Earnings Watch: Navistar Third Quarter Loss Grows, Revenue Declines

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Heavy Duty Trucking  /  September 8, 2016

Navistar International Corp. (NYSE: NAV) released fiscal third quarter financials on Thursday morning showing its losses grew in the third quarter of the year while revenue fell 18%, following news on Tuesday that Volkswagen is taking a minority interest in the Illinois-based company.

The truck and engine manufacturer reported a net loss of $34 million, or 42 cents per share, for the three months ending July 31, compared to a third quarter 2015 net loss of $28 million, or 34 cents per share, as it faced what it called “tougher market conditions, particularly in the heavy segment.”

Revenue fell to $2.1 billion from $2.5 billion a year earlier, which the company mainly attributed to lower year-over-year chargeouts in the company's core markets, Class 6-8 trucks and buses in the U.S. and Canada, which was affected by softer industry conditions, primarily in the Class 8 market. (Chargeouts are typically defined as trucks that have been invoiced to customers, with units held in dealer inventory.)

A consensus forecast by analysts was expecting a loss of 14 cents per share with revenue of $2.18 billion.

Despite the wider loss, Navistar said it achieved $32 million in structural cost reductions during the third quarter, raising year-to-date structural savings to $145 million. Combined with product and purchasing cost savings, the company's total year-to-date costs savings exceed $300 million.

Third quarter 2016 earnings before interest, taxes, depreciation and amortization (EBITDA) totaled $96 million versus $106 million in the same period one year ago. This more recent quarter included $36 million in adjustments, including $19 million of pre-existing warranty charges and $17 million in asset impairments and restructuring costs, compared to adjustments of $23 million in the third quarter of 2015.

Excluding these items, adjusted EBITDA was $132 million in the third quarter 2016 compared to $129 million in the same period one year ago.

"As we pursue our goal of market share growth, we do see some encouraging signs in the area of order share, where year-to-date share of new orders continues to be up for the past three quarters,” said Troy A. Clarke, Navistar president and CEO. “We are confident that as the industry works through its near term challenges, particularly in Class 8, our improvements in order share will translate to improved retail share as well."

Navistar Truck segment net sales declined 24% to $1.4 billion compared to third quarter 2015, due to lower core truck and export truck volumes, a shift in product mix in the company's core market and lower used truck revenue, according to the company. Chargeouts in the company's core markets were down 23% year over year.

Parts segment net sales declined $28 million or 4% but recorded a profit of $152 million, flat compared to third quarter 2015 while Global Operations net sales declined $24 million year over year to $85 million as recorded a loss of $5 million compared to a year-ago third quarter loss of $26 million. Financial Services net revenues decreased by $3 million to $60 million but recorded a profit of $26 million, equal to third quarter 2015.

Earlier this week, Navistar announced that it has formed a wide-ranging strategic alliance with Volkswagen Truck & Bus, which includes an equity investment in Navistar and framework agreements for strategic technology and supply collaboration and a procurement joint venture.

On the call, company executives said the "planned alliance" will result in collaboration on technology and the licensing and supply of Volkswagen Truck & Bus products and components. Clarke added that this will allow Navistar to "optimize product development costs. We'll gain significant economies of scale in the short term [from the alliance]... and position the company for considerable growth when the headwinds of inventory subside."

Pressed by an analyst to elaborate on reports that the alliance will result in VW supplying engines and other powertrain components to Navistar by 2019, Clarke demurred from going into details. "We are not prepared to discuss a product plan at this point," he responded. "But we ask that you stay tuned."

Noting that Cummins’ engine share in International vehicles currently stands above 80%, Clarke said in response to a question that, regardless of the VW deal, there are “no plans to displace Cummins engines between now and the 2019 date” that had been given for the arrival of VW components in International models.

Asked if the VW deal will impact Navistar's with General Motors, including a recent agreement to manufacture GM's Cutaway G Van commercial chassis starting early nexty year, Clarke stated that "We're doing two projects for GM and expect no changes" regarding those plans. 

Navistar also on Thursday maintained guidance for fiscal year 2016 that includes revenue of $8.2 billion - $8.6 billion and adjusted EBITDA of $550 million - $600 million.

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Navistar quarterly loss widens as sales slide

Commercial Carrier Journal (CCJ)  /  September 8, 2016

Navistar International Corporation Thursday morning announced a third quarter 2016 net loss of $34 million, up from a net loss of $28 million during the same quarter last year. 

Revenue in the quarter slid 18 percent to $2.1 billion thanks in part to soft industry conditions, primarily in the Class 8 market.

“As we pursue our goal of market share growth, we do see some encouraging signs in the area of order share, where year-to-date share of new orders continues to be up for the past three quarters,” says Troy A. Clarke, Navistar president and chief executive officer. “Consideration of our products is improving.”

Third quarter 2016 gross earnings were $96 million versus EBITDA of $106 million in the same period one year ago. The third quarter 2016 included $36 million in adjustments – including $19 million of pre-existing warranty charges – compares to adjustments of $23 million in the third quarter of 2015.

Tuesday, Navistar announced that it has formed a strategic alliance with Volkswagen Truck & Bus, which includes a $256 million equity investment in Navistar by Volkswagen Truck & Bus. Framework agreements are also in place for strategic technology and supply collaboration and a procurement joint venture.

“We are making significant investments in new products, services and technologies and partnerships that set us apart as the leader in uptime and a company clearly focused on our customers’ needs,” Clarke says. “This company is well positioned – operationally and product and service wise – to capitalize as market conditions improve.”

Truck segment net sales declined 24 percent to $1.4 billion compared to third quarter 2015, due to lower core truck and export truck volumes, a shift in product mix in the company’s core market and lower used truck revenue. Chargeouts in the company’s core markets (13,100 units) were down 23 percent year-over-year.

“What we’re seeing is the big guys, the top of the Class 8 market, are still planning,” says President of Navistar Truck & Parts, Bill Kozek, adding all OEMs have been more aggressive in pricing with available capacity utilization.

Navistar’s truck segment recorded a loss of $54 million in the third quarter, compared with a year-ago third quarter loss of $36 million. Losses in the truck segment increased, Clarke says, due to higher adjustments to pre-existing warranty and lower used truck margins – the first quarterly decline in used truck inventory in a year.

“Our used truck pricing seems to have stabilized,” Clarke says. “I think given the high supply of other used truck brands in the market, the [valuation] gap seems to be closing.”

Kozek adds price degradation of International-branded trucks has been driven by EGR-equipped trucks, while values of SCR-outfitted trucks have been “normal.”

Parts segment net sales declined $28 million, 4 percent compared to third quarter 2015 due to lower volumes. For the third quarter 2016, the parts segment recorded a profit of $152 million, mostly flat compared to third quarter 2015.

“There’s been a soft rate and freight environment recently,” Kozek says, “but the economy’s been good recently and we expect trucks to continue moving and consuming parts.”

Walter Borst, Navistar’s chief financial officer, says the company has already achieved $300 million in cost savings through the first nine months of the year, well exceeding the 200 million target set for the calendar year.

With 2017 only three months away, Borst says truck inventory levels and used truck markets are concerns on horizon.

“[Truck order levels in] 2017 could be slightly lower than 2016,” he adds. “On the other hand, we expect class 6-7 medium duty truck and bus volumes to remain relatively solid.”