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September 6, 2017 11:45 AM, EDT
Navistar Posts Second Quarterly Profit in Last 20
Navistar LT models Navistar LT models by Jonathan S. Reiskin/Transport Topics

Truck and engine maker Navistar International Corp. returned to profitability during the fiscal third quarter ended July 31, posting net income of $37 million, or 38 cents a share, as sales rose 6.1% to $2.21 billion.

During the same time in 2016, Navistar lost $34 million, or 42 cents, on quarterly revenue of $2.09 billion.

The results, reported Sept. 6, were the original equipment manufacturer’s second profitable quarter over the past 20. The most recent quarter with positive net income was the period ended April 2016.

“We returned to profitability this quarter thanks to strong operational performance across the board, highlighted by a 15% increase in charge-outs and solid market-share gains amid flat industry conditions, and strengthening margins,” Navistar Chairman and CEO Troy Clarke said in a company statement. At Navistar, a charge-out means an invoice has been sent for a specific truck.

The results also blew past analysts’ per share consensus of 28.6 cents, according to Bloomberg News.

All of the Lisle, Ill.-based OEM’s four major segments were profitable, with the biggest change coming at the truck division that posted operating income of $7 million on quarterly sales of $1.52 billion. In the comparable 2016 quarter, Navistar’s largest division lost $54 million on sales of $1.39 billion.

Clarke said Navistar “moved ahead with new products and solutions that position us well for ongoing growth, while continuing to restructure our business to improve our future competitiveness.”

Among various product launches, Navistar has had three for heavy-duty highway trucks over the past 12 months: the RH regional tractors in April, the 12.4-liter A26 engine in March and the LT linehaul tractors in October.

During the conference call, Clarke offered details: 14,000 orders for LTs during the nine months ended July 31 and 3,000 orders for trucks powered by A26s.

The profit did not come without challenges as the company said it had $34 million in adjustments, including a $31 million charge for a litigation matter over its older MaxxForce engine and $6 million of pre-existing warranty charges. MaxxForce was developed by previous Navistar management and contributed to the string of losses. Clarke was brought in to rebuild the company.

Chief Financial Officer Walter Borst said the company has been battling the warranty issue.

“Our [accrued warranty] liabilities are down from $1.3 billion two to three years ago, to $659 million currently,” he said.

The company said improvements at the truck division included higher sales volumes in the core market of Class 6 to Class 8 North American trucks and buses and a ramp-up in Navistar’s Class 4 and Class 5 vehicles built with General Motors Co.

Parts remained the most profitable division, kicking in $157 million in the quarter just ended, up from $152 million a year ago.

The two smaller operations are global operations and financial services.

Stock analyst David Leiker told clients of Robert W. Baird & Co. that Navistar was able to produce “strong results as pieces fall into place.”

“While a strong Truck [division] with lower Parts would normally present negative margin ‘mix,’ the core profitability of the North American Truck business dramatically improved year-over-year, while global operations returned to a profit versus last year’s loss,” Leiker said.

“This helped drive a 56% increase in manufacturing profit, which was nearly 10% better than our estimate,” he added.

Navistar could well repeat the performance in its fourth fiscal quarter, which ends Oct. 31. Bloomberg News said the consensus estimate for earnings per share for the company is 52.7 cents.

“It’s prime selling season right now, and I like our position,” Clarke said in the call.

“Although the market remains competitive, we believe our investments in new trucks, buses and engines puts us in the best position that I’ve seen during my years at the company [since 2012],” he said. “We’re growing market share, and our improved order intake reinforces our momentum. We look forward to finishing the year on a strong note."