Navistar International Corp. (NAV) recorded a 43% fall in profit to $61 million or 79 cents per share in the third quarter of its fiscal year ended July 31, 2011 from $107 million or $1.44 per share in the comparable quarter a year ago.
The profit excluded income tax valuation allowance release and costs associated with the restructuring of North American manufacturing operations and engineering integration. It was significantly lower than the Zacks Consensus Estimate of $1.35 per share.
The decrease in profit was attributable to lower finance revenues and higher cost of goods sold. Revenues in the quarter rose 10% to $3.54 billion.
Manufacturing segment profit slashed 44% to $157 million from $278 million a year ago (excluding restructuring charges of North American manufacturing operations and engineering integration charges) due to considerable fall in profit in the company’s Truck segment.
Segment Results
Truck: Revenues in the segment inched up 6% to $2.46 billion. However, the segment profit plummeted 76% to $55 million from $227 million a year ago (excluding restructuring charges of North American manufacturing operations and engineering integration charges).
The segment profit was adversely impacted by lower military revenues due to timing of contracted deliveries as well as higher commodity and fuel costs.
Engine: Revenues in the segment rose 20% to $546 million. The segment profit was $32 million in contrast to a loss of $1 million last year. The increase in profit was driven by higher margins of big bore engines, continued strong performance in South America, improved profitability from adjacent business segments with increased shipments to original equipment manufacturers as well as improved performance from Pure Power Technologies. However, these were partially offset by higher adjustments to pre-existing warranties.
Parts: Revenues in the segment appreciated 23% to $487 million. Profits in the segment increased 35% to $70 million from $52 million due to higher commercial sales.
Financial Services: Revenues in the segment dipped 20% to $47 million. However, segment profit dipped marginally by $3 million to $30 million due to lower retail portfolio balances.
Financial Position
Navistar had cash and cash equivalents of $444 million as of July 31, 2011, a decrease from $585 million as of October 31, 2010. Long-term debt amounted to $4.56 billion as of July 31, 2011, a decline from $4.87 billion as of October 31, 2010. Consequently, long-term debt-to-capitalization ratio decreased to 0.86 as of July 31, 2011 from 1.25 as of October 31, 2010.
In the first nine months of fiscal 2011, Navistar had a net cash flow of $539 million from operating activities, a decline from $664 million in the same period of the prior year, mainly due to lower deferred taxes. Meanwhile, capital expenditure increased significantly to $291 million from $162 million in the same quarter of fiscal 2010.
Guidance
Navistar, a Zacks #3 Rank (Hold) stock, projected to earn between $388 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 $1.2 to $1.4 billion at the end of the fiscal year.
Peer Results
Navistar is one of the largest truck producers after PACCAR Inc. (PCAR). PACCAR reported a profit of $239.7 million or 65 cents per share in the second quarter of the year that more than doubled from $99.6 million or 27 cents per share in the prior-year quarter. However, the truck maker’s profit missed the Zacks Consensus Estimate of 68 cents per share.
The improvement in profit reflected strong truck sales in North America and Europe and better aftermarket parts sales and financial services results worldwide. However, the company’s suppliers faced difficulty while catering to the robust increase in truck build rates.
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