What's In The Cards For Navistar (NAV) In Q2 Earnings? (revised)

Navistar International Corporation (NYSE:NAV) is set to report second-quarter fiscal 2016 (ended Apr 30, 2016) results on Jun 2. In the last quarter, the company delivered a positive earnings surprise of 48.05%. Let’s see how things are shaping up for this announcement.

Factors Influencing This Quarter

Navistar expects adjusted EBITDA (earnings before interest, tax, depreciation and amortization), excluding pre-existing warranty and one-time items, for fiscal 2016 in the band of $600–$650 million, significantly higher than $494 million recorded in fiscal 2015. Further, sales volume of the school bus and severe service segment is anticipated to improve.

The company also expects to generate profit and manufacturing free cash flow in fiscal 2016. Higher annual guidance raises hopes about an improvement in the company’s second-quarter results as well. In addition, the company will benefit from increased production at its heavy truck assembly plant in Escobedo, Mexico and its bus assembly plant in Tulsa, OK. It also hopes to gain from the launch of new products with improved quality and performance, together with its expansion strategies.

However, Navistar’s results have been affected by lower volumes in Brazil, resulting from economic uncertainties. Additionally, the company is incurring additional costs due to the ongoing changes in the on-highway emissions standards concerning fuel efficiency, noise and safety. Further, Navistar operates in a highly competitive industry. The intensity of this competition is expected to continue, resulting in price discount and pressurized margins.

Earnings Whispers

Our proven model does not conclusively show that Navistar is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below:

Zacks ESP: The Earnings ESP represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate. Navistar’s Earnings ESP is -17.65% because the Most Accurate estimate stands at a loss of 20 cents, while the Zacks Consensus Estimate is pegged at a loss of 17 cents.

Zacks Rank: Navistar carries a Zacks Rank #3 (Hold), which increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some other companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Autoliv, Inc. (NYSE:ALV) has an Earnings ESP of +0.57% and a Zacks Rank #1 (Strong Buy). The company’s second-quarter 2016 financial results are scheduled for release on Jul 15.

Cummins Inc. (NYSE:CMI) has an Earnings ESP of +0.46% and a Zacks Rank #3. The company’s second-quarter 2016 financial results are scheduled for release on Jul 26.

BorgWarner Inc. (NYSE:BWA) has an Earnings ESP of +1.22% and a Zacks Rank #3. The company’s second-quarter 2016 financial results are scheduled for release on Aug 4.

(We are reissuing this article to correct a mistake. The original article, issued yesterday, May 31, 2016, should no longer be relied upon.)