ArvinMeritor Inc. (ARM)
F3Q10 (Qtr End 07/30/2010) Earnings Call
August 3, 2010 10:00 am ET
Brett Penzkofer - Senior Director, IR
Chip McClure - Chairman, President and CEO
Jay Craig - CFO
Brian Johnson - Barclays Capital
Brett Hoselton - KeyBanc Capital Markets
Itay Michaeli - Citi
Patrick Archambault - Goldman Sachs
Himanshu Patel - JPMorgan
David Leiker - Robert W. Baird
Robert Kosowsky - Sidoti
Good day, ladies and gentlemen, and welcome to the third quarter 2010 ArvinMeritor Incorporated earnings conference call. (Operator Instructions)
I would now like to turn the call over to Mr. Brett Penzkofer, Senior Director, Investor Relations.
Previous Statements by ARM
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Good morning, everyone, and welcome to the ArvinMeritor third quarter 2010 earnings call. On the call today, we have Chip McClure, our Chairman, CEO and President; and Jay Craig, our CFO. The slides accompanying today's call are available at www.arvinmeritor.com. We'll refer to the slides in our discussion this morning.
The content of this conference call which we are recording is the property of ArvinMeritor Incorporated. It's protected by U.S. and international copyright law and may not be rebroadcast without the express written consent of ArvinMeritor. We consider your continued participation to be your consent to our recording.
Our discussion may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Let me refer you to Slide 2 for a more complete disclosure of the risks that could affect our results. To the extent we refer to any non-GAAP measures in our call, you will find the reconciliation to GAAP in the slides on our website.
Now, I'd like to turn the call over to Chip.
Thank you, Brett, and good morning everyone. Let's turn to Slide 3. We're excited to announce today that we've reached an agreement to sell our Light Vehicle Body Systems to an affiliate of Inteva Products for approximately $35 million, consisting of $20 million cash and the remaining $15 million in promissory note. We anticipate this transaction to close sometime before the end of the year.
This transaction completes our company's transformation strategy to refocus our organization so we can better concentrate on our strengths and focus on our core competencies in the commercial vehicle industry that will generate future earnings growth for ArvinMeritor.
We're confident in the growth opportunities that the Body Systems business will create and believe that this business will be better served by an organization that's strategically positioned to invest in this development and growth.
By redirecting the ER&D, capital investment and management resources to the businesses we choose to compete in, we believe we will provide better value to our shareholders and successfully work towards a stronger position in the marketplace.
Now let's turn to Slide 4 to review our third quarter year-over-year results. We're pleased with the continued strong earnings performance we reported this quarter. As I'll outline in a moment, we reported higher revenues, significant improvements in EBITDA, demonstrating strong conversion on increased revenue and strong free cash flow for the fifth consecutive quarter.
While our earnings per share was lower due to increased taxes on higher earnings in emerging markets and our industrial business was down as a result of a decrease in the volume of certain defense programs, our strong conversion on growth in other business areas allowed us to continue to stay on track toward our long-term financial target.
As we're outlined in the past, we're focusing on consistency and stability of financial performance, including managing the upturn in North American and Europe.
Our third quarter results benefited from a gradual improvement in demand for commercial vehicles in both North America and Europe as well as the ongoing strength in Brazil, India and China. Sales of $1.3 billion this quarter were up $333 million or 35% from the same period last year.
We're especially proud of the significant year-over-year EBITDA improvements we've been able to achieve as we continue to fully realize the benefit of rebounding revenue. We reported $76 million in EBITDA in the third quarter, which is nearly triple of what we earned in the same period last year.
We also saw improvements in our year-over-year adjusted income from continuing operations, which was $2 million, up $26 million from last year. This amount would have been $17 million higher if we were able to recognize our tax benefits in the United States and the Western Europe.
We earned $0.02 per share from continuing operations in the third quarter, which was significantly better than last year when we reported a loss of $0.47. This number also would have been significantly higher if not for the tax items previously mentioned.
I'm extremely pleased to report that we generated $33 million in free cash flow this quarter, representing our fifth consecutive quarter of positive performance. I believe the consistency in our steady and stable cash flow conversion is a testament to how tightly we're managing the business.
This improves our ability to make investments in our business such as our recently announced $22 million commitment to expand our research and development capabilities at our Troy, Michigan, technical center.
Similar to our year-over-year results, we also experienced sequential improvements this quarter across our key financial performance metrics, and Jay will provide more detail on this later in the call.
Let's now turn to Slide 5 to review the volumes forecasted in global truck production. Our expectations for commercial truck market remain in line with the industry experts and reflect a steady, positive trend. As you can see from this chart, North American Class 8 volumes are expected to steadily increase for the remainder of the year and longer term we're anticipating a significant increase in demand starting in 2011.