Navistar Narrows 1Q Loss, but Revenue Shows Decline
This story appears in the March 14 print edition of Transport Topics.
Truck maker Navistar International Corp. posted a smaller quarterly net loss in the fiscal first quarter than in the same period a year earlier, even though revenue also declined.
Navistar lost $33 million, or 40 cents a share, on global sales of almost $1.8 billion during the three months ended Jan. 31, the company reported March 8. In the previous first fiscal quarter, the manufacturer lost $42 million, or 52 cents, on revenue of $2.42 billion.
The company, maker of International trucks, attributed the quarter’s revenue decline of 27% to the termination of the Blue Diamond Truck joint venture with Ford Motor Co. in mid-2015.
Among the company’s four major divisions, losses expanded in the truck segment, parts and financial services earned more, and the loss narrowed for global operations.
“Despite a lower revenue base, we continued to unlock value by significantly improving adjusted EBITDA through managing and optimizing our costs,” Navistar CEO Troy Clarke said in the earnings statement. “We are encouraged by our performance and remain on track to achieve our goals of returning to profitability and generating manufacturing free cash flow in 2016.”
EBITDA is earnings before interest, taxes, depreciation, and amortization and is a measure of debt-free cash flow.
The company noted the softening U.S. heavy-duty trucks market, both new and used, and said overseas sales have been hurt by the strong U.S. dollar.
Clarke also said that over the “next few years” the company will announce a new product every six months, on average, “completely refreshing the product line by the end of 2018.”
Used trucks are a matter of growing significance, he said.
“Of increasing importance in the quarter, used truck is an area where we are working out demand. At a time of industrywide oversupply and a slowdown in used sales, our used-truck inventory increased $50 million to $440 million,” Clarke said during his earnings call.
“We had a lot of success in 2015 with our certified used program, developing export markets and selling to traditional used-truck buyers. However, this used inventory is higher than we had planned, so we will continue these efforts and other initiatives to manage it down over the next several quarters,” he added.
Clarke has been rebuilding Navistar since late 2012, when he was brought in after the company gave up on the engine strategy of the previous management. He is trying both to regain lost ground and to position the company for success in the future.
On the call, Clarke spoke of warranty claims against trucks with older engines. “We have seen our warranty expense as a percentage of manufacturing revenue continue to improve, falling to 2.6% in the first quarter. In addition, our dealer network has made greatprogress reducing dwell time.”
The emphasis on sturdier trucks means “our network, on average, achieved an almost 50% reduction in the time a truck spends at a dealership waiting for re- pairs and doubled the number of repairs completed in less than 24 hours.”
As for new products, he said, “The HX [severe-service truck line] is just the beginning of a cadence of new products that we will bring to market.”
Analyst Michael Baudendistel follows the manufacturer for Stifel, Nicolaus & Co. and offered a mixed assessment to the firm’s clients.
“Results were relatively strong,” he said, with adjusted EBITDA easily exceeding the company’s guidance and the [Wall] Street consensus estimate — and without any benefit from adjustments, but the company also took its 2016 guidance down to the lower end of its prior range, driven largely by a lower revenue outlook due to a deteriorating industry outlook.”
The consensus estimate calculated by Bloomberg News was 77 cents a share, compared with the actual loss of 40 cents.
Navistar’s new revenue estimate for the fiscal year ending Oct. 31 is $9 billion to $9.25 billion, down from $9.5 billion to $10 billion three months ago.
“While the company is executing well on its cost-cutting strategy and is steadily improving margins while improving the breadth and quality of its product offerings,” he added, “there is still huge uncertainty around how quickly Navistar can gain back market share and whether a downturn in North American demand, which is more severe than currently anticipated, would derail recent progress at the worst possible time.”
Baudendistel also said the timing is poor now for a purchase of Navistar by two potential European suitors, manufacturers Volkswagen and Iveco.
