Navistar Pins Q2 Loss on New Vehicle Sales, Used Trucks

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Heavy Duty Trucking  /  June 7, 2017

Navistar International Corp. (NYSE: NAV) reported a second quarter 2017 net loss of $80 million on revenues of $2.1 billion. The truck and engine maker attributed those results to lower U.S. and Canada sales of its trucks and buses and to heightened used-truck losses.

Revenues in the quarter were down 5% (compared to $2.2 billion in Q2 2016), according to the company’s June 7 earnings release. Navistar said that decrease “primarily reflects lower volumes in the company’s core (Class 6-8 trucks and buses in the United States and Canada) market, where chargeouts were down 5%, but [were] higher than industry core market volumes, which were down 13% year-over-year.”

Navistar also reported that higher used truck losses led it to take a $60 million charge in the second quarter, pointing out that its inventory of “legacy” MaxxForce-13-powered used trucks was the largest contributor to the year-over-year decline.

As a result, the company stated it is changing its sales strategy for these units, trying to sell more units into export markets, "a move it expects will accelerate efforts to reduce its inventories of these trucks.”

The Q2 results also included $18 million in adjustments, primarily from pre-existing warranties, asset impairment charges, restructuring of manufacturing operations, and debt financing charges.

“We are on track to improve on last year’s results, but still have quite a bit of work to do in the second half,” said Troy A. Clarke, Navistar chairman, president and CEO. “However, the work we’ve done in the first six months growing share, building our backlog, and managing costs, combined with improving industry conditions, positions us to deliver a stronger second half.”

Navistar reported that Q2 EBITDA was $47 million, compared to $135 million a year earlier. It also said that it ended Q2 with $949 million in consolidated cash, cash equivalents, and marketable securities. Manufacturing cash, cash equivalents and marketable securities were $918 million at the end of the quarter.

Other highlights of the earnings release, as stated by Navistar, include:

• Improving core market share, with additions to the company’s production schedule and extensions of the company’s backlog into the fourth quarter.

• Strengthening competitive presence in the Class 8 market, including ramped-up deliveries of the new International LT Series with the Cummins ISX 15L engine; introduction of the new RH Series of Class 8 regional haul tractors; and unveiling of the new International A26 12.4L engine, which launches in the LT and RH Series in the coming weeks.

• Significant defense wins, including two foreign military contracts to reset, upgrade and support 1,085 long wheel base MaxxPro Mine Resistant Ambush Protected (MRAP) vehicles; and to produce and support 40 MaxxPro Dash DXM MRAP vehicles for foreign military sales.  

• Progress on new sources of revenue, including full-run-rate production of General Motors’ cutaway G van at Navistar’s Springfield, Ohio, plant; expansion of Navistar’s connected vehicle services under the OnCommand Connection brand, which now includes more than 300,000 subscribers; announcing its Electronic Driver Log app, which will assist smaller fleets and owner-operators in complying with new federal regulations; and the unveiling of OnCommand Connection Marketplace, a new, open-architecture, cloud-based technology platform for a broad range of driver support tools and applications.

• Closing its wide-ranging strategic alliance with Volkswagen Truck & Bus, under which the two companies are already collaborating on a number of potential technology projects, and in a procurement joint venture, which is identifying cost-saving opportunities and is expected to be accretive year one.

• Naming Persio V. Lisboa as executive vice president and chief operating officer. “Persio played a key role in creating our alliance with Volkswagen Truck & Bus, and led many of the initiatives to improve our operations during the turnaround,” Clarke said. “His focus in this new role will be to build on the progress we’ve made over the last four years.”

Navistar also reiterated its 2017 guidance, including its forecast that retail deliveries of Class 6-8 trucks and buses in the U.S. and Canada will be in the range of 305,000 to 335,000 units for fiscal year 2017. The company added that full-year 2017 revenues are expected to be similar to 2016; full-year 2017 adjusted EBITDA is expected to be higher than 2016, and fiscal year end 2017 manufacturing cash is expected to be about $1 billion.

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Navistar takes $60 million used truck charge

Fleet Owner  /  June 7, 2017

OEM plans to export more of its “legacy” MaxxForce-equipped vehicles to help reduce its used truck inventory.

Truck and engine maker Navistar posted an $80 million net loss for the second quarter on revenues of $2.1 billion, with higher losses in its used truck business the main culprit.

The company said in its earnings release that it took a $60 million charge in the second quarter to beef up the “reserve” for used trucks equipped with the OEM’s “legacy” MaxxForce 13-liter engines – wiping out the $47 million in earnings before interest, taxes, and amortization (EBITA) it booked for the quarter.

Navistar stressed that the used truck situation “was the largest contributor to the year-over-year decline in profits” in its release.

The company pointed out, though, that it is “changing its sales strategy” for MaxxForce 13-liter equipped used trucks to “take advantage of additional opportunities to sell more units into export markets,” a move it expects will accelerate efforts to reduce its inventories of those vehicles.

"We are on track to improve on last year's results, but still have quite a bit of work to do in the second half," noted Troy Clarke, Navistar’s chairman, president and CEO, in a statement.

"However, the work we've done in the first six months growing share, building our backlog, and managing costs, combined with improving industry conditions, positions us to deliver a stronger second half," he added.

Other items Navistar noted in its second quarter earnings release include:

• Revenues of $2.1 billion in the second quarter were down 5% compared to $2.2 billion in the same period last year, a decrease that primarily reflects lower volumes in the company's “core market” of Class 6-8 trucks and buses in the U.S. and Canada.

• Navistar’s truck segment net sales declined 6% to $1.4 billion in second quarter compared to second quarter of 2016, due to lower core volumes, the impact of a shift in product mix in the company's core markets, and the cessation of sales of CAT-branded trucks units sold to Caterpillar. This was partially offset by an increase in Mexico truck volumes.

• Overall, Navistar said its truck segment loss increased to $56 million in second quarter versus a loss of $23 million in the same period a year ago, again driven by the higher used truck losses, market pressures, and the impact of lower core market volumes.

• Parts segment second quarter net sales dipped 6% or $37 million to $610 million, driven by lower sales from Blue Diamond Parts (BDP), the company's parts joint venture with Ford, as well as by lower U.S. and export volumes, partially offset by higher U.S. and Canada parts sales related to Fleetrite brand and remanufactured parts sales.

• Yet Navistar noted its parts business made a profit of $153 million in second quarter, though that’s down 13% versus the same period last, primarily due to margin declines in BDP and the company's North American markets.

• The company’s global operations segment witnessed a 9% dip in net sales to $70 million in the second quarter compared to same period in 2016, losing $7 million versus a loss of $1 million last year. Navistar cited lower volumes in the company's South America engine operation due to the continued economic weakness in the Brazil economy for those declines.

Outside of those results, Navistar noted that ended the second quarter 2017 with $949 million in consolidated cash, cash equivalents and marketable securities on hand, with two “significant” wins for its defense division bolstering its bottom line: two foreign military contracts to reset, upgrade and support 1,085 long wheel base MaxxPro mine resistant ambush protected (MRAP) vehicles and to produce and support 40 MaxxPro Dash DXM MRAP vehicles for foreign military sales.  

The company is also expecting full “run-rate” production of General cutaway G van for General Motors at Navistar's Springfield, OH factory, to help generate more revenues as well.

Lastly, Navistar reiterated that it expects retail deliveries of Class 6-8 trucks and buses in the U.S. and Canada to be in the range of 305,000 units to 335,000 units for fiscal year 2017.

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Navistar Loses $80 Million in Second Quarter as Revenue Declines
Transport Topics  /  June 7, 2017

Navistar International Corp. lost $80 million, or 86 cents a share, on revenue that declined to $2.1 billion during the fiscal quarter ended April 30, as the manufacturer also set aside an extra $60 million for its reserve fund to deal with used trucks with troubled engines that are largely exported.

In a June 7 earnings call, Chairman and CEO Troy Clarke said the one-time charge is expected to be the last significant action needed to resolve issues related to the MaxxForce 13-liter engines that have enmeshed the Lisle, Ill., original equipment manufacturer since 2012, leading to net losses in 18 of the past 19 fiscal quarters.

“Warranty and used truck issues from the MaxxForce 13 [exhaust gas recirculation] products continued to diminish, and now is the time for us to take steps to put these issues behind us faster,” Clarke said. Other executives on the call estimated it would take until the end of next year to wind down the MaxxForce issue completely.
Navistar has met with increasing success in finding export homes for the used vehicles. Mexico was mentioned as a destination for the heavy-duty trucks in the earnings call, and a company spokesman said afterward that South and Central America and Southeast Asia are also important markets.

“The trucks stay intact when they leave here,” said Navistar spokesman James Spangler. “But in the receiving countries, some of the components are de-contented to meet local emissions and fuel standards,” he said.

Spangler would not specify which components are removed abroad, but the OEM’s domestic troubles were related to its choice of third-generation EGR to meet 2010 federal emissions standards. All North American heavy-duty truck makers now use selective catalytic reduction.

A year ago, Navistar earned $4 million, or 5 cents, on quarterly sales of $2.2 billion.

Quarterly truck sales were led by Classes 6 and 7 medium-duty vehicles, which rose to 7,000 units from 6,200 in last year’s quarter. Heavy-duty sales dropped to 5,300 for the quarter from 6,800.

For the quarter, the company’s truck division lost $56 million on sales of $1.39 billion. In the comparable 2016 quarter, the loss was $23 million on revenue of $1.46 billion.

Chief Financial Officer Walter Borst observed that without the $60 million reserve fund charge, the truck division would have posted a profit.

Clarke and Bill Kozek, president of the truck and parts businesses, said they are “bullish” on the rest of this year, especially on heavy-duty sales.

Clarke said that while medium-duty truck sales are front-loaded during a typical year, “Class 8 demand builds through the year.” He cited projections from market research firms forecasting better heavy-duty sales during the second half of this year, compared with the first six months.

“We’re participating in the increase in the order intake as well. Our medium growth is significantly higher than the Class 8, but the Class 8 is holding its own,” Kozek said of the company’s trend on orders.

“Our backlog is as far out as it’s been since [2013], so that’s a positive trend for us in the second half. But the other piece of that is customers are having pretty good years in general. And now they’re looking at vehicles for now and then into 2018,” Kozek said.

In addition to his efforts at fixing Navistar’s previous problems, Clarke has emphasized the need to introduce new products to generate future sales. For on-highway Class 8 equipment, Navistar launched the LT tractor last year, the RH model in April and the 12.4-liter A26 engine in February.

Clarke said his Class 8 backlog includes 1,500 trucks with A26 engines.
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