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Why Is Navistar (NAV) Up 9.8% Since Last Earnings Report?

Zacks Equity Research
·5 min read

It has been about a month since the last earnings report for Navistar (NAV). Shares have added about 9.8% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Navistar Posts Narrower Than Expected Loss in Q3

Navistar reported third-quarter fiscal 2020 adjusted loss of 8 cents per share, narrower than the Zacks Consensus Estimate of a loss of 16 cents. Notably, the firm’s Truck segment incurred a loss of $22 million, way narrower than the Zacks Consensus Estimate of a loss of $125 million.

The bottom line, however, tailed off from the year-ago profit of $1.47 per share. Dismal year-over-year contribution across all segments resulted in this underperformance. The coronavirus pandemic-led sluggish economy and depressed demand for vehicles dragged down profits.

In the fiscal third-quarter, the company reported an EBITDA of $73 million, significantly lower than the $281 million recorded in third-quarter fiscal 2019. Adjusted EBITDA in the fiscal third- quarter was $104 million, down from the prior-year quarter’s $266 million. Adjusted net income for the quarter was a loss of $8 million comparing unfavorably with the income of $147 million witnessed in the corresponding period last year.

The truck maker registered revenues of $1,675 million during the July-end quarter, missing the Zacks Consensus Estimate of $1,889 million. Moreover, the top line marked a 44.9% year-over-year plunge due to the outbreak of the coronavirus pandemic.

Segmental Performance

The Truck segment’s total net sales came in at $1,203 million in the reported quarter, plummeting 50% year on year. The segment witnessed a net loss of $22 million as against the profit of $167 million reported in the year-ago quarter. The year-over-year sales decline primarily resulted from lower volumes on weaker industry conditions resulting from the pandemic and the profits waned largely due to the reversal of a non-recurring legal settlement charge in 2019.
 
The Parts segment net sales dropped 27% to $414 million from the year-ago quarter. The segment’s profit was $97 million, down 34.9% on a year-over-year basis. This year-over-year sales drop resulted from staggered North America volumes due to the COVID-19 crisis as well as a decrease in Blue Diamond Parts (BDP) sales.

Net sales in the company’s Global Operations summed $47 million, marking a 48% drop from the year-ago level. Depressed volumes in South American operations, resulting from the temporary production halts due to the coronavirus crisis resulted in this downside. The segment reported a profit of $1 million, flat year on year.  The segmental profit was stable owing to the restructuring actions taken during this year.

Net sales in Navistar’s Financial Services segment came in at $49 million, reflecting a 34% decrease from the year-ago quarter. The segment recorded profit of $10 million compared with the year-ago quarter’s $30 million. The year-over-year sales decline resulted from lower average finance receivables due to dismal volumes and reduction in finance fees on lower interest rates.

Financial Position

The Illinois-based trucking giant took several actions to conserve cash and bolster its liquidity in response to the COVID-19 pandemic. As a result, it had cash and cash equivalents of $1,648 million as of Jul 31, 2020, higher than $1,370 million as of Oct 31, 2019, enabling it to cease its employee-salary deferral program on Sep 1, several months earlier than planned. At the end of the fiscal third-quarter, long-term debt was $4,964 million, up from $4,317 million as of Oct 31, 2019.

Other Details

Navistar has made remarkable growth on the construction of its production facility in San Antonio, which is scheduled to open in 2022. The facility will be capable of building both diesel and fully electric vehicles, and the first vehicle to be developed will be an electric truck. Additionally, actions taken to combat the coronavirus pandemic helped slash the company's selling, general and administrative (SG&A) expenses by 15.5%, year over year, during the reported quarter. The company plans additional cost-saving actions in order to bring down its SG&A costs within the range of seven to nine percent of revenues in the near future.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -46% due to these changes.

VGM Scores

At this time, Navistar has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% 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 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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