Navistar International Corp. beat expectations for the second quarter with strong financial performance driven by demand for its trucks.
The Lisle, Ill., company reported net income of $55 million in the second quarter compared with a net loss of $80 million during the same period in 2017.
Led by a 22 percent increase in truck sales, companywide revenue reached $2.4 billion in the quarter, up 16 percent from $2.1 billion a year earlier.
Growth is expected to continue at an even higher level than it estimated, according to Navistar. That’s good news for the heavy truck and parts maker.
“The second half of 2018 looks promising with a strong industry, new product deliveries and improving results,” said Troy Clarke, Navistar’s chief executive, in a call with investors Tuesday morning.
Clarke said he expects the strong performance to continue despite current shortages in the company’s supply chain and the cost involved in expediting those parts, which did not have a material impact on the quarter.
The company’s alliance with Volkswagen Truck & Buses also contributed to improved results and will continue to do so in the future, he said.
“The alliance remains on track to achieve targeted savings ahead of schedule,” said Clarke.
Volkswagen purchased 17 percent of Navistar for $256 million last year and gained two seats on the company’s board of directors. The companies also are working together to develop a new line of diesel truck engines and electric trucks. The partnership also is expected to create $500 million in volume purchasing savings for Navistar over the first five years.
“We are already coming up with more projects to do together than we have the staff for,” Clarke said.
In addition to the partnership with Volkswagen, Navistar retooled its retooled its entire product line.
“Navistar is not only benefiting from a cyclical upswing in truck volume, but also from an increasingly competitive product lineup,” said Alexander Potter, an analyst at Piper Jaffray & Co.
Earlier this year, Navistar rolled out a new medium-duty truck, the International MV, and sales are now taking off, according to the company. It also is testing an electric school bus in California, one result of its year-old venture with the VW unit.
By the end of 2018, Navistar expects its entire portfolio will consist of newly designed trucks, it said in its quarterly filing with the SEC. That, along with strong industry conditions, pushed truck sales up $530 million in the quarter to $1.7 billion. Profits were $42 million. That compares with sales a year ago of $1.4 billion and a loss of $56 million in the company’s truck segment.
Higher truck sales are due to “higher volumes in our core markets, higher export truck volumes, an increase in military sales and a shift in model mix, partially offset by a decline in Mexico truck volumes,” the company said.
Navistar’ share of the U.S. and Canadian market for its Class 8 trucks increased 2 percentage points to 13 percent in the second quarter as its heavy truck sales outpaced the industry. The company said it now has a healthy backlog of orders that will support future growth in market share.
The quarterly financial report demonstrated “better-than-expected margins and market share gains that are improving more quickly than we anticipated,” said Michael Baudendistel, an analyst at Stifel Financial Corp.
Parts sales and revenue were down about 1.5 percent for the quarter to $601 million compared with $610 million a year earlier. Profits also dropped to $132 million in the quarter compared with $153 million last year.
In the second quarter the company expanded its Fleetrite private-label parts business. Private label parts have a lower profit margin than its proprietary parts.
“Profits declined as we experienced a shift in parts margin mix due to the greater portion of the private-label branded sales as opposed to proprietary brands, as well as higher freight costs,” said Walter Borst, Navistar’s chief financial officer in the morning earnings call.
Navistar continues to working on next-generation product programs, and expects to announce new products regularly, which should increase market share, Clarke said.
“Customer acceptance of new products is beginning to drive increased market share,” he said. “Consideration and interest is growing as word-of-mouth spreads about the quality and performance of these new products.”