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Navistar: Why Investors Need to Consider This Stock for the Long Run

January 20, 2015 | About:

Navistar (NYSE:NAV) reported significant growth in the North American truck market and exceeding its expectations for the year. For now, it expects the Class 6-8 bus and truck market to attain the vehicle units in 330,000 to 340,000 units range for its 2014 fiscal year.

Challenges and tailwinds

However, Brazil's tough economic condition is continuously challenging the complete industry. Navistar estimates an 18% reduction in engine volume compared to the previous year, and it has made considerable efforts to reduce its fixed costs to counter the tough situation to an extent. Moving ahead, Navistar estimate an enhanced profitability, as and when the economy recovers.

Therefore, Navistar is benefiting from North America but, facing tough headwinds from Brazil.

Going forward, Navistar is believed to recover its market share with the continued improvement in the global trucking market conditions. Several customers are successfully accepting its innovative SCR product.

Focus on operational improvements

Navistar is delivering superior quality products and warranty expenses, exceeding its expectations for the quarter. It has enhanced its cost structure and improved the breakeven point as well. Navistar is keen on expanding sales and has made considerable progress in refining its customer relationships.

Navistar is executing upon its set targets by focusing on the truck development in the market, and later allowing its customers to select the accurate products for running their business. Navistar launched the innovative severe service SCR in July with all its key SCR products currently under production, and estimates to release several other applications and variations during the fiscal year 2015.

The expenses and warranty spending of Navistar is declining on an ongoing basis. Navistar’s third quarter warranty spending declined 22% on year-over-year basis and 14% over the previous quarter. The lowering of cost is primarily due to improved repair practices; better quality of the innovative SCR engines is enabling reduced warranty spending on these engines.

Further, Navistar’s innovative OnCommand Connection, remote diagnostics product is estimated to support it in further reducing its warranty expenses. The new technology is believed to enhance the vehicle uptime and enable faster repairs coupled with enabling the truck major to reduce the repair and maintenance costs.

These significant cost reduction efforts are estimated to enable Navistar to face the growing competition effectively and position it well to successfully counter the economic headwinds.

Navistar significantly lowered its breakeven point and witnessed solid outcome in SG&A, manufacturing, material and engineering coupled with reduced warranty expenses through the implementation of continued focus on improvement and waste removal. Navistar’s reduced cost structure in general is estimated to expand profit leverage with the improvement in volumes.

The commercial segment of North America topped the performance charts with sales increasing 9% and being the second healthiest quarter. The used truck sales in the third quarter expanded 29% on year-over-year basis. Navistar introduced the unique Diamond Renewed program during the third quarter which includes offering its used truck customers, with a new truck experience. The program also comprises of equal to a two year 200,000 mile warranty, mechanical reconditioning process and a detailed inspection. This unique Diamond Renewed program is believed to an industry game changer, and is estimated to keep Navistar ahead of the competition.

For the fourth quarter of 2014, Navistar expects fourth quarter chargeouts to increase on year-over-year basis. The cash flow from manufacturing is estimated to be in $1 billion to $1.1 billion range. Moreover, fourth quarter non-GAAP EBITDA guidance is forecasted to be in the range of $115 million to $165 million.

Conclusion

The balance sheet of Navistar looks in a healthy condition to allow the company for planning significant growth investments going forward.


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Comments

Tiziano Frateschi
Tiziano Frateschi premium member - 2 years ago

Hello, looing at NAV ratios I see them all negative.

Operating margin (%) -2.43

Net-margin (%) -5.73

ROA (%) -7.97

ROC (%) -10.35
Revenue Growth (3Y)(%) -10.20
EBITDA Growth (3Y)(%) -54.50

How do you say balance sheet looks healthy ?

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GuruFocus has detected 5 Warning Signs with Navistar International Corp $NAV.
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