Navistar’s Profit Falls; Expects Revenue Gains
This story appears in the March 15 print edition of Transport Topics.
Navistar International Corp. profits fell 92.7% from a year earlier during the company’s fiscal first quarter because of continuing low levels of truck sales, but the Warrenville, Ill., manufacturer also presented plans it said eventually would boost annual revenue to $20 billion when the economy improves.
Navistar, which makes International trucks, earned $17 million, or 23 cents a share, on revenue of $2.81 billion during the three months ended Jan. 31. In the year-ago quarter, Navistar earned $234 million, or $3.27 a share, on revenue of $2.97 billion.
The parts division contributed the most operating income, followed by engines, trucks and finance. None of the units posted a loss.
“It proves again that we could be profitable in the toughest of times, but as you know, the first quarter for us is always one of our toughest quarters,” Daniel Ustian, Navistar chairman and CEO, said during a March 10 conference call.
Navistar already has proved it can generate $15 billion in annual revenue, pulling in $14.7 billion in fiscal 2008, so its new goal is to shoot for $20 billion, Ustian said, reiterating a goal announced earlier this year.
Ustian described to stock analysts and reporters how the company is leaning heavily on its engine choice for complying with new federal emissions regulations on diesel engines: exhaust gas recirculation technology, or EGR. Navistar’s main competitors — Daimler Trucks North America, Paccar Inc. and Volvo Group — all are using selective catalytic reduction technology, or SCR.
Ustian said Navistar would stress what it sees as EGR’s advantages, such as weight. Truck buyers have stressed the importance of “weight, weight, weight,” he said, because the additional technology makes tractors heavier, and that means less availability for freight.
For example, Ustian said, a 2010 ProStar will weigh 900 pounds less than a 2007 version, in part because it will use EGR rather than SCR. He also said he thinks EGR will be more popular among the company’s medium-duty truck and school bus customers.
Navistar is entering the Classes 4 and 5 medium-duty market, and Ustian said he would market the new vehicles on durability and EGR. General Motors Corp. left that market last year as part of its bankruptcy reorganization.
Navistar has long been a major player in Classes 6 and 7, but the company’s analysis shows many buyers of those trucks are saving money by moving to Classes 4 and 5. Ustian said he would try to keep those customers by shifting production to the smaller trucks.
Summarizing his company’s approach, Ustian said Navistar would build down to Classes 4 and 5 from its Class 6 platform, whereas GM and Ford Motor Co. built up from their Class 3 pickup trucks.
A major change Navistar announced was its exit from the business of financing customer purchases (click here for related story). Navistar Finance Corp., the company’s in-house finance unit, had debt as high as $4.8 billion in the fall of 2006. By Jan. 31 it had been reduced to $2.6 billion, and the company envisions getting down to the $1 billion level, with GE Capital picking up the work NFC had done.
Related to its military production, Navistar emphasized a $752 million contract announced Feb. 24 that pays the company to build 1,050 vehicles for use in Afghanistan.
On March 7, prior to the earnings announcement, Navistar had said its joint venture with Caterpillar Inc. — NC2 Global — will launch operations in Australia and begin selling trucks there midyear.
Navistar had said earlier in March that it hopes to move its headquarters within DuPage County, Ill., a Chicago suburb west of the city, to Lisle from Warrenville.
