Navistar International Corp. (NAV) posted a robust increase in profit (excluding the engineering integration costs) to $80 million or $1.02 per share in the second quarter of its fiscal year ended April 30, 2011 from $43 million or 60 cents per share in the corresponding quarter of prior year. However, the company missed the Zacks Consensus Estimate by 13 cents per share.
Including the engineering integration costs, the profit was $74 million or 93 cents per share during the quarter. The rise in profit was attributable to strong industry demand and benefits from the company’s expansion plan.
Revenues in the quarter appreciated 22.3% to $3.36 billion, up from the Zacks Consensus Estimate of $3.32 billion. Total segment profit rose significantly by 12.8% to $168 million from $149 million in the year-ago quarter.
Segment Results
Truck: Revenues in the segment grew 22.5% to $2.26 billion. However, the segment profit increased by 21% to $92 million from $76 million a year ago. The segment was benefited by higher commercial volumes, favorable pricing due to the existence of 2010 emissions-compliant engines and increased military revenues associated with deliveries of Mine Resistant Ambush Protected (MRAP) vehicles.
Engine: Revenues in the segment improved 18% to $524 million due to a recovery in the truck industry and growth in the rest-of-world original equipment manufacturer (OEM) markets, such as Brazil.However, segment profit dipped to $2 million from $15 million in the year-ago quarter due to a rise in engineering and warranty costs on legacy products.
Parts: Revenues in the segment surged 28.3% to $512 million. Profits in the segment increased 27.6% to $74 million from $58 million due to a recovery in the truck market and expanded engine product offering.
Financial Services: Revenues in the segment inched up 7.5% to $57 million. However, segment profit jumped 150% to $40 million from $16 million on the back of an improvement in retail portfolio quality that resulted in a $14 million fall in provision for loan losses as well as the benefit of lower borrowing costs on more than $1 billion in retail debt refinancing.
Financial Position
Navistar had cash and cash equivalents of $390 million as of April 30, 2011, a decrease from $585 million as of October 31, 2010. Long-term debt amounted to $4.82 billion as of April 30, 2011, a decline from $4.87 billion as of October 31, 2010. Consequently, long-term debt-to-capitalization ratio decreased to1.20 as of April 30, 2011compared with 1.25 as of October 31, 2010.
In the first half of fiscal 2011, Navistar had a net cash flow of $226 million from operating activities, a marginal decline from $266 million in the same period of the prior year, mainly due to lower deferred taxes. Meanwhile, capital expenditure increased significantly to $185 million from $78 million in the same quarter of fiscal 2010.
Guidance
Navistar, a Zacks #2 Rank (Buy) stock, projected to earn between $427 million and $465 million or $5.50 per share to $6.00 per share for the fiscal year ending October 31, 2011, excluding transition costs associated with the integration of the truck and engine engineering operation. The company expected to generate manufacturing cash of $1.43 billion at the end of the fiscal year.
Peer Results
Navistar is one of the largest truck producers after PACCAR Inc. (PCAR). PACCAR reported an almost threefold increase in profit to $193.3 million or 53 cents per share in the first quarter of 2011 from $68.3 million or 19 cents per share in the same quarter of 2010. With this, the company has beaten the Zacks Consensus Estimate by 4 cents per share.
Net sales and Financial Services revenues surged 47% to $3.28 billion, which was higher than the Zacks Consensus Estimate of $2.94 billion. The rise in sales and profit was attributable to strong truck sales in Europe and North America and an improvement in financial services profit and parts revenues globally.
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