June 5, 2018 / 10:37 AM / 3 months ago

UPDATE 3-Navistar's margin worries cloud upbeat revenue forecast

* Boosts full-year revenue and deliveries forecast

* Truck revenue up 22 pct, EPS surges past estimates

* Margin worries weigh on shares (Adds details from conference call)

By Sanjana Shivdas

June 5 (Reuters) - Truck maker Navistar International Corp warned its profit margins for the year would be hit by weakness in its more profitable auto parts business and high freight costs, taking the shine off its upbeat forecast.

The company’s shares, up as much as 12 percent after the company raised its full-year forecasts for revenue and deliveries, reversed course and were down 2 percent after management’s comments on margins on a conference call.

Navistar said revenue at its parts business, which is more profitable than its trucks business, is expected to remain flat for the remainder of the year.

Meanwhile, strong expected sales of trucks, which bring in less profits, are likely to weigh on overall margins.

A large chunk of the company’s profits come from its auto parts business - in the second quarter, the business contributed $132 million to the overall profit, compared with $42 million from the truck business.

“As revenues have increased on the truck side and been more relatively flat on the parts side, that’s kind of working its way through the margins,” Chief Financial Officer Walter Borst said on a post-earnings call.

Navistar is also facing higher commodity prices, freight costs and some “inefficiencies” in the supply base, Borst added.

Adding to the costs, Navistar said the surge in demand for trucks was causing it to use premium modes of transportation so that its factories could keep up with the supplies.

RISING SALES

U.S. truck makers are benefiting as most hauliers are replacing older trucks with more fuel-efficient vehicles as well as buying more trucks following the implementation of electronic logging devices aimed at reducing long driver hours.

Navistar said it now expects deliveries of Class 6-8 trucks and buses in the United States and Canada of 380,000 to 410,000 units, up from its previous forecast of 360,000 to 390,000 units.

A continued tightening in trucking capacity from the implementation of electronic logging devices, an upgrade cycle of equipment due to more fuel-efficient vehicles and a driver shortage, are all the primary drivers for demand in 2018, Jefferies analyst Stephen Volkmann said in a pre-earnings note.

Navistar increased its full-year revenue forecast by $500 million to a range of $9.75 billion to $10.25 billion.

Net income attributable to the company was 55 cents per share in the quarter, compared with analysts' estimate of 34 cents, according to Thomson Reuters I/B/E/S. (bit.ly/2kOAIWo)

Revenue rose 15.6 percent to $2.42 billion, topping analysts’ estimate of $2.44 billion. (Reporting by Sanjana Shivdas in Bengaluru; Editing by Shailesh Kuber and Saumyadeb Chakrabarty)

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