Navistar Cuts 2Q Loss; Market Share Increases

This story appears in the June 9 print edition of Transport Topics.

Navistar International Corp. narrowed its losses in the fiscal second-quarter from a year ago as its heavy-duty truck orders and market share improved, the company reported June 5.

The maker of International brand trucks and MaxxForce engines lost $297 million, or $3.65 a share, down from a loss of $374 million, or $4.65 a share, the year before.

For the quarter ended April 30, the loss in the North American truck segment declined to $134 million from $303 million, year-over-year, while total revenue rose 9% to $2.7 billion.

The Lisle, Illinois-based original equipment manufacturer also boosted its industrywide, annual Class 8 truck sales forecast to a range of 225,000 to 235,000 vehicles. The previous range was 220,000 to 230,000.

“We have seen a number of encouraging signs this quarter, including improvements in our market share and strong order backlog, positive trends in our warranty expense and spend, and higher than expected structural cost reductions,” CEO Troy Clarke said.

It was the third consecutive quarter in which the OEM has met or exceeded its guidance for earnings before interest, taxes, depreciation and amortization, he added.

EBITDA, a measure of debt-free cash flow, was $82 million after charges and adjustments — higher than guidance of $25 million to $75 million. The third-quarter cash-flow target is $75 million to $125 million.

Navistar’s quarterly U.S. and Canadian truck sales, or charge-outs, jumped 49% to 6,700 units, with severe-service Class 8 trucks up 5% to 2,100.

Clarke said in a conference call with analysts that third-quarter sales will be flat from the quarter just ended due to fewer operating days from normal summer production shutdowns.

“The [trucking] industry continues to struggle with driver shortages, but customer sentiment is increasingly positive on a number of fronts [including] freight levels, rates and profitability,” Chief Operating Officer Jack Allen said in the call.

Orders for medium- and heavy-duty trucks improved sequentially and year-over-year, and have shown improvement so far in May, Allen said (see related story, p. 1).

Navistar said its Class 8 U.S. and Canadian market share was 14.9%, up from 13.9% in the previous quarter and 14.5% a year ago.

The company projected 21% market share for North American trucks and buses by the time its fiscal year ends Oct. 31 and set a longer-term target of 22% to 24% in 2015.

“We are working hard to win customers and re-establish our position in market,” Clarke said.

Navistar has been in damage-control and recovery mode since 2012, when Clarke joined the company to rectify problems caused by an engine choice that failed. Management since has adopted selective catalytic reduction systems, largely with the help of Cummins Inc.

The company’s U.S. heavy-duty truck sales fell last year from 2012’s level but have been rising this year through April 30, according to WardsAuto.com data.

The company also said its thrift efforts are bearing fruit and raising its fiscal-year goal for cost cuts to $250 million from $175 million. Second-quarter cost cuts were $92 million.

Navistar said the planned closure of its midrange engine plant in Huntsville, Alabama, and shifting that work to Melrose Park, Illinois — slated to save $22 million annually — is on track for later this summer.

Its warranty spending declined 13%, year-over-year, to $23 million on lower repair costs, fewer older exhaust gas recirculation engines and ongoing improvements in EGR engines that have led to “much better quality,” Allen said.

Despite the loss, Navistar’s financial performance is moving in the right direction, an analyst said after the conference call.

“Things are improving, and I think the biggest thing is that they are cutting costs rapidly,” said Rhem Wood, a senior analyst with BB&T Capital Markets in Richmond, Virginia.

“A lot of that is getting their new vocational product into the market. There is more work to do, but the trends are encouraging,” Wood said of the OEM’s sales.

North America parts posted a $126 million quarterly profit, up from $114 million a year ago, although revenue slipped 2% on lower military sales. Clarke projected third-quarter parts volume will improve.

Financial services posted a $24 million segment profit, up from $19 million a year earlier, primarily due to cost-reduction initiatives and intercompany loans.

Navistar also took a $150 million asset-impairment charge related to its Brazilian engine operations, citing a “challenging economy” in the country that is the largest piece of its operations outside of North America.

“Brazil continues to be a drag, but we believe most of the bad news is behind us,” Clarke said.

“Industry data in Brazil have been weak for all truck makers,” analyst Stephen Volkmann of Jefferies & Co. wrote in an investors note after the earnings release.