Navistar turned a $4 million profit in the second quarter of this year, hitting a milestone the company has sought since it began its turnaround effort more than three years ago.
Revenues dropped about 18 percent compared to the same time last year. But a combination of slashing costs and record profitability in the company’s parts segment meant the manufacturer was in the black for first time since the third quarter of 2012.
“The big news is they did turn a profit for the first time in several years,” said Steve Volkmann, an analyst from Jefferies Equity Research who follows Navistar. “Modest as it was, it’s still a profit, which is nice.”
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Navistar is a significant employer in Clark County, where it employs about 1,500 workers at its Springfield manufacturing plant. Thousands of the company’s retirees also live in the area.
The achievement is significant but should be kept in perspective, Volkmann said, noting the truckmaker also lowered its estimates for future earnings. Navistar now expects revenue between $8.2 billion and $8.6 billion, down from previous estimates of $9 billion to $9.25 billion.
Shares were up about 20 percent in New York trading on Tuesday afternoon.
“It was a great performance,” Volkmann said. “But $4 million on a $10 billion company is not a huge among of profitability. It’s a great milestone and obviously the stock is up nicely as a result of it, but at the end of the day they’re on a pathway. It’s a journey, not a destination.”
Last year Navistar reached a joint agreement with GM that is expected to bring at least 300 new jobs to Springfield, including about $32 million in investments in the plant. The trucks that would be produced as part of the deal are expected to go into production in 2018.
The company reported revenues Tuesday of about $2.2 billion, down about 18 percent compared to the second quarter last year. The decline reflects slow sales in the U.S. and Canadian markets, along with fewer engine sales in Brazil due to weak economic conditions in that country.
Navistar has slashed structural costs by about $113 million so far this year, including $56 million during the second quarter.
“For the first time since we launched our turnaround three years ago, Navistar reported a quarterly profit,” company President and CEO Troy Clarke said. “Our performance this quarter begins to demonstrate the earnings potential of this company.”
Clarke also pointed to stagnant market conditions in the truck industry, however, which led the company to cut its projected revenues for the remainder of the year.
“We are taking only a moment to celebrate this quarter’s milestones,” Clarke said. “We are immediately pressing ahead to address what we and everyone else in the industry are seeing — much more difficult industry conditions than anticipated.”
It will be difficult for the company to remain profitable in the near-term unless sales demand improves industry-wide, Volkmann said.
“It’s hard to grow profitability too much more here without some volume,” he said.
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