Navistar International (NAV, Financial) recently declared a $213 million increase in first-quarter revenue. Analysts had expected the company to deliver $2.68 billion of revenue, according to Zacks. Navistar reported a first-quarter net loss of $42 million, or $0.52 per diluted share as compared to a net loss of $248 million, or $3.05 per diluted share during the same period last year.
Looking ahead, Navistar is believed to benefit significantly from the improving U.S. economy. The solid sales trend that started in 2014 is forecasted to continue in 2015 as well, primarily driven by enhanced innovative truck fuel economy, employing alternative of aging fleets, better profitability of the transportation company and the growing tonnage.
Growth drivers
The recent oil prices decline has also boosted commercial vehicle sales and expenditure in most segments like on highway, but dragged down sales in other segments, mainly oil and gas applications where Navistar has a weaker presence. Navistar holds its industry retail estimate for class 6 to class 8 vehicles that include bus forecasted to in the 350,000 to 380,000 units range for this year compared to approximately 342,000 units in the previous year.
Navistar illustrated 17% year-over-year growth in chargeouts for its key markets during the first quarter of 2015. This solid growth is depicted by a 42% expansion in school bus and a 25% expansion in Class 6 and 7 medium truck chargeouts. The severe and heavy service also gained significantly.
The steady improvement in the U.S economy coupled with a significant decline in oil prices is believed to significantly enhance the truck sales in the country along with a solid growth in market chargeouts which should further expand the heavy vehicle sales including, the school bus sales.
Navistar is continuously struggling to capture a key market share in the North American commercial trucks market, primarily driven by the market leaders Volvo AB and Paccar Inc., the manufacturer of Kenworth and Peterbilt trucks and Daimler AG‘s Freightliner unit.
End-market growth is positive
The company reported significant growth in medium-duty trucks sales to rental companies, which are a key user of medium-duty trucks. Navistar also recorded 21% expansion in its medium-duty trucks market share in Canada and the U.S. for the quarter, compared to 19% growth in the previous quarter. However, Navistar’s heavy-duty market share declined to 11% from 15% in October.
The significant expansion in medium-duty trucks market share for Navistar is partially offset by a major fall in the company’s heavy-duty market share, as well as fierce competition from the well-established market leading brands like Paccar Inc. and Volvo AB.
Navistar projects the customers in the United States and Canada to significantly increase the purchase of commercial trucks for fiscal year 2014 in 235,000 to 240,000 of the big rigs range, an increase from the earlier estimate of 225,000 to 235,000 trucks.
The momentous purchase expansion of the commercial trucks in the U.S. and Canada along with the positive analyst sentiments signifies healthy company growth, going forward.
Navistar is steadily enhancing its bottom line by implementing some key cost-cutting efforts. It is closing the non-core operations through which the company is forecasted to further lower its costs and deliver impressive bottom line expansion in the succeeding five years. In addition, the expanding demand for trucks in major markets like North America and China is estimated to further enhance its financial performance.
Conclusion
Overall, the investors are advised to invest into the Navistar International Corporation looking at the solid growth prospects depicted by the PEG ratio of 5.10 and comparable to the industry’s average of 1.01. However, the profit margin and diluted EPS are disappointing at -3.75% and -5.07 respectively. Navistar also needs to optimize its debt-laden balance sheet having total debt of huge $5.08 billion against total cash of $733.00 million only to continue its investments into the future growth.
