Navistar Narrows Fiscal 1Q Loss as Sales Gain, Repair Costs Drop
This story appears in the March 9 print edition of Transport Topics.
Navistar International Corp. narrowed its loss in its fiscal first quarter as vehicle sales improved and warranty expenses continued to decline.
The truck and engine manufacturer said it lost $42 million, or 52 cents per share, in the quarter ended Jan. 31, compared with a loss of $248 million, or $3.05, in the same period last year.
It was Navistar’s second-smallest quarterly loss since the third quarter of 2012, when the company announced it would abandon its previous engine strategy and move to selective catalytic reduction technology to meet federal emissions standards.
Revenue rose to $2.42 billion, up 10% from $2.21 billion a year earlier, the manufacturer said in its March 3 report.
CEO Troy Clarke said the results reflect Navistar’s “continued momentum and ongoing progress in improving the fundamentals of our business.”
“In the first quarter, we once again increased our production, charge-outs and order backlog,” he said. “Our improved product quality is driving reduced warranty spend, and we continue to lower our break-even point.”
Navistar has reported losses in 10 consecutive quarters while transitioning its truck lineup to SCR technology, a process that Clarke said was “essentially complete” during a Feb. 4 analyst event at the company’s Lisle, Illinois, headquarters.
Navistar’s previous emissions approach, which relied on exhaust gas recirculation, failed to meet the U.S. Environmental Protection Agency’s tighter 2010 standards without using emissions credits.
Although Navistar has not turned a profit in 2½ years, the manufacturer’s bottom line has improved on a year-over-year basis in each of the past four quarters.
After the report last week, analyst Rhem Wood of BB&T Capital Markets said his firm expects Navistar to return to profitability in the second half of this year.
“While the ‘bears’ can continue to pick at relative market share, the reality is that we believe truck volumes in all categories will continue to improve for the balance of 2015 and into 2016,” he said.
Most analysts had projected a steeper loss, according data collected by Bloomberg News. Navistar’s stock price edged up 23 cents to $29.17 a share on March 3 after its quarterly report.
David Leiker of Baird Equity Research said his firm believes Navistar has “de-risked” during the past six quarters, but the “missing piece” is market share.
“While we are still neutral on Navistar’s stock, we have gained enough confidence in the turnaround to recommend longer-term investors start getting involved,” he said. “We believe the stock likely stays around $30 over the next two to three quarters with upside to $50 during 2016, barring a U.S. recession.”
J.P. Morgan analyst Ann Duignan said Navistar’s turnaround is “past its inflection point,” but she added that “there is still significant execution risk ahead.”
On the company’s earnings call, Clarke also reiterated Navistar’s renewed emphasis on ensuring the reliability of its trucks and streamlining maintenance and repairs.
“We remain focused on finishing our turnaround, but we have laid the foundation to lead the industry in uptime — products, processes and services designed and validated to keep trucks on the road,” he said.
Navistar said charge-outs for its Classes 6-8 trucks and buses in the United States and Canada rose to 13,500 during the quarter, a 17% increase from 11,500 a year earlier.
The growth was led by a 25% gain in medium-duty trucks, to 4,000 units, and a 42% jump in school buses, to 2,700 units. The company said it captured 21% of the market in Classes 6-7, up from 17% a year earlier.
Navistar’s sales volumes also rose year-over-year in Class 8, but its market share in that segment declined as other manufacturers posted stronger growth.
Charge-outs increased 7% to 4,800 units for heavy-duty trucks and rose 5% to 2,000 for severe-service trucks, but the company said its total Class 8 market share fell to 11%, from 14% a year earlier.
Industrywide Class 8 retail sales in the United States grew 19% year-over-year during the November through January timeframe, according to WardsAuto.com.
Navistar said its order backlog for Classes 6-8 trucks has increased 27% from a year earlier.
The company expects charge-outs to increase more than 20% in the second quarter on a sequential basis.
“Looking at our volumes, we expect to be up in all segments in 2015 as we continue to grow with the market and, importantly, regain market share lost during the changes of the last two years,” Clarke said.
Separately, Navistar also launched a new website for its Fleetrite brand of all-makes truck and bus parts sold through its International truck and IC Bus dealer network.
Fleets can visit Fleetrite.com to search thousands of parts and download product information.
