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Navistar (NAV) Down 52.6% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for Navistar (NAV). Shares have lost about 52.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Navistar due for a breakout? 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 catalysts.

Navistar Reports Narrower Than Expected Loss in Q1

Navistar came out with first-quarter fiscal 2020 loss of 33 cents per share, narrower than the Zacks Consensus Estimate of a loss of 38 cents. Better-than-expected external sales and revenues from Truck segment resulted in narrower-than-anticipated loss. Precisely, external sales and revenues from Truck segment came in at $1,238 million, higher than the consensus mark of $1,187 million.  However, the bottom line tanked from the year-ago earnings of 11 cents a share. Soft year-over-year contribution across all segments led to the underperformance.

The truck manufacturer generated $1,838 million in revenues, which missed the Zacks Consensus Estimate of $1,854 million. Revenues also marked a 24.4% fall from the year-earlier reported figure.

Segmental Performance

The Truck segment’s net sales came in at $1,242 million in the reported quarter, down 30.8% year on year amid lower volumes in the company’s core markets. The segment recorded net loss of $58 million against the profit of $90 million reported in the year-ago quarter. Lower volumes in North America along with higher used truck losses and warranty costs affected the margins. Further, the first quarter of fiscal 2019 had witnessed a gain of $54 million on account of sale of a majority interest in the Defense business, resulting in weaker year-over-year profits in the quarter under review.

The Parts segment net sales summed $493 million, down 10% year over year. The segment’s profit was $119 million, down 17.3% on a year-over-year basis. The downside can be attributed to weaker industry conditions in the United States and Canada, which led to lower volumes.

Net sales in the company’s Global Operations totaled $68 million, down from the year-ago level of $73 million. It reported breakeven earnings as against a profit of $6 million in the corresponding quarter of 2019. Lower volumes in South American operations along with depreciation of the Brazilian real against the U.S. dollarresulted in this downside.

Net sales in Navistar’s Financial Services segment came in at $57 million, down from $74 million reported in the year-ago quarter. The segment recorded profit of $17 million compared with the year-ago quarter’s $31 million. The downtick can be attributed to lower originations and average receivable balances.

Financial Position

Navistar had cash and cash equivalents of $1,000 million as of Jan 31, 2020, down from $1,370 billion as of Oct 31, 2019. At the end of the quarter, long-term debt was $4,283 million. During the quarter, capital expenditure totaled $59 million.

Fiscal 2020 Guidance

Navistar reiterates industrial and financial forecasts for fiscal 2020. The firm projects industry retail deliveries of Class 6-8 trucks and buses in the United States and Canada to be between 335,000 units and 365,000 units. Further, Class 8 retail deliveries are anticipated in the range of 210,000-240,000 units. The company expects revenues in the band of $9.25-$9.75 billion. Adjusted EBITDA is projected in the range of $700-750 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -28.77% due to these changes.

VGM Scores

Currently, Navistar has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. 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 indicates a downward shift. 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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