Weak economic environment causes ArvinMeritor to revise financial forecast

After encountering a weaker than anticipated economic environment due in large part to the housing recession, ArvinMeritor's Senior Vice President of Strategic Initiatives and Treasurer Mary Lehmann told investors that the company is revising its forecast for diluted earnings per share from continuing operations.

Jim Donlon, executive vice president and chief financial officer, also was present when the announcement was made at the Deutsche Bank Leveraged Finance Conference in Scottsdale, Ariz. "We are encountering a weaker than anticipated economic environment in our Commercial Vehicle Systems business group resulting from decreased freight volumes largely due to the decline in housing construction," Donlon says. "Our customers expect the housing recession to delay the recovery cycle for North America commercial vehicle production into the 2008 calendar year. In addition, we are incurring premium freight and labor inefficiencies in Europe, associated with unanticipated demand for higher production of truck parts, which is creating capacity issues for the entire supply chain."

Donlon adds that the company anticipates this trend will negatively impact earnings for the fourth quarter of fiscal year 2007. In addition, he says that suppliers in financial distress as well as tax law changes in Germany will devalue certain deferred tax assets and further reduce the company's earnings per share.

However, Donlon anticipates the company's recovery late in fiscal year 2008.

"The current soft market conditions will continue in the short term with recovery later in the year resulting in a range of $1.40 to $1.60 earnings per share from continuing operations before special items for fiscal year 2008," he says. "While we continue to be challenged by market conditions, we are encouraged by the results we are seeing from our Performance Plus profit improvement program. As previously reported, we expect to deliver cost improvements of $75 million in 2008."

Donlon adds: "We are pleased by our Performance Plus growth initiatives, including ArvinMeritor being sourced as the supplier on 55 percent of the MRAP vehicles awarded thus far, with additional potential upside as new awards are announced, and our arrangement with Chery Motors in China that will ramp up to anticipated sales of $150 million annually by 2010. In addition, our pension and retiree medical costs will decrease, largely because of improved funding and modifications to plan benefits. We anticipate that these savings, combined with our aggressive internal programs to reduce SG&A costs, will help to mitigate the soft market conditions in fiscal year 2008."

To continue to maintain financial flexibility, the company has amended its revolving credit facility to modify certain covenants through the third quarter of fiscal year 2008.

For more information about ArvinMeritor, visit the company's Web site.