What Interests Me About Navistar

NavistarInternational (NYS: NAV) is an intriguing company because of its solid fourth-quarter numbers and rumors of a possible merger down the road.

Let's take a look at how Navistar fared this quarter and what we can expect in the future.

Great performance!
Navistar's revenue surged 28% from the year-ago quarter to $4.3 billion as shipments rose due to robust demand from markets such as Latin America.

What's noteworthy is the rise in Navistar's military revenue to $805 million from $591 million last year. It's good to see growth in this segment as defense companies brace for budget cuts. Even Oshkosh (NYS: OSK) , the U.S. military's largest armored-vehicle supplier, suffered a 12% hit in its defense segment sales in the fourth quarter.

Solid top-line growth helped Navistar's net profit multiply by more than five times to $255 million. It was heartening to see Navistar's core segment -- trucking -- reap higher profits in the fourth quarter after the losses it incurred in the third quarter. The segment's profit surged to $287 million from $86 million a year ago.

Tapping emerging opportunities
Navistar has kept its eyes firm on the emerging markets, particularly Latin America, which has proved to be a huge success for the company. New-truck model launches through strong distribution channels helped Navistar gain record market share in the Latin American and the Caribbean region in 2011 -- up 7.3% to 21.6% from last year.

Another developing market that interests Navistar is India, which will also be one of the key focus regions for the company next year. Brazil also features in Navistar's list of growth areas next year.

It isn't surprising to see Navistar's keen interest in these markets, which seem to have caught every industry player's eye. Cummins (NYS: CMI) , for instance, is expanding its product offerings in emerging markets, encouraged by the way they are driving up its top line.

Similarly, truck maker PACCAR (NAS: PCAR) is eyeing Brazil by investing $200 million in an assembly facility there. Even Deere's (NYS: DE) revenue is rocketing with rising demand from emerging markets. It is increasingly shelling out more in the emerging markets, particularly Brazil.

Same goes for Caterpillar (NYS: CAT) , which leads the pack when it comes to gaining traction in fast-growing markets. Speaking of Caterpillar, Navistar actually has a lot more to do with the Big Cat than just sharing its emerging-markets interest.

Strengthening bond
Navistar's on-highway truck business agreement with Caterpillar has been running successfully since its inception in 2008. But this bond strengthened further recently when the two companies announced some structural changes to their joint venture to create a business model that will increase the global reach of their products.

The two are also in talks to set up a new business venture for developing new lines of on-highway and heavy-duty vocational trucks to be sold globally. The terms of this venture are likely to be finalized in a few months.

Now for an interesting tidbit
Navistar has been grabbing the spotlight in the last few months since rumors started flying on how activist investor Carl Icahn, who holds sizable stakes in Navistar as well as its rival Oshkosh, wants to combine the two companies.

The excitement over this reached new heights after some recent developments. In November, Navistar entered an agreement with Icahn to declassify its board structure, which is likely to make it easier for a company to bid for Navistar. But the bigger hint came straight from the horse's mouth -- Navistar CEO Daniel Ustian -- when he touched upon his interest in a collaboration with Oshkosh recently. He mentioned how synergies in the two companies could be beneficial. Ustian also hinted at a possible opportunity to supply engines to Oshkosh.

The silent war, which seems to be heating up, should keep providing us with lots of interesting tidbits in the future.

Optimistic signs
The trucking market overall seems to be picking up slowly. According to the American Trucking Association, the freight tonnage in November rose by 0.3%, 6% higher from last November. Tonnage also grew in October year over year. Rising freight tonnage and higher freight rates help trucking companies generate higher profits as well as replace their aging fleets, thereby generating more business for companies such as Navistar.

Sales in the U.S. rose for most industry players in their last quarters, including PACCAR and Cummins. PACCAR is thus expecting much higher truck sales next year in the U.S. and Canada, and so is Cummins. All this suggests that the trucking industry is likely to remain firm, which is good news for Navistar.

The Foolish bottom line
Navistar's great performance and its concentration on emerging markets are impressive. The company is also returning value to its shareholders through its share buyback program.

See if the Navistar merger rumors turn into reality. To stay updated, add Navistar to our watchlist service, My Watchlist. It's free, and helps you constantly stay updated on news and analysis on your favorite companies.

At the time thisarticle was published Neha Chamaria does not own shares of any of the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of Cummins and PACCAR. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.