|
Like many local auto suppliers, Troy-based ArvinMeritor is working through a difficult restructuring: cutting jobs, closing plants, even selling parts of its business. But ArvinMeritor has found a way to stand out by evolving into primarily a supplier of heavy truck parts, including axles and brakes, just as industry experts expect a boom for that market, much sooner than for the North American light vehicle industry. Since the beginning of the decade, sales of heavy trucks, such as semis, have been volatile but predictable. A series of new emissions standards taking effect every few years has prompted sales swings as trucking companies move up their purchases to avoid more expensive haulers that meet the new standards. Standards that took effect Jan. 1 prompted record sales of semis and other Class 8 trucks last year. This year sales are expected to plummet 45 percent. The company and analysts say ArvinMeritor is poised to cash in during the next upswing. "At some point over the next 18 months you're going to see commercial truck demand start picking up," said UBS analyst Rob Hinchliffe, who late last month raised his rating for ArvinMeritor from neutral to buy. "I think there's a lot of restructuring potential at the company," he said. "I think management is really starting to get serious about fixing things." A Major Move The most sweeping change came earlier this year when ArvinMeritor sold its $3-billion emissions business, which made exhaust components, including mufflers and filters, for passenger vehicles. Now, ArvinMeritor's annual revenue is expected to be $6 billion, down from $9 billion last year. Now it relies on the heavy truck market for two-thirds of its business instead of nearly half. "If you look at the product, it is a lot of stainless steel, and steel is a big cost driver," said ArvinMeritor Chairman and CEO Chip McClure, who joined the company three years ago and launched the restructuring plan. "It also reduced our exposure here in North America to Ford and General Motors." Last year, Ford Motor Co. and General Motors Corp. purchases for light vehicles combined for 16 percent of ArvinMeritor's sales. With the sale of the emissions business, that has dropped to 6 percent this year -- and most of that comes from outside North America. At the same time, the company is building its commercial truck aftermarket business, winning military contracts and expecting strong sales for heavy trucks in Europe and Asia, which should help offset future ups and downs of the North American heavy truck market. "We're referring to this next one as Scary Movie 4, because we know what's going to happen," said Tim Kraus, president of the Heavy Duty Manufacturers Association in Raleigh, N.C. That next one is expected in 2010, when trucks will be required to further reduce pollutants and soot. Kraus expects another roller-coaster ride just before 2013, when carbon dioxide standards on trucks take effect. Given the predictability of these cycles and ArvinMeritor's ability to withstand them, Hinchliffe says ArvinMeritor might be better off selling its entire light vehicle business "in the next 12 to 18 months." That would "unlock value, generate liquidity to invest in the core commercial truck business and focus management attention on ... much stronger growth and profit potential," Hinchliffe wrote in a research note. ArvinMeritor had nothing specific to say about that prospect. Stock Jumps Around Meanwhile, ArvinMeritor shares have seen a roller-coaster ride similar to the heavy truck market. Since 2005, the share price has swung from near $12 to highs nearly double that. Shares closed at $17.03 Monday. Bear Stearns analyst Peter Nesvold said the stock is an attractive bargain. "Risk in a vacuum is meaningless," he said in a report this month. "Risk at a deep discount is quite powerful."
|
Back
Printer Friendly
