Navistar's Q3 Earnings Disappoint
Navistar International Corporation (NAV) reported third-quarter fiscal 2013 (ended Jul 31, 2013) loss from continued operations of $237 million or $2.94 per share compared with income from continued operations of $80 million or $1.16 per share in the year-ago quarter. Reported loss was also significantly wider than the Zacks Consensus Estimate of a loss of $1.39 per share.
A fall in volumes in the North America truck business, related to Navistar’s transition to SCR-based (Selective Catalytic Reduction) vehicles and overall weakness in the industry primarily hampered profits. However, this was partially offset by lower selling, general and administrative (SG&A) expenses and engineering and product development costs.
Navistar’s revenues declined 125% year over year to $2.86 billion in the quarter, missing the Zacks Consensus Estimate of $2.98 billion. The year-over-year decrease in revenues was due to a 9% decline in industry demand in North America and a fall in truck sales of the company due to its transition to SCR. This was partially offset by higher sales in the engine business in South America.
Segment Details
Revenues from Navistar’s Truck segment declined 15% year over year to $1.92 billion. Consequently, the segment recorded a loss from continuing operations of $58 million compared with a loss of $26 million in the third quarter of fiscal 2012.
The loss widened owing to lower traditional truck volumes resulting from tepid industry demand, an adverse impact of engine systems transition. A fall in military volumes and service revenues also played a role, partly offset by a fall in engineering and product development costs and SG&A expenses.
Revenues from Navistar’s Engine segment fell 14% to $723 million in the quarter. The segment registered a loss of $86 million, wider than the loss of $47 million in the corresponding quarter last year. The decrease was driven by charges for pre-existing warranties and a decline in U.S. volumes. This was partially offset by a decline in engineering and product development expenditures.
Revenues from Navistar’s Parts segment declined 9% to $491 million. Profits from the segment increased to $76 million, up 4% from the third quarter of fiscal 2012. The year-over-year rise in profits was driven by a decline in SG&A expenses, which offset the decline in sales of military parts.
Revenues from Navistar’s Financial Services segment slipped 5% to $61 million. Segment profits inched up to $23 million from $22 million in the corresponding quarter last year. The increase was due to a decline in overhead costs, which offset the fall in net interest margin.
Financial Position
Navistar had cash and cash equivalents of $425 million as of Jul 31, 2013, compared with $1.1 billion as of Oct 31, 2012. Long-term debt was $3.9 billion as of Jul 31, 2013, compared with $3.6 billion as of Oct 31, 2012.
Net cash from operations was $34 million in the first nine months of fiscal 2013 versus $346 million a year ago. Capital expenditure was $136 million in the first nine months of fiscal 2013, down from $250 million in the same period a year ago.
Guidance
Navistar is undertaking some cost-reduction activities to improve its financial results. These initiatives include a cutback in workforce and are expected to save $50–$60 million annually for the company from fiscal 2014.
Further, Navistar expects manufacturing cash and marketable securities of $1–$1.1 billion by the end of fiscal 2013.
Zacks Rank
Warrenville, Ill.-based Navistar manufactures and sells commercial trucks, mid-range diesel engines, buses, military vehicles and chassis for motor homes and step-vans. It also provides service parts for various trucks and trailers. Currently, the company retains a Zacks Rank #4 (Sell) on its stock.
Some stocks that are performing well in the industry in which Navistar operates include American Axle & Manufacturing Holdings Inc. (AXL), Lear Corp. (LEA) and Magna International Inc. (MGA). All these companies carry a Zacks Rank #1 (Strong Buy).
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