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Why Is Navistar (NAV) Down 10.3% Since the Last Earnings Report?

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A month has gone by since the last earnings report for Navistar International Corporation . Shares have lost about 10.3% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Navistar Q2 Loss Wider than Expected, Revenues On Par

Navistar’s adjusted loss came in at $0.73 per share for second-quarter fiscal 2017 (ended Apr 30, 2017), significantly wider than the Zacks Consensus Estimate loss of $0.08. The company reported a loss of $0.86 per share in the quarter, compared with earnings of $0.05 in the prior-year quarter. Navistar recorded a net loss of $80 million from continuing operations, compared to a net income of $4 million recorded in the prior-year quarter.

Navistar’s revenues fell 4.5% year over year to $2.1 billion in the quarter, on par with the Zacks Consensus Estimate. The decline resulted from lower volumes in the company’s Class 6-8 trucks and buses in the United States and Canada markets.

Segment Details

Revenues at Navistar’s Truck segment decreased 6% year over year to $1.4 billion, primarily due to low volumes, impact of a shift in product mix in the core markets and sales halt of CAT-branded units sold to Caterpillar, partially offset by increased truck sales in Mexico. The segment recorded a loss from continuing operations of $56 million, considerably wider than a loss of $23 million in the prior-year quarter. This was due to used truck losses, market pressures, adverse impact of lower core market volumes and a fall in other income, partly offset by improved material costs and lower adjustments to pre-existing warranties.

Revenues at Navistar’s Parts segment were $610 million, a decrease of 6% compared with the year-ago level. This decline was primarily due to low sales from Blue Diamond Parts (BDP) as well as lower U.S. and export volumes. The segment registered profits worth $153 million, a decline of 13% recorded in the year-ago quarter.

Revenues at Navistar’s Global Operations segment plunged 9% to $70 million due to lower volumes in South America engine operations because of continuing economic recession in Brazil. The segment recorded a loss of $7 million in the quarter, compared to a $1 million loss, a year ago. The increase in year-over-year loss is mainly due to low volumes, partly offset by lower manufacturing and SG&A costs.

Revenues at Navistar’s Financial Services segment declined 3% to $56 million in the reported quarter. The slump was primarily driven by a decline in interest revenue, lower receivables and unfavorable foreign currency headwinds, partly offset by higher revenues from operating leases. The segment registered profits of $15 million, down $10 million year-over-year. The decrease in profits can be attributed to lower interest margins, increased borrowing rates, weakening of other revenues and reduced interest income.

Financial Position

Navistar had cash and cash equivalents of $771 million as of Apr 30, 2017, down from $804 million as of Oct 31, 2016. As of Apr 30, 2017, long-term debt was $4.3 billion, up from the $4 billion as of Oct 31, 2016.

Net cash outflow in operations totaled $107 million in the first half of fiscal 2017 versus cash outflow of $104 million in the year-ago period. Capital expenditure totaled $66 million, up from $53 million, recorded in the year-ago period.

Guidance

Navistar continues to project Class 6–8 retail deliveries in the U.S. and Canada in the range of 305,000–335,000 units for fiscal 2017.

Revenues for fiscal 2017 are still expected to be similar to fiscal 2016 level. Adjusted EBITDA is anticipated to be higher than last year. Manufacturing cash at fiscal 2017-end, including capital injection from Volkswagen Truck & Bus, is projected to be around $1 billion.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. There has been one revision higher for the current quarter compared to one lower.

VGM Scores

At this time, Navistar's stock has a subpar Growth Score of 'D', though it is lagging a bit on the momentum front with an 'F'. However, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for value based on our styles scores.

Outlook

The stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.

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