanced technologies for customers around the world,” T.J. Reed, Meritor vice president of global electrification, said in a press release.

The company also announced that it plans to redeem $175 million of 6.25% notes due in 2024.

Related articles:

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Driveline supplier Meritor names Villavarayan next CEO

Meritor partially restores pay cuts while trimming salaried jobs

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