Navistar Posts First Quarter Loss, Still Bullish on 2018 Outlook

March 08, 2018 by Emma Hurt, @Emma_Hurt

Navistar International Corp. reported a $73 million loss for the first quarter of 2018, blaming the industry’s typically slow pace at the start of the year.

Despite the loss, the Lisle, Ill. manufacturer’s Class 8 market share grew 1.2 points compared with the same period in 2017. Last year was Navistar’s first full profitable year since 2011.

“We delivered stronger-than-expected first quarter results,” said Troy Clarke, Navistar’s chief executive on a call with industry analysts.

“The industry is on track to grow 14 percent year-over-year,” Clarke said. Total orders for the first quarter were up 64 percent, which “bodes well for the rest of 2018,” he said.

Given increasing sales and a strong industry climate, Navistar revised its industry-wide Class 6 through 8 trucks and buses forecast up 15,000 units to between 360,000 and 390,000 vehicles for 2018.

“Our investments in new products and services are paying off,” Clarke said.

The company also upped its revenue predictions a quarter of a billion dollars, to between $9.5 billion and $9.75 billion thanks to the favorable environment.

Revenue for the quarter totaled $1.9 billion, a 15 percent increase over the $62 million loss during the same period last year. The company attributed part of the quarterly results to costs of a debt refinancing in November.

“Navistar is growing more formidable with each passing quarter,” analyst Alexander Potter of Piper Jaffray wrote in a report to investors.

The company “has a compelling electric vehicle strategy, a refreshed product portfolio” and room to grow cash flow and operating profit, Potter said.

Other analysts also saw the first quarter results as evidence that Navistar’s financial position is improving.

“We believe that in this case ‘no news is good news’ as the company continues to gain a track record for managing and meeting or exceeding [Wall] Street expectations, a departure from a difficult history on that front,” said Michael Baudendistel, an analyst at Stifel Financial Corp.

“We also see evidence, in many metrics, of the company making progress on its strategic objectives, with improved gross margins, market share growth, and an unchanged trajectory of cost efficiency improvement,” he said.

Navistar’s first quarter total sales growth of more than 20 percent compared with the same quarter last year was primarily because of higher Class 6 through 8 truck and bus volumes, more military sales as well as production of General Motors cutaway vans at its Springfield, Ohio plant.

Much growth has come from popularity of its new 13-liter A26 engine, which gave Navistar a strong re-entrance into the 13-liter market, Clarke said. The company has doubled its share in the segment since last year.

Navistar also continues to receive much positive feedback about its new trucks from customers and drivers, especially the International LT Series, he said.

Despite a 2 percent price increase in November, fleets are still buying with overall value in mind, said Michael Cancelliere, who heads Navistar’s truck and parts business. “As much as price is important, what customers really care about is total cost of ownership.”

Navistar has received over 1,000 orders for its gasoline engine, CE Series school bus, and plans to introduce the A26 engine into heavy vocational trucks. Clarke also highlighted Navistar’s debut this week of the International MV, its new medium-duty work truck and also the last piece of its strategy to rebuild its truck brand line.

In response to questions about President Trump’s proposed steel tariffs, Clarke said the company is not concerned at this point.

Sheet steel cost Navistar about $100 million last year, said Chief Financial Officer Walter Borst, so a 25 percent tariff would only add $25 million.

“We believe any impact on material costs will be manageable and within our guidance for 2018,” said Clarke.

The company also said its alliance with Volkswagen Truck & Bus continues to go well, and its prototype electric school bus, the chargE, will be demonstrated for customers and government officials later this month.

The benefits of the alliance are already visible in Navistar’s earnings results, Clarke said.

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