What happened 

It's not hard to see the catalyst behind the big move in commercial truck and industrial parts maker Meritor, Inc's (NYSE:MTOR) big stock price move in January. According to S&P Global Market Intelligence, Meritor's stock price increased 16.3% in January, with most of the move occurring on the day Meritor released its first-quarter fiscal 2018 earnings report. 

a render image of truck on the road

An improving truck market is helping Meritor raise guidance. Image source: Getty Images.

While the report showed Meritor beating analyst estimates for the first quarter, the real headlines were in the guidance and outlook. A few highlights:

  • Management significantly increased full-year 2018 sales and earnings guidance compared to the outlook given less than two months ago, on its analyst day presentation.
  • Meritor is now close to "12 months early" in achieving its 2019 targets, according to CEO Jay Craig speaking on the earnings call.
  • The hike is due to a combination of improving end markets and "new business wins that are tracking better than expected," according to Craig.

The extent of the improvement in outlook can be seen in the table below.

Meritor

Full-Year 2018 Guidance

Previous Guidance

Sales 

$3.8 billion to $3.9billion

3.6%-3.7%

Adjusted EBITDA margin

11%-11.2%

10.8%-11.2%

Adjusted diluted EPS from continuing operations

2.50-2.70

2.20-2.40

Free cash flow

$110 million to $125 million

90-100

Data source: Meritor, Inc. presentations.

So what

Other than making Meritor immediately more attractive from a near-term valuation perspective, the improving outlook also suggests Meritor is set for longer-term growth. For example, around 40% of Meritor's growth in fiscal 2018 is likely to come from Meritor's new business wins, according to CFO Kevin Nowlan.

Moreover, the most significant increase in outlook came in Meritor's core market of North America. Management now expects North America heavy duty class 8 industry truck production to be 280 thousand to 300 thousand, that's up by 20 thousand from its previous outlook range. Incidentally, you only have to look at what the industry was forecasting at the start of 2017 to see how strong Meritor's current outlook is. 

All told, Meritor is seeing end market growth and new business wins in the geographic areas where it's best placed to take advantage.

Now what

With expectations for a pickup in U.S. GDP growth in 2018, and strengthening transportation and commodity markets, the outlook is good for the trucking industry in 2018. Consequently, investors will be hoping for more increases in guidance to come while expecting the company to convert its new business wins into profit growth down the line.

Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.