Navistar Trims Losses but Sales Continue Steep Decline

March 08, 2016 by Jerry Hirsch, @Jerryhirsch

Navistar International Corp. narrowed its losses during its first fiscal quarter, but sales also declined, the Lisle, Ill., truck manufacturer reported Tuesday.

The company said its first quarter loss dipped 21 percent compared to the same period a year earlier, to $33 million.

Revenue skidded 27 percent to $1.8 billion from $2.4 billion in the first quarter last year.

Multiple factors were responsible for falling sales. Business fell in Navistar’s core U.S. and Canadian markets. Export markets softened, in part because of the strong U.S. dollar.  A slumping economy in Brazil reduced engine sales.

Navistar’s financial performance also took a hit from the discontinuation of its Blue Diamond Truck joint venture in mid-2015. The venture manufactured medium-duty trucks for Ford Motor Co. Ford now makes its own trucks in that segment.

Nonetheless, company executives said the results demonstrated improvement in Navistar’s financial position, noting that some measures of the truck maker’s cash flow were improving.

“We are encouraged by our Q1 performance and remain on track to achieve our goals of returning to profitability and generating manufacturing free cash flow in 2016,” said Troy A. Clarke, Navistar’s president and chief executive.

Investors, however, were not impressed.  Navistar stock fell 12% to close at $10.35 in trading Tuesday.

In a conference call with industry analysts, Clarke said Navistar continues to look for “opportunities to partner.” Some analysts have listed the company as a potential acquisition target.

Clarke listed potential business ventures, such as Navistar’s agreement to collaborate with General Motors Co. on building medium-duty trucks, as the type of deals he would pursue. But he also hinted at wider agreements.

“All the progress we are making will make us a better partner at any level for any company,” Clarke said.

Navistar ended the quarter with $673 million in cash, even though seasonally, it is the period with the weakest revenue and the most cash needs, said Walter G. Borst, the company’s chief financial officer.

“This was a solid quarter in which we made real progress toward our 2016 targets,” Borst said.

Sales of its new HX series of work trucks are off to a good start. Launched last month, Navistar already has more than 300 orders.  The new truck puts Navistar back in a segment of the industry it exited in 2010 after making the wrong bet on diesel emissions technology.

Navistar plans to announce a new product on average every six months, and will have completely refreshed its product line by the end of 2018, Clarke said.

The executive described a mixed outlook for truck manufacturers this year.

He said business will remain good in certain segments, such as the government and construction markets.  Sales of medium-duty trucks and busses will rise this year. Long haul trucking won’t be as strong.

“Where we are seeing a negative is in oil and gas and the energy segment,” Clarke said, a result of the steep decline in oil prices.

Other financial highlights during the quarter included $57 million in cost reductions, a record first quarter parts segment profit of $150 million and a small decline in warranty expenses.

On the negative side, Navistar reported that its used truck inventory ballooned by $50 million to $440 million.

“We expect the industry’s oversupply of used trucks will continue in the near term,” Borst said. “While our inventory is higher than we planned, I am confident in our abilities to address this issue and bring these inventories down over time.”

Looking ahead, Navistar said its full-year revenue will be in the range of $9 billion to $9.25 billion. The company also reiterated its goal is to achieve profitability and be manufacturing free cash flow positive this year.

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