Navistar Profits More than Fivefold - Analyst Blog

Navistar International Corp. (NAV) recorded more than fivefold increase in profits to $247 million or $3.37 per share in the fourth quarter of its fiscal year ended October 31, 2011 from $44 million or 61 cents per share in the comparable quarter a year ago. The profit exceeded the Zacks Consensus Estimate by 20 cents per share.

The profit excluded the net impact of an income tax valuation allowance release, costs associated with the restructuring of North American manufacturing operations, engineering integration and the impact of the Medicare Part D court ruling.

The improvement in profit was attributable to higher revenues, increased margins in the company’s core North America truck business, sustained military sales, and recovery in the engine business during the second half of the year.

Revenues in the quarter escalated 28% to $4.32 billion. Manufacturing segment profit almost tripled to $432 million from $146 million a year ago due to a considerable increase in profit in the company’s Truck segment.

For the fiscal year 2011, Navistar reported a profit of $402 million or $5.28 per share (excluding the items described above) compared with $223 million or $3.05 per share a year ago. The profit was higher than the Zacks Consensus Estimate of $5.06 per share.

Revenues in the year increased 15% to $13.96 billion during the year. However, manufacturing segment profit dipped 4.6% to $707 million from $741 million a year ago.

Segment Results

Truck: Revenues in the segment appreciated 18% to $9.69 billion. Segment profit was $287 million compared with $86 million in the prior year. For the fiscal year 2011, the adjusted profit was $509 million compared with $424 million in fiscal 2010. The increase in profit was attributable to improved product mix and improved pricing.

Engine: Revenues in the segment inched up 3% to $2.10 billion. The segment reported a profit of $58 million compared with a loss of $17 million a year ago.

For the fiscal year, the profit of $84 million compared to a prior year profit of $51 million. The increase in profit was driven by strong inter-company sales and margins from MaxxForce Big-Bore engines as well as continued strong performance in South America.

Parts: Revenues in the segment rose 16% to $1.97 billion. The segment profit was $87 million compared with a year-ago level of $77 million. For the fiscal year, segment profit increased to $287 million from $266 million a year ago driven by a growth in Navistar's commercial parts business.

Financial Services: Revenues in the segment ebbed 9% to $200 million. The segment recorded a profit of $27 million, a decline from $34 million in the same quarter a year ago.

During fiscal 2011, the segment earned $129 million compared with $95 million in fiscal 2010. The increase in profits was attributable to lower administrative costs and a decreased provision for credit losses, slightly offset by a lower net interest margin.

Financial Position

Navistar had cash and cash equivalents of $539 million as of October 31, 2011, a decrease from $585 million as of October 31, 2010. Long-term debt amounted to $4.86 billion as of October 31, 2011, a marginal decline from $4.87 billion as of October 31, 2010.

In fiscal 2011, Navistar had a net cash flow of $880 million from operating activities, a decline from $1.11 billion in fiscal 2010, mainly due to lower deferred taxes. Meanwhile, capital expenditure increased significantly to $429 million from $234 million in fiscal 2010.

Navistar repurchased 2.7 million shares of its stock during the quarter under study. The company is on track to complete the $175 million worth of stock repurchase program in early 2012.

Navistar and Its Peers

Navistar, a Zacks #4 Rank (Sell) stock, manufactures and markets commercial trucks, mid-range diesel engines, buses, military vehicles and chassis for motor homes and step-vans, and provides service parts for various trucks and trailers. The company is one of the largest truck producers after Daimler AG (DDAIF) and PACCAR Inc. (PCAR).

For the quarter ended September 30, 2011, PACCAR reported more than two-fold increase in profit to $281.6 million or 77 cents per share from $119.9 million or 33 cents per share in the same quarter of 2010. The truck maker’s profit exceeded the Zacks Consensus Estimate by 7 cents per share. The increase in profit was attributable to higher truck deliveries, increased aftermarket sales and a growing financial services business worldwide.

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