Navistar International Corp. posted higher sales and grew market share in its second quarter as it beat investor expectations.
The results demonstrated that demand for Navistar’s trucks remains strong.
The company said it is unclear whether the U.S. government’s recently threatened tariffs on Mexico will impact the company. Mexico is an important part of Navistar’s manufacturing footprint, especially with capacity utilization at high levels for all of the company’s manufacturing facilities.
“Trust us, we are up to our elbows in some of that analysis as we speak,” Troy Clarke, Navistar’s chief executive, said in an earnings call Tuesday with stock analysts.
Without accounting for possible tariff costs, the company said it expects demand to push sales and profits for fiscal 2019 above its prior estimates. Navistar now predicts revenue of $11.25 billion to $11.75 billion for the year. Previously, $11.25 billion was its top level. That growth will come even with some softening in the freight market, it said.
Despite its strong performance in the quarter, Navistar reported a net loss of $55 million compared with net income of $67 million in the same period a year earlier. The loss was due to a one-time charge of $159 million to settle lawsuits over a now-abandoned engine concept.
The settlement covers about 65,000 of the company’s International brand trucks that are equipped with MaxxForce diesel engines.
Excluding that one-time cost, profit for the quarter rose 57 percent to $105 million, the Lisle, Ill.-based company reported.
Revenue climbed 24 percent to $3 billion for the quarter compared with $2.4 billion a year ago.
A 35 percent increase in sales of its class 6-8 trucks and its IC brand buses in the U.S. and Canada drove the higher revenue.
GROWING MARKET SHARE
The company’s core market share grew 1.9 percentage points to 19.3 percent in the quarter. That was led by a 3.5-point increase in its share of the class 6 and 7 medium-duty truck market compared with the year-ago period.
Navistar said supplier constraints have eased as it has invested in helping it vendors build capacity. And it has announced a new parts-distribution center in Memphis, Tenn., to support higher truck sales. The company also has recently paid down some debt as part of its action to reduce its risk profile.
Clarke expects continued growth in market share as Navistar continues to launch new products, especially in class 4 and 5 trucks.
Gross margin for the full year may be lower than expected, the company said. The top number it expects is 18.75 percent for the year. That is lower than the prior estimate of 19.5 percent.
Truck industry analysts applauded the company’s second-quarter results. Baird Equity Research said it expects the strong performance to continue.
“Order trends suggest that share gains at Navistar can continue throughout the balance of fiscal year 2019 with orders in Navistar’s core markets up 2 percent year over year in the second fiscal quarter compared to industry orders down 46 percent year over year,” said Baird analysts.
Navistar’s class 6-7 orders increased 21 percent in the second quarter compared with the year-ago period. The increase came as industrywide orders for that class fell 14 percent. Navistar also beat the industry on class 8 truck orders. For class 8 orders, it posted a 15 percent dip. But the industry logged a 61 percent decline in the same period, Baird research reported.
Truck sales hit $2.3 billion in the second quarter, up 35 percent from the year-ago period. The increase was due to higher sales in Navistar’s core markets, an uptick in Mexico truck sales and higher sales of Genera Motor- branded cut-away vans that Navistar makes for GM.
The company posted a net loss of $74 million in the truck segment in the second quarter compared with net income of $42 million a year ago. It attributed the loss to MaxxForce engine settlement costs.
But future financial results in Navistar’s truck sector could face headwinds due to the potential tariffs on imported goods from Mexico.
“Navistar is a bit stronger, more bullish, in Mexico (sales) than the other truck manufacturers,” said stock analyst Scott Pope of Morningstar, an independent investment research firm.
Parts sales fell 4 percent to $579 million in the second quarter. But profits grew 9 percent to $144 million compared with the year-ago period.
Navistar said its recent service partnership agreement with Love’s Travel Stops will help support additional parts sales.
Navistar ended its second quarter with $1 billion in cash and easily liquidated short-term securities.
The company said its strong second-quarter performance signals a company recovered from past problems and on its way to higher future financial results.
“Our marketplace progress is really setting us up for even much better performance in the future,” said Clarke.