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Why Is Navistar (NAV) Down 3.2% Since the Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Navistar International Corporation NAV. Shares have lost about 3.2% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock’s next earnings release, or is it due for a breakout? 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 drivers.

Navistar Posts Loss in Q1, Revenues Miss Estimates

Navistar International Corporation reported first-quarter fiscal 2017 (ended Jan 31, 2017) loss from continuing operations of $0.76 per share, as compared with a loss of $0.40 posted in the year-ago quarter. The reported loss was wider than the Zacks Consensus Estimate of a loss of $0.51. Navistar recorded a net loss from continuing operations of $62 million, wider than a loss of $33 million recorded in the prior-year quarter.

Navistar’s revenues fell 6% year over year to $1.66 billion in the quarter, missing the Zacks Consensus Estimate of $1.75 billion. The decline resulted from lower truck volumes owing to sluggish Class 8 heavy industry conditions and reduced global sales.

Segment Details

Revenues at Navistar’s Truck segment decreased 9% year over year to $1.03 billion, primarily because of lower Core truck volumes owing to sluggish industry conditions. The segment recorded a loss from continuing operations of $69 million, considerably wider than a loss of $51 million in the prior-year quarter. The wider loss was due to market pressure, adverse impact of lower Core market volumes and a decrease in other income, partly offset by narrower used truck losses and lower adjustments to pre-existing warranties.

Revenues at Navistar’s Parts segment were $570 million, on par with the year-ago level. Revenues benefitted from higher U.S. and Canada parts sales, offset by lower export and Mexico volumes. The segment registered profits of $149 million, lower than $150 million recorded in the year-ago quarter.

Revenues at Navistar’s Global Operations segment plunged 46% to $50 million due to lower volumes in its South America engine operations, partly offset by positive currency exchange rate impact. Engine volumes declined 69% year over year due to a customer contract ending in the second quarter of 2016 and economic recession in Brazil. The segment recorded a loss of $4 million in the quarter, compared with a loss of $13 million a year ago.

Revenues at Navistar’s Financial Services segment declined 8% to $54 million in the reported quarter. The segment registered profits of $13 million, down from $26 million in the first quarter of fiscal 2016. The year-over-year decline in profits was led by lower interest margins, decline in other revenues and reduced interest income.

Financial Position

Navistar had cash and cash equivalents of $573 million as of Jan 31, 2017, down from $804 million as of Oct 31, 2016. As of Jan 31, 2017, notes payable and long-term debt was $4.9 billion, relatively in line with the Oct 31, 2016 level.

Net cash flow from operations totaled $22 million in the first quarter of fiscal 2017 versus cash outflow of $102 million in the year-ago quarter. Capital expenditure totaled $46 million, up from $29 million recorded in the year-ago period.

Guidance

Navistar projects Class 6–8 retail deliveries in the U.S. and Canada in the range of 305,000–335,000 units for fiscal 2017.

Revenues for fiscal 2017 are expected to be similar to fiscal 2016 level. Adjusted EBITDA is anticipated to be higher than last year. Manufacturing cash at the end of fiscal 2017, including capital injection from Volkswagen Truck & Bus, is projected at around $1 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been seven downward revisions for the current quarter. In the past month, the consensus estimate also shifted downward by 125.5% due to these changes.

Navistar International Corporation Price and Consensus

 

Navistar International Corporation Price and Consensus | Navistar International Corporation Quote

VGM Scores

At this time, Navistar's stock has an average Growth Score of 'C', though it is lagging a lot on the momentum front with an 'F'. 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 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for value investors than growth investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of these revisions also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.


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