Navistar Swings to a Profit in the Third Quarter

September 06, 2017 by Carly Schaffner, @carlyschaffner

Navistar International Corp. earned $37 million in the third quarter, a turnaround from a loss of $34 million in the same period last year.

The Lisle, Ill. truck manufacturer was able to squeeze a profit despite having to book combined charges of $37 million leftover from making the wrong bet on technology to control diesel engine emissions.

“This quarter we returned to profitability, driven by strong operational performance,” Troy Clarke, Navistar’s president and chief executive said in a call with investors Wednesday. “Every operating segment was profitable.”

Operating profits from truck sales were $7 million compared with a loss of $54 million during the third quarter of 2016. Profits from the parts segment grew 3.3 percent to $157 million.

The growth was consistent with the direction the company provided at the close of the second quarter when it posted a loss led by a large write down of its used truck inventory and sluggish new vehicle sales.

The “results did a lot to help instill confidence in the turnaround underway at the company,” said Michael Baudendistel, a Stifel Financial Corp. analyst.

He raised his target price for the Navistar shares to $40. The company’s shares closed trading Wednesday at $36.29, a 7 percent gain.

Navistar’s “products are improved, [market] share has likely bottomed, costs are being cut aggressively, and the outlook is favorable,” Baudendistel said in a report to investors.

Walter Borst, Navistar’s chief financial officer, said the improved results were illustrative of the “benefits of addressing several of our legacy items that have weighed on our historical financial results.”

For example, the company has sold off a large inventory of used MaxxForce 13-liter engine trucks overseas and will have minimal used inventory remaining by the end of its 2018 fiscal year, said Ann Duignan, an analyst with J.P. Morgan Research.

Navistar revenues in the third quarter rose 6 percent to $2.2 billion compared with 2016, primarily due to an increase in truck sales.

Navistar also made the first deliveries of its International LT Series with the company’s new A26 12.4-liter engine, a product introduced in 2016 that was meant to re-capture customers lost over the diesel technology snafu.

The company said its new A26 engine is delivering as much as 9 percent better fuel efficiency.

The International RH Series, a regional haul truck featuring the same engine, also made its way to customers during the third quarter.

“We’re capturing a greater share of the Class 8 market and the medium duty market,” Clarke said. “Increased deliveries outpaced growth in the market for the quarter.”

Clarke said in addition to new product success, restructuring the business to remain competitive in the future was also a priority. This includes the company’s decision to cease production of its 9- and 10-liter engines at its Melrose Park, Illinois plant. Navistar said it did not want to spend money to redesign the engines to meet upcoming greenhouse gas emissions regulations.

Navistar’s alliance with Volkswagen truck and bus is also chugging along. The two companies will leverage their combined buying power and collaborate on various advanced technology ventures. Volkswagen closed a deal to purchase a 17 percent stake in Navistar for $256 million earlier this year, taking two seats on the company’s board of directors.

The company expects the industry will deliver between 305,000 units to 335,000 units of Class 6 through 8 trucks and buses in the U.S. and Canada for fiscal year 2017.

“It feels good to be in on more deals this year than we were this time last,” said Clarke. “And although the market remains competitive, we believe our investment in new trucks, buses and engines puts us in the best position that I’ve seen during my years at the company.”

Read Next: VW Truck Division Pays $256 Million for Big Navistar Stake

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