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Navistar: Working on Its Weak Financial Performance
Posted by: Muhammad Bazil (IP Logged)
Date: April 22, 2013 10:11AM

Navistar International Corp. (NAV) is one of the leading manufacturers of commercial and military trucks. The company also manufactures buses, diesel engines and recreational vehicles. There are a number of factors influencing the company’s financial performance, and one of these is the cost of operations.

Navistar’s Financial Performance

The company reported a high cost of operations in the fourth quarter of 2012 which caused a steep decline in the profit margin; however, this decline was reversed by a significant degree in the first quarter of 2013. The recovery in the most recent quarter also had a considerable impact on the company’s market performance.

For the first quarter of 2013, the revenue reported by Navistar was $2.6 billion, significantly lower than the revenue of $3 billion for the same quarter last year. The revenue for the latest quarter was also significantly lower than the revenue in the immediately preceding quarter which stood at $3.2 billion. The net loss of the company for the quarter was $123 million which was lower than the loss of $153 million in the same quarter last year. Although the level of loss is slightly better when compared to the same quarter last year, it is significantly better than the immediately preceding quarter when the loss of the company was $2.7 billion, due to unusually high tax expense. The following chart represents Navistar’s financial performance over the past five quarters.

The chart indicates that the revenue of the company has declined consistently in the most recent quarter; however, the net loss is not as steep as the one it incurred in the previous quarter.

The company has taken some big decisions in light of the weakening financial performance. It has sold its stake in the Indian joint venture to Mahindra & Mahindra Ltd., for $33 million, and the company is considering consolidation of its engine production. According to Troy Clarke, chief operating officer at Navistar, the company produces engines at three facilities and none of those facilities operates at its full capacity. This way, Navistar is losing a significant amount of resources to fixed costs, and this is also one of the reasons for the weak profitability of the company. The consolidation of engine production will help Navistar lower the costs of production and give a push to the profits.

Navistar’s Competitors

The main competitors of Navistar are: BAE Systems PLC (BAESY) and PACCAR Inc. (PCAR). BAE competes with Navistar in the production of military products. Where, on one hand, Navistar produces both military and commercial trucks, BAE producers a wide range of products exclusively for air, land and naval forces. The profit margin of BAE Systems for 2012 was 6.4%.

PACCAR competes with Navistar because the company produces light, medium and heavy-duty trucks and other commercial vehicles. These products directly compete with those produced by Navistar, thus making these companies major competitors. The profit margin of PACCAR for 2012 was 6.52%. The financial performance of both the competitors of Navistar is stronger than the company. This can be evidenced by the fact that the profit margin of Navistar for 2012 was -22.88%.

Navistar’s Market Performance

The market performance of Navistar has been influenced by its weak financial performance in the past months. For most of the past year, the average trend of the share price was downwards; however, after comparatively positive financial results in the first quarter of 2013, the share price showed a steep incline. At the time of this edition, the shares of the company are being traded within the range of $32.88 and $33.88, while the 52-week range of the share price is between $18.17 and $40.75. The difference between the two extremes suggests the extent of volatility of the share price throughout the past months. The following chart represents the trend of the company’s share price over the past one year:

The chart shows that the share price increased steeply in the first week of March. This incline was a direct response to the financial results of the first quarter of 2013, reported by the company on March 7.

After analysis of relevant factors, investors should hold shares of Navistar. The company’s financial performance is unpredictable. Although the loss has declined in the most recent quarter when compared to the immediately preceding quarter, it cannot be said with certainty that the company’s financial performance will improve in the prospective periods.

Stocks Discussed: NAV, BAESY, PCAR,
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