Navistar International Corporation (NAV) has reported breakeven results for the first quarter of fiscal 2010 ended January 31, 2010, before non-recurring items. This compares to the Zacks Consensus Estimate of earnings of 92 cents per share and a year-ago profit of $48 million or 67 cents (before non-recurring items).
 
The decline in income was attributable to lower revenues due to weaker demand for the company’s military vehicles. Revenue in the quarter fell 5% to $2.8 billion.
 
Segment Performance
 
Truck: Segment profit declined to $35 million in the quarter from $114 million in the prior-year quarter due to decreased military sales in the U.S. The company achieved a market share of 31% for its Class 6–8 trucks and school buses in the U.S. and Canada.
 
Engine: The segment turned a profit of $54 million in the quarter from a loss of $7 million a year ago. This was attributable to a higher-than-expected demand in Brazil and a boost in demand from Ford Motor Co. (F) in anticipation of the expiration of a contract. Navistar was contracted to supply diesel engines to Ford in the U.S. and Canada on December 31, 2009.
 
Parts: Segment profit decreased to $79 million in the quarter from $104 million in the year-ago quarter due to decreased military sales in the U.S.
 
Financial Services: Despite the challenging credit market, segment profit was $12 million in sharp contrast to a loss of $1 million in the first quarter of fiscal 2009. The segment benefited from higher earnings from increased interest rates and fees charged to dealers, retail customers and manufacturing operations.
 
Financial Position
 
Navistar had cash and cash equivalents of $690 million as of January 31, 2010, an improvement from $497 million in the year-ago period. Long-term debt amounted to $3.8 billion as of that date. The company had a shareholder deficit of $1.6 billion as of January 31, 2010.
 
During the quarter, Navistar had a net cash flow of $125 million from operating activities, a decline from $324 million a year ago. Meanwhile, capital expenditure remained almost flat at $40 million compared to $38 million in the prior-year quarter.
 
Guidance
 
Navistar anticipates retail sales volume for Class 6–8 trucks and school buses in the U.S. and Canada for fiscal 2010 in the range of 195,000 units–215,000 units. During the fiscal, the company expects a profit in the range of $127 million or $1.75 per share and $163 million or $2.25 per share. This is lower than the Zacks Consensus Estimate of $2.42.
 
Estimate Revisions Trend
 
Over the last 7 days, out of the 13 analysts covering the stock, 7 analysts have revised their estimates downward for the second quarter ended April 30, 2010 while only one has revised it upward. This is reflected in our Zacks Rank #4 (Sell) for the stock.
 
On the other hand, over the last 7 days, out of the 12 analysts covering the stock, only one has revised his estimate upward for fiscal 2010 while 2 have revised theirs downward. Due to the almost equal number of upward or downward estimate revisions for fiscal 2010, we are maintaining our long-term recommendation as “Neutral”.
 
With respect to earnings surprises, the stock has disappointed over the trailing four quarters, barring the fourth quarter of fiscal 2009. The average earnings surprise was negative 61.47%. This implies that Navistar failed to meet the Zacks Consensus Estimate by the same magnitude over the last four quarters.
 
Currently, the Zacks Consensus Estimate for the second quarter ended April 30, 2010 and for fiscal 2010 are earnings of 20 cents per share and $2.42 per share, respectively. The upside potential of these estimates, essentially a proxy for future earnings surprises, currently stands at negative 55% and positive 1.65%, respectively.
 
Based on insipid results, the stock price tumbled 7% to $41.26 after the market closed yesterday.
 
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