Navistar International Corporation (NYSE: NAV) reported second-quarter profits of $12 million, equal to $0.16 per diluted share, on $2.8 billion in net sales and revenues. Although the industry outlook remains challenging, Navistar has taken actions to help mitigate the adverse effects on its profitable growth, sustaining its momentum to deliver another year of expected net income.
The results for the second quarter ended April 30 were impacted by weak industry sales in every part of Navistar’s commercial business, as compared to the year-ago second quarter. Second quarter earnings were reduced by $31 million, equal to $0.44 per diluted share, from other costs related to the Ford settlement. In addition in the latest period, the company incurred research and development costs, and unanticipated costs related to warranty on products sold in prior periods, partially offset by the benefits from certain out-of-period accounting adjustments. In the second quarter a year ago, Navistar reported net income of $211 million, equal to $2.88 per diluted share, on $3.9 billion in net sales and revenues.
“Although the current growth of our traditional businesses is hamstrung by the global recession, we have nonetheless been able to advance numerous strategic and tactical initiatives that will be key contributors to our future success,” said Daniel C. Ustian, Navistar chairman, president and chief executive officer.
For the first six months of fiscal 2009, Navistar reported net income of $246 million, equal to $3.44 per diluted share, including the positive effect from the settlement with Ford of $155 million, equal to $2.17 per diluted share, compared with $146 million, equal to $2 per diluted share, in the first six months a year ago. First half net sales and revenues amounted to $5.8 billion, compared with $6.9 billion in the year-ago period.
“Continued reductions in our product costs, lower selling, general and administrative expenses and increased market share growth, along with the company’s military business, will enable us to maintain pace toward a profitable fiscal 2009 despite three consecutive years of dwindling truck volumes,” said Ustian.
The company now projects that total truck industry retail sales volume for Class 6-8 trucks and school buses in the United States and Canada for the fiscal year ending October 31, 2009, will total between 165,000 and 185,000 units, down from the previous forecast of 210,000 to 225,000 units. Industry volumes reached a recent high of 454,700 units in 2006 due to accelerated purchases of trucks in anticipation of higher prices due to stricter emissions standards imposed by the Environmental Protection Agency in 2007. However, the industry is anticipating only a minimal pre-buy in 2009 ahead of 2010 emissions requirements.
Based on second-quarter results and company forecasts for the remainder of the year, Navistar reported guidance for net income for its fiscal year ending October 31, 2009, in the range of $200 million, or $2.80 per diluted share, to $225 million, or $3.10 per diluted share, excluding the Ford settlement and related charges. Including results of the Ford settlement, per diluted share earnings should be in the range of $5.20 to $5.50 per diluted share.
“It is now clear that the economic recovery will take longer than had been originally expected. We are addressing this likelihood straight on by maintaining focus on our core product and market initiatives while taking the necessary steps that will allow us to adapt to the rapidly changing marketplace,” said Ustian.
Segment Results:
Truck — For the second quarter ended April 30, the truck segment reported a $56 million profit before tax, compared with $209 million profit before tax in the year-ago period. Even though the U.S. and Canadian truck market continued to weaken due to lack of customer demand driven by the downturn in the economy, Navistar increased its traditional market share during the second quarter and six months ended April 30. The market share of its Class 8 heavy-duty vehicle has been bolstered by an 8% growth in the second quarter and a 9% growth in the six months, compared to the same periods in 2008. The increases are primarily driven by market acceptance of the company’s International ProStar, market share gains in severe service and continued U.S. military procurement. Although Navistar continues to make progress on reducing its selling, general and administrative expenses, engineering and product development costs were higher in the second quarter and first half of 2009 due to the investment in new products.
Engine — For the second quarter ended April 30, the engine segment reported a loss of $84 million before tax, compared with a $51 million profit before tax in the year-ago quarter. The engine segment was near breakeven for the latest quarter excluding the costs of warranty on products sold in prior periods as well as the impacts of costs related to the Ford settlement. Limited demand for heavy duty diesel pickup trucks, coupled with the global economic climate, led to a decline of engine sales worldwide of 38,600 units and 73,500 units in the second quarter and first half of 2009, respectively.
Parts — Bolstered by increased market share as well as revenue growth in military parts business, Parts delivered second-quarter profit before tax of $115 million on sales totaling $577 million, compared with $56 million in profit before tax on sales of $438 million in the prior year second quarter.