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Navistar’s results analysis:

In 3Q2008, Navistar reported revenues increased 34% to $4.0 bn over $3.0 bn in 3Q2007 as increased contribution from military products and improved pricing helped the company to more than offset the weakness in traditional truck markets, engine parts and financial segment. Navistar’s U.S military sales increased significantly to $1.2 billion in 3Q2008 compared to just $59 million in 3Q2007 (over a 20x increase, a exasperatingly unbelievable pop that raises many questions) . As a result of higher military sales, Navistar’s largest customer exposure tilted from Ford (a company struggling with its own solvency issues that actually ended up on our short scan) previously to the U.S government in 3Q2008. The U.S. government contributed the largest proportion to company’s sales with 32% of revenues in 3Q2008 as against 3% in 3Q2007. Besides higher military sales, Navistar’s pricing improved substantially due to change in product mix and introduction of ProStar products. Navistar’s unit price in the truck segment increased 55% y-o-y while engine unit price increased 13.5% y-o-y leading to expansion of margins. Despite a 28% increase in cost of product sold, Navistar’s gross margins increased to 21.2% as against 17.9% in 3Q2007 while its operating margins increased to 6.6% in 3Q2008 versus a negative operating margin of 0.6% in 3Q2007. However despite improved pricing and increased contribution from military segment, Navistar’s traditional truck and engine segment continued to face challenges. In 3Q2008 shipments of school buses shipments and expansion markets cloaked a y-o-y volume decline of 16% and 4%, respectively while engine shipments excluding intercompany sales witnessed a decline of 68% in 3Q2008 over 3Q2007. Segment profit from the engine segment declined 92.3% to $5 mn in 3Q2008 from $65 mn in 3Q2007 while financial services reported a loss of $1 mn as against profit of $40 mn in 3Q2007. However higher profits from the truck segment at $357 mn in 3Q2008 against $7 mn in 3Q2007, helped Navistar to report profit before tax of $280 mn versus $5 mn in 3Q2007. Overall improved pricing and higher military sales resulted in Navistar’s net income to increase to $272 mn (or $3.68 per share) versus a loss of $4 mn (or $0.05 per share) in 3Q2007. As a result of record growth in 3Q2008, Navistar has raised its guidance for full year. Earlier in August 13, 2008 (just over two weeks ago) Navistar issued full year EPS guidance between $4.26 and $5.72.