Navistar Reports Q2 Results

Reports net loss of $48 million, or $0.48 per diluted share; adjusted net income of $105 million

Navistar International Corporation announced second quarter 2019 net loss of $48 million, or $0.48 per diluted share, compared to second quarter 2018 net income of $55 million, or $0.55 per diluted share. The loss reflected a one-time charge of $159 million to address a legal class action settlement and related litigation from legacy engines.

Adjusted net income for the second quarter grew 57 percent to $105 million versus $67 million in the same period one year ago.

Revenues in the quarter were $3 billion, up 24 percent compared to $2.4 billion in the second quarter last year. The increase primarily reflects higher volumes in the company’s Core (Class 6-8 trucks and buses in the United States and Canada) market, where chargeouts were up 35 percent.

Second quarter adjusted EBITDA was up 23 percent to $224 million, compared to adjusted EBITDA of $182 million in the comparable period last year.

“In the second quarter, Navistar accelerated market share growth, demonstrating the success of our new product lineup,” said Troy A. Clarke, Navistar chairman, president and chief executive officer. “We grew revenue and adjusted EBITDA, stepped up our Uptime value proposition, and lowered our risk profile, enabling the company to focus intensely on the road ahead.”

Navistar ended second quarter 2019 with $1.0 billion in consolidated cash, cash equivalents and marketable securities. Manufacturing cash, cash equivalents and marketable securities were $950 million at the end of the quarter.

During the quarter, Navistar announced multiple new initiatives that will improve customer uptime. First, the company created a new Aftersales function that will manage every facet of the business after the sale of the truck, including oversight of parts and service, warranty, and dealer development, in order to drive improved customer total cost of ownership. In addition, a new partnership with Love’s Travel Stops created the commercial transportation industry’s largest service network with more than 1,000 locations in North America, increasing customers’ repair velocity and their options for same-day repairs. To expedite parts deliveries, Navistar is establishing a new Parts Distribution Center (PDC) in Memphis, Tennessee, while also enhancing its dealer parts inventory management system to increase the breadth of parts already on its dealers’ shelves.

Navistar also took additional actions to further improve its balance sheet and reduce its risk profile. First, the company repaid its $411 million in subordinated convertible notes issued in 2014 with cash on hand. Additionally, just last week, Navistar Financial Corporation closed a new five-year, nearly $750 million credit facility with a syndicate of 15 banks and repaid its $400 million Term Loan B issued in July 2018. The new facility provides additional liquidity at a lower cost of borrowing.

Based on strong industry conditions, the company raised its 2019 full-year industry and financial guidance:

• Industry retail deliveries of Class 6-8 trucks and buses in the United States and Canada are forecast to be 425,000 to 445,000 units, with Class 8 retail deliveries of 290,000 to 310,000 units.
• Navistar revenues are expected to be between $11.25 billion and $11.75 billion.
• The company’s adjusted EBITDA is expected to be between $875 million and $925 million.

Navistar’s 2019 industry and financial guidance does not include the impact of possible tariffs from goods crossing the Mexican border. When additional information becomes available, the company’s industry and financial guidance will be reassessed and, if necessary, adjusted accordingly.

“In the second half, we believe our growth in market share will translate to improved revenues and gross margins that will generate higher adjusted EBITDA margins than in the first half,” Clarke said. “Our marketplace progress, which has delivered our strongest backlog this decade, provides confidence that both 2019 and 2020 will be good years for Navistar.”

Truck Segment – Truck segment net sales increased 35 percent to $2.3 billion in second quarter 2019 compared to second quarter 2018, due to higher volumes in the company’s Core markets, an increase in sales of GM-branded units manufactured for GM, and an increase in Mexico sales. This was partially offset by the impact of the sale of a majority interest in Navistar Defense and a decrease in export sales. Truck chargeouts in the company’s Core market were up 35 percent year-over-year.

The Truck segment recorded a net loss of $74 million in second quarter 2019, versus a second quarter 2018 profit of $42 million. The change is primarily attributable to charges related to a MaxxForce Engine EGR class action settlement, higher volumes and improved pricing. This was partially offset by the impact of the sale of a majority interest in Navistar Defense and an increase in material costs related to commodities.

Parts Segment – Parts segment second quarter 2019 net sales were $579 million, down four percent, compared to second quarter 2018, driven by a new revenue standard, lower Blue Diamond Parts (BDP) sales, partially offset by higher sales in North American markets.

The Parts segment recorded a quarterly profit of $144 million in second quarter 2019, up nine percent versus the same period one year ago, primarily due to higher U.S. margins and lower intercompany access fees, partially offset by lower BDP volumes.

Global Operations Segment – Global Operations segment second quarter 2019 net sales decreased 10 percent to $87 million compared to second quarter 2018. This was primarily driven by economic conditions in the company’s South America engine operations and the depreciation of the Brazilian real against the U.S. dollar as the average conversion rate weakened by 13 percent compared with the prior year period.

The Global Operations segment recorded a $3 million profit in second quarter 2019, relatively flat compared to $1 millionin the same period one year ago.

Financial Services Segment – Financial Services segment second quarter 2019 net revenues increased 24 percent to $78 million versus the same period one year ago, primarily driven by higher overall finance receivable balances in the U.S. and higher operating lease balances in the U.S. and Mexico.

Financial Services segment recorded a profit of $32 million in second quarter 2019, an increase of $13 million versus second quarter 2018, primarily due to higher revenues and other income from an intercompany loan.

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