Navistar Reports 2Q Results

June 5, 2014

Navistar International Corporation announced a second quarter 2014 net loss of $297 million, or $3.65 per diluted share, compared to a second quarter 2013 net loss of $374 million, or $4.65 per diluted share. Revenues in the quarter were $2.7 billion, up from $2.5 billion in the second quarter of 2013.

"We continue to make progress with our 'Drive to Deliver' and 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," said Troy A. Clarke, Navistar president and CEO. "This is the third consecutive quarter where we've met or exceeded our EBITDA guidance and we have now met or exceeded our cash guidance for seven straight quarters."

Second quarter 2014 EBITDA was a loss of $119 million, which included the $151 million intangible asset impairment charge, $42 million in pre-existing warranty adjustments and $8 million in restructuring charges. As a result, adjusted EBITDA was $82 million, which exceeded the company's second quarter guidance of between $25 million to $75 million, excluding pre-existing warranty and one-time items. Navistar finished the second quarter 2014 with $1.06 billion in manufacturing cash, cash equivalents and marketable securities, in line with its cash guidance range of $1.0 billion to $1.1 billion.

The North America truck segment recorded a loss of $134 million, compared with a year-ago second quarter loss of $303 million. The year-over-year improvement was primarily driven by lower charges for adjustments related to pre-existing warranties and increased structural cost savings. Chargeouts for traditional markets were up 25 percent, reflecting a 49 percent increase of Class 8 heavy-duty trucks and a 20 percent increase in Class 6/7 medium-duty trucks.

The North America parts segment recorded a profit of $126 million, compared to a year-ago second quarter profit of $114 million. Parts revenues in the quarter declined by 2 percent due to lower military sales, which were partially offset by higher commercial parts sales. However, profit improved by 11 percent year-over-year driven by lower SG&A expenses resulting from the company's ongoing cost-reduction initiatives and the stronger performance in commercial markets.

For the second quarter 2014, global operations recorded a loss of $150 million compared to a year-ago second quarter profit of $32 million. The year-over-year decline was primarily driven by asset impairment charges related to declines in actual and forecasted results for the company's operations in Brazil. Also, second quarter 2013 results included a $28 million gain from the sale of the company's interest in the Mahindra joint ventures.

"We still have much work to do in our core North America operations as well as in Brazil, where we are taking actions to lower our breakeven point to offset the ongoing economic challenges in that country," Clarke added. "Overall, we feel good about our steady gains and positive momentum."

Earlier in the quarter, Navistar announced its plans to consolidate mid-range engine manufacturing by idling its Huntsville, Ala. mid-range engine plant and moving production to Melrose Park, Ill. Those plans remain on track and once completed later this summer, are expected to reduce Navistar's operating costs by more than $22 million annually.

The company also announced during the second quarter its plans to add selective catalytic reduction (SCR) emissions technology to the company's proprietary 9- and 10-liter, high horsepower inline six-cylinder (I-6) engines. That launch is on track, with first customer deliveries slated for later this summer.

Navistar's warranty spend improved in the second quarter, down $23 million—or 13 percent—year-over-year. This improvement was driven by lower costs per repair, fewer EGR engines in the warranty period and ongoing quality improvements for its EGR engines as well as new product launches with SCR engines.

Also during the quarter, the company completed the sale of $411 million of new convertible notes due in April 2019. The net proceeds from the issuance were used to repurchase the majority of the convertible notes that come due in October 2014. The company anticipates repaying the $166 million balance with cash on hand. As a result, the company will have no major debt maturities come due until 2017.

"We saw our market share bounce back strongly in the second quarter and we look to build on this in the second half of our fiscal year," Clarke said. "We also expect our financial performance will continue to build quarter-over-quarter, with third quarter results better than second quarter, and our fourth quarter performance better than the third quarter. We are progressing and building momentum."