Navistar profit beats; peak demand fears hit shares

(Reuters) - U.S. truck maker Navistar International Corp NAV.N topped analysts' profit estimates for the fifth straight quarter on Thursday and raised its fiscal 2018 revenue forecast, boosted by strong freight demand and hauliers replacing more trucks.

However, the company’s shares, which rose as much as 7 percent in early trading, erased all gains to trade 3 percent lower on concerns of a peaking truck cycle in North America following a surge in Class 8 truck orders.

“The problem with these cyclical businesses is the stronger the number, the more people worry that it must be a peak,” Jefferies analyst Stephen Volkmann said, adding that the risk was being overestimated.

Orders for Class 8 trucks - the big rigs that haul freight along America’s highways and byways - have been rising every month this year through August and are at their all-time high as most hauliers in the United States are replacing older trucks with more fuel-efficient vehicles.

However, truck makers are scrambling to meet demand as they have been hit by supply constraints, leading to delays and increasing costs.

“We experienced additional cost due to increased transportation cost, premium freight and other charges due to some of these supplier issues and increased commodity prices, particularly steel,” Navistar Chief Executive Officer Troy Clarke said on a post-earnings call.

Navistar will be able to mitigate the issues in the fourth quarter, an executive said on the call.

The company raised its fiscal 2018 revenue forecast to a range of $10.1 billion to $10.4 billion from a range of $9.75 billion to $10.25 billion.

Navistar, which also makes school buses and dump trucks, said it expected to deliver 385,000 to 415,000 units of Class 6-8 trucks and buses in the United States and Canada in fiscal 2019. It expects to sell 390,000 to 410,000 units in 2018.

Revenue from Navistar’s trucks business jumped 25.1 percent in the quarter.

German automaker Volkswagen VOWG_p.DE said in April it was open to buying a majority stake in Navistar as it seeks to take its trucks business for a possible stock market listing.

Volkswagen Truck & Bus, now known as Traton, acquired a 16.9 percent stake in Navistar in 2016.

Excluding items, Navistar earned $1 per share, topping analysts’ average estimate of 90 cents, according to Thomson Reuters I/B/E/S.

Revenue rose 17.8 percent to $2.61 billion, but missed expectations of $2.66 billion.

Reporting by Arunima Banerjee in Bengaluru; Editing by Sriraj Kalluvila, Maju Samuel and Anil D’Silva