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Anna Cororaton

NAV AT A GLANCE

P/E ► -33.1   EV/EBITDA ► 10.5 AVG ROA ► 2.4% AVG Debt to Equity ► -7.94   Current Ratio ► 1.04 LOW Interest Coverage Ratio ► 0.969 AVG

 

 

 

 

 

 

Navistar International (NYSE: NAV) makes commercial trucks and diesel engines. The company's largest customer is Ford, which buys PDQ for its XYZ, accounted for about 14% of revenues and 58% of diesel engine sales in 2007. ^[1] As a result of its focus on trucks, NAV grew rapidly when trucks became popular consumer vehicles, but has been hit hard by the increase in gasoline prices from DATE to DATE by AMOUNT. As a result of higher gas prices, truck sales decreased AMOUNT percent in that same time period,^{[citation needed]} and in 2007, Navistar's consolidated net sales declined 13.4% compared to 2006.^[2]

Navistar also has a healthy business building military vehicles. Since 2006, the company has secured approximately $5 billion in government orders for military trucks and vehicles. ^[3] Most recently, in September 2008, Navistar won a $752 million contract to improve the Mine Resistant Ambush Protected (MRAP) vehicle. ^[3]

The company was formerly known as ZZZZZ before it changed its name in YEAR.

Company Overview

Business and Financial Metrics

In 2007, Navistar's net sales declined 13.4% to $12.3 billion, and net losses were at $120 million. ^[4] 2007 was the first year of net losses since 2004. ^[4] In contrast, net sales in 2006 were reported at $14 billion, and net income was at $301 million. ^[4] The decline in sales in 2007 was primarily due to the decline in truck sales, decreasing $2.2 billion (22.7%) since 2006.^[5]

Statement of Operations Data (in Millions of $)

Navistar Revenue and Income ^[7]

Business Segments

• Trucks (58% of net sales): Navistar's Truck Segment makes medium-duty and heavy-duty trucks and buses (Class 4 to 8) ^[8] It is Navistar's largest business segment, accounting for about 60 percent of consolidated net sales. ^[9] In 2007, unit sales for the Truck Segment declined by 26.9%. ^[10] The company attributes this decline to the cyclical truck market -- in 2005 and 2006, there was an accelerated purchase of trucks in anticipation of higher-priced, emission-compliant trucks. Navistar's Truck Segment primarily competes in the US truck market; major competitors include PACCAR Inc., Volvo Trucks and Daimler-Benz AG.

Navistar Sales by Segment^[11]

• Engine Segment (26% of sales): The Engine Segment makes diesel engines used for the company's medium- and heavy-duty trucks and school buses. ^[12] Navistar's products are sold mainly in North and South America and to other Original Equipment Manufacturers (OEMs) ^[13] under the MaxxForce brand name. Navistar provides all of Ford's diesel-powered, super-duty trucks and vans. ^[13] In 2007, Ford accounted for over 90% of such super-duty truck engines manufactured by Navistar (or 58% of total shipments). ^[13] However, due to a reduction in Ford engine orders over the year, sales decreased 25.6% compared to 2006. ^[14]

• Parts (12% of net sales): The Parts Segment provides engine parts to support the company's production of trucks, school buses and military vehicles, ^[15] in addition to Navstar's OEM customers. In 2007, this segment's net sales grew 3%, although a most of this growth was offset by the increasing cost of production -- mainly in steel and petroleum-based products resulting in a segment profit growth of 0.6%. ^[15]

• Financial Services (4% of net sales): Navistar's Financial Services Segment provides wholesale, retail and lease financing of products sold by Navistar and other truck manufacturers. ^[16] Net revenues from Navistar's financial services grew 11.7% in 2007.

Trends and Forces

Navistar faces stringent government regulation regarding the environment and safety.

In 2007, stricter governmental regulations on engine emissions in the US were released, increasing Navistar's cost of truck and engine production. ^[17] In addition, Navistar also faces strict noise and safety regulations. As these regulations become more stringent, Navistar's trucks and engines have to be emission- and noise- compliant to remain in business. As a result, Navistar has incurred increasing research and development costs and which has lowered the margin earned on sales. ^[18] In addition, the truck market anticipated the increasing prices due to stricter standards, pushing them to purchase trucks, buses and engines up to two years in advance. Overall, Navistar's sales declined 13% in 2007 as emission-compliant vehicles entered the market. ^[19]

Volatile fuel prices cause uncertainty in sales.

From late 2007 to early 2008, diesel fuel prices increased 20% to an all-time high.^[20] As a result, sales of trucks have declined as reflected in the reduction of Navistar's net sales in 2007. In addition, increasing fuel prices directly affect Navistar's customers. In May 2008, Ford announced a decline in production due to economic conditions, lowering Navistar's sales to its largest customer. ^[20]

As of October 2008, fuel prices have declined about 56% to $63 since all-time highs in July. ^[21] However, the economic downturn has caused an overall lower truck demand affecting Navistar as well, causing the company to announced that it was planning layoffs at a Mississippi plant in early October. ^[22]

The US government is becoming an increasingly significant customer.

Navistar has received over $5 billion in contract orders since 2006, primarily from the US Marine Corps and the US Army. ^[3] The company is the largest supplier of Mine Resistant Ambush Protected (MRAP) vehicles to the US military. ^[23] In 2008 alone, Navistar has been awarded several significant contracts to produce armored vehicles. In particular, the company won a $1.3 billion contract over several years, providing tactical vehicles for Afghanistan and Iraq in May. ^[3] More recently in September 2008, Navistar won a $752 million contract to produce a lighter MRAP vehicle. ^[3] The US government is one of Navistar's more stable customers. As it's share in Navistar's sales continues to increase, the stability in the company's sales increase as well. This is unlike Ford (currently Navistar's largest customer) which is subject to economic and market volatility.

Competition

The following are Navistar's major competitors in the US. Navistar competes with these OEMs in the production of medium- and heavy-duty trucks and buses, which account for about 60 percent of the company's sales.

Heavy Trucks Market Worldwide - Largest manufacturers in Western Europe, the US and Japan in 2005

References

1. ↑ Navistar 2007 10-K: Item 1A, page 8
2. ↑ Navistar 2007 10-K: Item 6, page 16
3. ↑ ^{3.0 3.1 3.2 3.3 3.4} Navistar 2007 10-K: Item 1, page 4
4. ↑ ^{4.0 4.1 4.2} Navistar 2007 10-K: Item 7, page 18
5. ↑ Navistar 2007 10-K: Item 7, page 24
6. ↑ Navistar 2007 10-K: Item 6, page 16
7. ↑ Navistar 2007 10-K: Item 7, page 19
8. ↑ Navistar 2007 10-K: Item 1, page 1
9. ↑ Navistar 2007 10-K: Item 7, page 24
10. ↑ Navistar 2007 10-K: Item 7, page 18
11. ↑ Navistar 2007 10-K: Item 7, page 32-38
12. ↑ Navistar 2007 10-K: Item 7, page 35
13. ↑ ^{13.0 13.1 13.2} Navistar 2007 10-K: Item 1, page 2
14. ↑ Navistar 2007 10-K: Item 7, page 24
15. ↑ ^{15.0 15.1} Navistar 2007 10-K: Item 7, page 37
16. ↑ Navistar 2007 10-K: Item 1, page 3
17. ↑ Navistar 2007 10-K: Item 1, page 6
18. ↑ Navistar 2007 10-K: Item 1A, page 9
19. ↑ Navistar 2007 10-K: Item 7, page 21
20. ↑ ^{20.0 20.1} Navistar 2007 10-K: Item 7, page 22
21. ↑ Oil drops to $63 despite OPEC output cut
22. ↑ Local agriculture, machinery stocks hammered by reports
23. ↑ www.wikipedia.com Navistar International
24. ↑ Motor Vehicle Industry in Sweden