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March 8, 2019 1:45 PM, EST

Navistar Posts Best First-Quarter Gains Since 2010

Navistar A Navistar International LT truck. (John Sommers II for Transport Topics)

Navistar International Corp. reported higher net income and revenue as the parent company of International Truck posted its best fiscal first quarter since 2010, citing healthy industry conditions and the ongoing success of its new product lineup.

With higher orders, its backlog rose 18% sequentially and its order board is virtually filled for 2019, according to the company. Its assembly line rates increased by nearly 50% in the quarter compared with a year earlier.

For the period ended Jan. 31, Navistar reported net income of $11 million, or 11 cents per diluted share, compared with a net loss of $73 million, or 74 cents, a year earlier.

Revenue was $2.4 billion, a 28% increase compared with $1.9 billion in the 2018 period.

“In addition to our ongoing growth in Class 8, our medium-duty market share grew by six points during the quarter, the largest year-over-year medium share gain in the industry,” Chairman and CEO Troy Clarke said.

Certain one-time items had an impact on results, including a non-cash charge for a Canadian pension annuity of $142 million (or $104 million after-tax), and gains of $59 million from the sales of a majority stake of Navistar Defense business as well as its interest in the joint venture Anhui Jianghuai Navistar Diesel Engine Co., or JND.

Navistar’s truck segment returned to profitability in the quarter, earning $90 million compared with a loss of $7 million a year earlier. Revenue soared 44% to $1.8 billion — with sales of Class 6 and Class 7 vehicles climbing 39%.

Offsetting factors in the truck segment included higher material costs largely from commodities, expedited freight costs and production ramp-up costs.

During the quarter, Navistar added a second shift to its truck assembly plant in Escobedo, Mexico.

Also, Navistar unveiled its new International CV Series line of Class 4-5 vehicles, which it markets as the only Class 4-5 truck designed, distributed and supported by a manufacturer specializing in commercial vehicles. The truck is made in its plant in Springfield, Ohio.

At the end of December, Navistar finalized its agreement with Cerberus Capital Management, which acquired a 70% interest in Navistar Defense. The purchase price of $140 million included $79 million in cash and a recorded gain of $54 million.

Navistar CEO Troy Clarke

Clarke

Also in the quarter, Navistar completed group annuity transactions with two Canadian insurers that transferred $268 million in pension obligations of defined benefit pension plans in Canada, reducing the company’s nonoperating financial risk and administrative costs, according to the Lisle, Ill.-based company.

Additionally, Navistar said that March 1 marked the two-year anniversary of its alliance with Traton AG, previously known as Volkswagen Truck & Bus.

“We’ve reached a point in time, where funding for alliance projects will begin to increase, such as the work being done on the next-generation diesel powertrains to be introduced as early as 2021,” Navistar Chief Financial Officer Walter Borst said during an earnings conference call. “While our structural costs will begin to increase modestly over the next few years, that spend will be much more efficient than if we had developed such products by ourselves.”

In the quarter, structural costs increased by $6 million, largely driven by development of next-generation products with Traton; those costs were partially offset by lower selling, general and administrative expenses.

Navistar ended the quarter with $1.2 billion of manufacturing cash. “This cash balance positions the company to pay off the $411 million of convertible notes due in April with cash on hand,” Borst said.

He added the supply base continues to be tight, and the company is continuing to watch material costs around commodities and expedited freight “as our plants are kind of working at capacity here.”

Clarke added: “Growing backlogs, great visibility into 2019 as a whole and our analysis of economic and industry factors confirms that 2019 will be another very good year for the industry and especially for Navistar.”

As for the company’s 2019 guidance, plans call for: Industry retail deliveries of Class 8 and Class 6 trucks and buses in the United States and Canada that are forecast between 395,000 to 425,000 units, with Class 8 retail deliveries of 265,000 to 295,000. Its revenue in 2019 is expected to be between $10.75 billion and $11.25 billion.

“As our ongoing improvements demonstrate, the company has strong opportunities to benefit from capturing additional market share, growing parts revenue, improving margins and further de-risking the balance sheet,” Clarke said.