Navistar turns the corner – maybe

Troy Clarke's efforts to turn round Navistar International Corporation looks to be bearing fruit, but the new fruit may be short-lived.

The parent company of International truck brand has said it turned in its first profit in three years, thanks to a boost from its parts business. Who said parts don’t make profits?

Net income for second quarter 2016 reached $4 million. This is not a huge number, but compared with a net loss of $64 million in the year-earlier period, chief executive Clarke will take some heart from the figures.

The company said revenues in the quarter ending 30 April were $2.2 billion, down 18 per cent compared with $2.7 billion in the second quarter last year. 

“For the first time since we launched our turnaround more than three years ago, Navistar reported a quarterly profit,” said Clarke. “Our performance this quarter begins to demonstrate the earnings potential of this company. The fact that we earned a profit despite lower Class 8 truck volumes that impacted the entire industry, underscores the tremendous progress we continue to make in managing our costs effectively and improving our operations.”

Two of the company’s four main business units saw income rise in the quarter: the parts segment increased to $176 million — a quarterly record — from $133 million a year earlier, while the financing unit’s income rose to $25 million, up from $22 million in the year-earlier period, claimed Navistar.

However, the truck unit had a loss of $23 million compared with a loss of $51 million a year earlier, and global operations reported a loss of $1 million, compared with $1 million in profit in the same period one year ago.  This suggests the truck unit still has some issues to deal with.

For the second half of 2016, Navistar said it lowered its industry guidance range by 20,000 units, due to softening Class 8 market conditions.

In conclusion, Clarke painted a mixed picture for investors – with jam still coming tomorrow.

“While we were net income positive in the second quarter, it will now be difficult for us to be profitable for the entire year given the tougher than anticipated market conditions, primarily due to the lower outlook for Class 8 industry volumes,” Clarke said. “We are confident we will generate and implement additional performance improvements to partially offset current industry conditions.”