The financial outlook improved at Navistar International Corp. as it swung to profit in the second quarter and revenues beat Wall Street’s estimates.
It was the company's first quarterly profit in more than three years.
The Lisle, Ill., truck manufacturer reported net income of $4 million, up from last year’s second-quarter loss of $64 million. Revenues declined to $2.2 billion from $2.69 billion, but still topped forecasts from Capital IQ for $2.18 billion.
Navistar shares jumped nearly 25 percent to $15.16 in mid-day trading after the earnings report was released. The company’s stock, prior to Tuesday, had declined almost 50 percent in the past year.
Despite declining revenue from fewer sales in its core U.S. and Canadian markets, Navistar returned to profitability thanks to a host of cost-cutting measures, the company said Tuesday.
Navistar cut $56 million in costs during the second quarter, bringing total reductions for the first six months of fiscal 2016 to $113 million. It wants to slash $200 million in costs for the year.
Sales of large vehicles, known as Class 8 trucks, however, were soft during the quarter due to declining demand globally.
“The fact that we earned a profit despite lower Class 8 truck volumes that impacted the entire industry, underscores the tremendous progress we continue to make in managing our costs effectively and improving our operations,” said Troy A. Clarke, Navistar’s president and chief executive.
While sales were soft, market share in the class 8 segment — trucks exceeding 33,000 pounds — rose to 11.6 percent in the second quarter from 11.3 percent the prior three months. But that is still below its 13 percent share in the same time period last year, said Ann Duignan, a JP Morgan analyst.
It wasn’t all good news for the company as Navistar reduced its guidance for the rest of 2016.
Total-year revenue is now forecast from $8.2 billion to $8.6 billion, down from a prior company outlook of $9 billion to $9.25 billion. Analysts had been expecting revenue of $8.83 billion. Income for the year is now forecast at $550 million to $600 million, down from $600 million to $650 million.
Still, the unexpected swing to profitability is an indicator that the company’s outlook is bright, Clarke said. Navistar is creeping its way back into the heavy-duty work-truck business with its line of HX series vehicles launched earlier this year – a segment it left about five years ago.
The company has about $800 million in cash on hand, up from $673 million it had in the first quarter, and well above the $500 million needs to run the company, Clarke said during a conference call on Tuesday.
Orders are up in the past year, which is another reason for optimism, said Bill Kozek, the president of Navistar’s North American truck and parts division.
Navistar has shifted its focus to the small class 6 and 7 markets, where its retail share of the market in the second quarter rose to 21.9 percent from 18.7 percent in the first quarter. That also helped the company get back into the black.
But that was still below its second-quarter 2015 share of 24.7 percent, Duignan said.
Lease rentals, government and especially construction equipment segments are bright spots for the company, as are sales of medium-sized vehicles, Clarke said.
“The medium duty segment continues to be strong this year,” he said. “We expect continued growth this year, and our customers are pretty positive.”