Navistar Sees a Truck Rebound

Navistar International Corp. projected fiscal 2009 earnings below analysts' expectations amid what it called a weak North American business climate. But the engine manufacturer's shares rose 23% after the company offered assurances about its liquidity and borrowing capacity and forecast an earlier-than-expected recovery in American truck sales.

The company said it expects North American truck sales to recover this year and forecast a stronger rebound in 2010. Chief Executive Daniel Ustian said the industry is likely to remain challenged in 2009.

Chief Financial Officer Terry Endsley said the company has sufficient liquidity and borrowing capacity to execute its strategies. He said no refinancing is necessary for the company, either at the parent level or the finance-company level, until late 2009 or early 2010.

"That's very important, given the state of the high-yield credit markets," Mr. Endsley said. "And we think that we have some capital-structure opportunities that we can capitalize on."

J.P. Morgan analyst Chip Miller wrote in a note to clients that the company's remarks on liquidity and capital allocation appear to demonstrate confidence.

"The company is going into 2009 with $700 million in cash and believes it needs about $500 million to run the business," Mr. Miller said. "As such, it will buy back 1 million shares, and it will evaluate its ability to buy back debt at 55 cents on the dollar, leaving it in a better position should it need to go back into the market later."

Mr. Miller said the company's military-volume projection seems conservative. "Management will have all of its $2.3 billion in military business booked by next week, implying that any new orders will be upside," Mr. Miller said. "Given the amount of proposed activity in many regions of the world, this does indeed appear prudently conservative."

The company said its growing military business and expansion into new opportunities will enable it to post a profit in 2009 despite weakness in the North American markets.

Navistar traded as low as $22.22 Monday after the company said it expected to post earnings of $5.10 to $5.60 a share for the fiscal year ending Oct. 31. Analysts surveyed by Thomson Reuters expected earnings of $5.95 a share. But after the company's conference call, Navistar shares rose $5.67 to $30.13 at 4 p.m. in composite trading on the New York Stock Exchange.

Navistar also gave an industry forecast for the fiscal year, saying U.S. and Canadian retail sales volume for Class 6-8 trucks and school buses should total between 244,000 and 256,000 vehicles. Volume totaled 244,100 vehicles in fiscal 2008, among the lowest in more than 30 years, the company said.

Auto suppliers have been suffering from deep North American production cuts, as demand has fallen amid high fuel prices. Fitch Ratings said last month that parts suppliers are expected to continue hurting amid more North American production cuts in the first half of the year, a severe downturn in European production and limits on customer financing because of the credit crisis.

Last year, Navistar had seemed confident it would achieve its expected results even as other auto-parts suppliers were slashing their forecasts. The company even raised its fiscal-year forecast in September.

Last week, the company restated its net income for the first three quarters of fiscal 2008, increasing its net income $43 million. For the nine months ended July 31, the company restated its earnings to $6.52 a share, up from its previously reported $5.92 a share. The restatement came after an internal review uncovered errors in accounting for inventory in the company's truck segment.

Also last week, the company reported a loss of $343 million, or $4.81 a share, for the fiscal fourth-quarter ended Oct. 31, compared with a year-earlier loss of $103 million, or $1.46 a share. The latest results included $385 million in asset-impairment and other charges.

For fiscal 2008, revenue rose 20% to $14.7 billion, driven by increased sales to the U.S. military.

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