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Navistar Q1 Loss Wider than Expected

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Navistar International Corporation (NAV - Free Report) recorded adjusted net loss of $210 million or $2.59 per share in the first-quarter fiscal 2014 (ended Jan 31, 2014) versus $114 million or $1.42 per share in the year-ago quarter. The loss per share was wider than the Zacks Consensus Estimate of a loss of $1.55.

On a reported basis, Navistar posted a loss of $248 million or $3.05 per share in the quarter, wider than a loss of $123 million or $1.53 a year ago.

Navistar’s revenues fell 16.3% year over year to $2.2 billion in the quarter, missing the Zacks Consensus Estimate of $2.7 billion. The decline can be attributed to medium-duty emissions strategy transition and a fall in military sales.

Segment Details

Revenues at Navistar’s North America Truck segment declined 18% year over year to $1.4 billion, owing to lower traditional truck volumes. The soft volumes can be attributed to the company's mid-range emissions strategy transition and significant decline in military products demand. The segment recorded a loss from continuing operations of $207 million compared with a loss of $101 million in the prior-year quarter.

Revenues at Navistar’s North America Parts segment dropped 11.6% year over year to $607 million in the quarter. The segment registered a profit of $104 million against $117 million a year ago. The decline was driven by lower military sales, partially offset by lower selling, general and administrative expenses due to the ongoing cost saving initiatives.

Revenues at Navistar’s Global Operations segment declined 25.4% to $303 million. The segment’s loss of $33 million was wider than $10 million recorded a year ago. The decline was due to reduced volumes from Navistar's South America engine operations, unfavorable exchange rate fluctuations, mainly in the Brazilian Real, and lower export truck sales.

Revenues at Navistar’s Financial Services segment dipped 6.8% to $55 million. The segment registered profits of $23 million, up from $22 million in the corresponding quarter last year.

Financial Position

Navistar had cash and cash equivalents of $549 million as of Jan 31, 2014, up from $497 million as of Jan 31, 2013. Notes payable and long-term debt was $4.9 billion as of Jan 31, 2014, against $4.5 billion as of Jan 31, 2013.

Net cash used in operations was $93 million in the first three months of fiscal 2014 versus cash flow of $66 million a year ago. Capital expenditure was $21 million in the period, down from $72 million in the year-ago period.

Our Take

Navistar will benefit from the launch of Cummins ISB engine in its products, which expanded its market share. Moreover, the transition of mid-range engine manufacturing to the Melrose Park, Ill. engine plant will considerably reduce the operating costs of the company. However, we are concerned about the declining military sales.

Navistar manufactures and sells commercial trucks, mid-range diesel engines, buses, military vehicles and chassis for motor homes and step-vans. It also provides service parts for trucks and trailers. Currently, the company retains a Zacks Rank #4 (Sell).

Other better-ranked stocks in the auto and truck industry include STRATTEC Security Corporation , China Zenix Auto International Limited and Allison Transmission Holdings, Inc. (ALSN - Free Report) . All three carry a Zacks Rank #1 (Strong Buy).

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