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Navistar (NAV) Up 19.9% Since Last Earnings Report: Can It Continue?

Zacks Equity Research
Cooper Cos. (COO) doesn't possess the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.

A month has gone by since the last earnings report for Navistar (NAV). Shares have added about 19.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Navistar due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Navistar Q4 Earnings Drive Past Estimates, Rise Y/Y

Navistar reported fourth-quarter fiscal 2018 (ended Oct 31, 2018) earnings per share of of $1.89, beating the Zacks Consensus Estimate of $1.68. This compares favorably with the prior-year quarter’s earnings of $1.36 per share.

Navistar recorded net income of $188 million, up from $135 million in the prior-year quarter.

The company generated $3.32 billion in revenues, which beat the Zacks Consensus Estimate of $3.26 billion. The figure also marks a 28% rise from fourth-quarter fiscal 2017. This year-over-year improvement was primarily driven by a 45% increase in sales volume of Navistar’s Class 6-8 trucks and buses in the United States as well as Canada.

Fiscal 2018 Results

For fiscal 2018, Navistar reported earnings of $340 million or $3.41 per share, up from earnings of $30 million or 32 cents per share in the previous fiscal year.

Revenues for the year went up 20% year over year to $10.25 billion.

Segment Details

During the reported quarter, net sales and revenues at Navistar’s Truck segment were $2.6 billion compared with $1.9 billion in the prior-year quarter. The segment recorded profit of $197 million compared with the year-ago figure of $112 million. This improvement was due to higher volume in the company’s core markets and robust defense results, partly offset by higher commodity and structural costs.

Net sales and revenues at Navistar’s Parts segment were $633 million compared with $626 million recorded in the same period of the last fiscal year. The segment’s profit was $156 million compared with the year-ago figure of $157 million. Results were aided by robust sales of the Fleetrite brand, partly offset by increased freight costs, and development, engineering and SG&A expenses.

Net sales and revenues at the company’s Global Operations segment were $93 million, marking a decline from the year-ago figure of $105 million. Its profit was $4 million compared with $1 million recorded in the fourth quarter of fiscal 2017. Results were aided by higher volume and cost-reduction benefits.

Net sales and revenues at Navistar’s Financial Services segment were $70 million, marking an increase from the year-ago figure of $63 million. It recorded profit of $26 million, flat year over year. The segment’s profit improved due to higher average portfolio balances in Mexico and the United States. However, the rise was offset by increased borrowing costs.

Financial Position

Navistar had cash and cash equivalents of $1.3 billion as of Oct 31, 2018, up from $706 million as of Oct 31, 2017. At the end of fiscal 2018, long-term debt was $4.5 billion, marking an increase from $3.9 billion recorded as of Oct 31, 2017.

During the fiscal year, capital expenditure totaled $113 million, up from $102 million recorded in fiscal 2017.

2019 Guidance

Navistar projects industry retail deliveries of Class 6-8 trucks and buses in the United States, and Canada to be between 395,000 and 425,000 units in the fiscal year 2019. Class 8 retail deliveries are anticipated to be 265,000-295,000 units.

Further, the company’s revenues for fiscal 2019 are expected to be $10.75-$11.25 billion while adjusted EBITDA is anticipated to be $850-$900 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted 61.9% due to these changes.

VGM Scores

Currently, Navistar has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions looks promising. Notably, Navistar has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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