Commercial truck and parts giant Navistar International (NYSE:NAV) continued to sport market share gains courtesy of soaring truck volumes within its heaviest weight classes in its fiscal first quarter of 2019. The company's earnings report, issued March 8, also marked Navistar's first quarter of reduced exposure to the defense manufacturing market. We'll delve into these details and more after a review of headline numbers directly below. Note that all comparative numbers in this article are presented against the prior-year quarter (the fiscal first quarter of 2018).

The raw numbers

Metric Q1 2019 Q1 2018 Change (YOY)
Revenue $2.43 billion $1.90 billion 27.9%
Net income $11.0 million ($73.0 million) N/A
Diluted earnings per share $0.11 ($0.74) N/A

Data source: Navistar International. YOY = year over year. N/A = Not applicable.

What happened with Navistar this quarter?

  • "Core" volume expanded 50% during the quarter. Navistar defines its core markets as the heavy truck and bus classes 6 through 8 sold in the U.S. and Canada. Gross weightings range from 19,501 lbs. to 33,000 pounds for classes 6 and 7 and 33,001 lbs. and above for class 8.
  • Truck segment revenue jumped 44% to $1.8 billion, which management attributed to the higher core volume accompanied by an uptick in Mexican truck sales.

  • Truck segment profit of $90 million improved on a loss of $7 million in the comparable prior-year quarter. Profitability resulting from the higher volumes was partially offset by rising freight and materials costs as well as some foregone profit following the sale of 70% of Navistar Defense. This transaction was announced last quarter and closed on Dec. 31, 2018.

  • In Navistar's parts segment, revenue decreased by 4% to $548 million. This was due to the adoption of a new revenue recognition accounting standard as well as lower sales in the Blue Diamond Parts brand. However, segment profit expanded by 5% to $144 million, mostly as a result of higher margins in the U.S.
  • In Navistar's two smallest segments, global operations revenue fell 9% to $73 million, while financial services revenue improved 25% to $74 million on the strength of higher interest rates and larger average portfolio balances in the U.S. and Mexico.

  • Segment profit in global operations of $6 million improved on a $7 million loss in the prior-year period. Financial services profit increased by 55% to $31 million, mostly from higher interest margin.
  • The company gained 1.8 percentage points in core market share during the quarter, propelled by a 6-percentage-point advance in classes 6 and 7 market share.

  • Core truck order backlog grew to 8,000 units, an increase of 18% against the last sequential quarter (the fiscal fourth quarter of 2018).

  • Navistar took a $142 million noncash charge related to a transaction with two Canadian insurers, in which it transferred $268 million of pension obligations to group annuity contracts, thus mitigating the company's overall pension obligation risk.

  • In another significant nonoperational item during the quarter, Navistar realized a gain of $59 million from its sale of the majority of Navistar Defense.

  • The company announced a service partnership with Love's Travel Stops, which adds 315 truck service centers to the company's service network, bringing Navistar's retail service outlets to more than 1,000 in North America.

Montage of truck driver in cab and trucks on a highway.

Image source: Getty Images.

Management's perspective

In the following excerpt, taken from the company's earnings conference call, CEO Troy Clarke discussed a number of factors underpinning management's confidence in 2019:

Navistar's order backlog is as strong as it has been since 2009. We have added production capacity and supplier constraints are easing. Market share growth [is the] result of our new products. These new trucks exceed customers' expectations in terms of reliability, durability, fuel economy and driver attributes. We continue to build on our uptime promise.

In Navistar's earnings press release, Clarke also enumerated specific value-creating activities slated for 2019 while alluding to (if not mentioning) the generally favorable industry conditions, including tight trucking capacity and high customer demand, that have persisted into the new year:

As our ongoing improvements demonstrate, the company has strong opportunities to benefit from capturing additional market share, growing parts revenue, improving margins and further de-risking the balance sheet. Given the progress made in the first quarter, and our positive outlook for the remainder of the year, we are confident that 2019 will move Navistar forward on the path to generate superior shareholder returns compared to the industry.

Looking forward

Navistar left previously issued full-year guidance unchanged in the first quarter. The company expects fiscal 2019 revenue to range between $10.75 billion and $11.25 billion and anticipates that adjusted EBITDA will land between $850 million and $900 million over the same period. Favored by a benign industry environment, Navistar plans to manufacture at full tilt for the next few quarters.