Troy’s Meritor Inc., a supplier of drivetrain, mobility, braking, and aftermarket solutions for commercial vehicle and industrial markets, has stopped most production and implemented temporary cost reduction measures in response to the COVID-19 pandemic.
“The COVID-19 pandemic has resulted in unprecedented uncertainty in the global commercial vehicle industry and economies around the world,” says Jay Craig, president and CEO of Meritor. “In light of rapidly evolving market conditions, and in accordance with the guidance of global health professionals, we made the difficult but necessary decision, along with many of our customers, to suspend production at most of our global commercial truck manufacturing facilities.
“We are also taking proactive and decisive actions to reduce costs and increase our financial flexibility. Meritor is well capitalized, and I am confident that our financial strength, the continued execution of our M2022 plan, and our commitment to serving our customers will enable us to successfully navigate this challenging period.”
Meritor will halt production at most of its commercial truck facilities throughout North and South America, India, and Europe on a temporary basis, and a significant portion of Meritor’s hourly workers will be laid off.
The company’s trailer and industrial businesses remain in operation as customers continue to order. The industrial customers are producing vehicles for the defense, bus and coach, terminal tractor, fire and rescue, and off-highway end markets, which are deemed critical in response to the health crisis. Meritor’s aftermarket business is also operational to maintain the supply of replacement parts to the truck and trailer transportation network.
Meritor is implementing a series of temporary cost reduction measures to preserve financial flexibility, including:
- Reducing the retainer fees paid to nonemployee directors by 60 percent,
- Reducing 50-60 percent to the base salary of each of the company’s named executive officers,
- Reducing the base salary for all other salaried employees in the U.S. and Canada by 40-50 percent, and
- Temporarily suspending the share repurchases under the company’s share repurchase plan.
All salaries will be reinstated as conditions allow. Meritor expects the cost reduction actions will help position the company to manage cash flow from operations in a range of negative $25 million to break even in the third fiscal quarter, excluding the one-time impact from receivable factoring programs that the company estimates to be about a $150 million use of cash in the third fiscal quarter.
The company’s current planning assumptions consider that the fiscal third quarter production is suspended for a period of time, resuming in two-six weeks on a staggering basis in North America, Europe, India, and Brazil. The company expects production will come back online at a lower run-rate than before the shutdown.
As of March 24, Meritor had overall liquidity of $791 million, comprised of about $470 million in cash on hand and about $321 million in undrawn commitments on its revolving credit facility.
The company remains in full compliance with its covenants under its revolving credit facility. Meritor also expects to maintain compliance with all covenants throughout the fiscal year, considering expected significantly lower production volumes. The company expects cash balances on hand and cost reduction actions to provide sufficient liquidity to manage the business during this uncertainty.
As a result of the uncertain operating environment, the company has determined to withdraw it guidance given on Jan. 20 regarding its fiscal year 2020 financial results. It will provide an update on its full fiscal year outlook when it announces its second fiscal quarter results.