Navistar Reports Second Quarter 2017 Results
LISLE, Ill., June 7, 2017 /PRNewswire/ -- Navistar International Corporation (NYSE: NAV) today announced a second quarter 2017 net loss of $80 million, or $0.86 per diluted share, compared to a second quarter 2016 net income of $4 million, or $0.05 per diluted share.
Revenues in the quarter were $2.1 billion, down five percent compared to $2.2 billion in the second quarter last year. The 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 five percent, but higher than industry Core market volumes, which were down 13-percent year-over-year.
Second quarter 2017 EBITDA was $47 million, compared to second quarter 2016 EBITDA of $135 million. This year's second quarter results included $18 million in adjustments primarily resulting from pre-existing warranties, asset impairment charges, restructuring of manufacturing operations, and debt financing charges. Second quarter adjusted EBITDA was $65 million, compared to adjusted EBITDA of $187 million in the comparable period last year. Higher used truck losses primarily resulting from a $60 million increase to the used truck reserve for the company's legacy MaxxForce 13 used truck inventory was the largest contributor to the year-over-year decline. The company is changing its sales strategy for its MaxxForce 13-liter 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 these trucks.
Navistar ended second quarter 2017 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.
"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 chief executive officer. "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."
Second quarter highlights included:
-- 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 15 liter engine; introduction of the new RH((TM)) Series of Class 8
regional haul tractors; and unveiling of the new International A26
12.4-liter 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((TM)) 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."
The company reiterated its 2017 guidance:
-- Retail deliveries of Class 6-8 trucks and buses in the United States and
Canada are forecast to be in the range of 305,000 units to 335,000 units
for fiscal year 2017.
-- Full-year 2017 revenues are expected to be similar to 2016.
-- Full-year 2017 adjusted EBITDA is expected to be higher than 2016.
-- Fiscal year end 2017 manufacturing cash is expected to be about $1
billion.
SEGMENT REVIEW
Summary of Financial Results:
(Unaudited)
Three Months Ended Six Months Ended
April 30, April 30,
(in millions, except
per share data) 2017 2016 2017 2016
---- ---- ---- ----
Sales and revenues,
net $2,096 $2,197 $3,759 $3,962
Segment Results:
Truck $(56) $(23) $(125) $(74)
Parts 153 176 302 326
Global Operations (7) (1) (11) (14)
Financial Services 15 25 28 51
Net income (loss)(A) $(80) $4 $(142) $(29)
Diluted income (loss)
per share(A) $(0.86) $0.05 $(1.62) $(0.35)
________________
(A) Amounts attributable to
Navistar International
Corporation.
Truck Segment - Truck segment net sales declined six percent to $1.4 billion in second quarter 2017 compared to second quarter 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 units sold to Caterpillar. This was partially offset by an increase in Mexico truck volumes. Truck chargeouts in the company's Core market were down five percent year-over-year.
The Truck segment loss increased to $56 million in second quarter 2017 versus a second quarter 2016 loss of $23 million, driven by the higher used truck losses, market pressures, the impact of lower Core market volumes, and a decrease in other income, which were partially offset by improved material costs and lower adjustments to pre-existing warranties. Second quarter 2016 results included a $19 million benefit from a recognition of income for an intellectual property license.
Parts Segment - Parts segment second quarter 2017 net sales were $610 million, down $37 million, or six percent, compared to second quarter 2016, 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(TM) brand and remanufactured parts sales.
The Parts segment recorded a quarterly profit of $153 million in second quarter 2017, down 13 percent versus the same period one year ago, primarily due to margin declines in BDP and the company's North American markets.
Global Operations Segment - Global Operations segment second quarter 2017 net sales decreased nine percent to $70 million compared to second quarter 2016. This was primarily driven by lower volumes in the company's South America engine operation due to the continued economic weakness in the Brazil economy.
The Global Operations segment recorded a $7 million loss in second quarter 2017 compared to a $1 million loss in the same period one year ago. The year-over-year change was due to lower volumes, partially offset by lower manufacturing and SG&A costs as a result of prior year restructuring and cost reduction efforts.
Financial Services Segment - Financial Services segment second quarter 2017 net revenues decreased three percent to $56 million versus the same period one year ago, primarily driven by a decline in interest revenues due to lower overall finance receivables and unfavorable movements in foreign currency exchange rates impacting the company's Mexican portfolio, partially offset by higher revenues from operating leases.
Financial Services segment profit decreased by $10 million in second quarter 2017, primarily due to lower interest margins resulting from a decline in average finance receivables and an increase in the company's borrowing rate, as well as a decline in other revenue due to lower interest income from certain intercompany loans.
About Navistar
Navistar International Corporation (NYSE: NAV) is a holding company whose subsidiaries and affiliates produce International brand commercial and military trucks, proprietary diesel engines, and IC Bus brand school and commercial buses. An affiliate also provides truck and diesel engine service parts. Another affiliate offers financing services. Additional information is available at www.Navistar.com.
Forward-Looking Statement
Information provided and statements contained in this report that are not purely historical are forward-looking statements within the meaning of the federal securities laws. Such forward-looking statements only speak as of the date of this report and the company assumes no obligation to update the information included in this report. Such forward-looking statements include information concerning our possible or assumed future results of operations, including descriptions of our business strategy. These statements often include words such as believe, expect, anticipate, intend, plan, estimate, or similar expressions. These statements are not guarantees of performance or results and they involve risks, uncertainties, and assumptions. For a further description of these factors, see the risk factors set forth in our filings with the Securities and Exchange Commission, including our annual report on Form 10-K for the fiscal year ended October 31, 2016. Although we believe that these forward-looking statements are based on reasonable assumptions, there are many factors that could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements. All future written and oral forward-looking statements by us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to above. Except for our ongoing obligations to disclose material information as required by the federal securities laws, we do not have any obligations or intention to release publicly any revisions to any forward-looking statements to reflect events or circumstances in the future or to reflect the occurrence of unanticipated events.
Navistar International Corporation and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
April 30, April 30,
(in millions, except per share
data) 2017 2016 2017 2016
---- ---- ---- ----
Sales and revenues
Sales of manufactured
products, net $2,063 $2,164 $3,692 $3,894
Finance revenues 33 33 67 68
Sales and revenues, net 2,096 2,197 3,759 3,962
----- ----- ----- -----
Costs and expenses
Costs of products sold 1,776 1,845 3,146 3,311
Restructuring charges 2 3 9 6
Asset impairment charges 5 3 7 5
Selling, general and
administrative expenses 221 202 421 407
Engineering and product
development costs 65 61 128 119
Interest expense 89 81 171 162
Other expense (income), net 9 (25) 1 (47)
Total costs and expenses 2,167 2,170 3,883 3,963
Equity in income of non-
consolidated affiliates 2 2 5 1
--- --- --- ---
Income (loss) before income
taxes (69) 29 (119) -
Income tax expense (6) (16) (10) (11)
--- --- --- ---
Net income (loss) (75) 13 (129) (11)
Less: Net income attributable
to non-controlling interests 5 9 13 18
--- --- --- ---
Net income (loss) attributable
to Navistar International
Corporation $(80) $4 $(142) $(29)
==== === ===== ====
Income (loss) per share attributable to
Navistar International Corporation:
Basic $(0.86) $0.05 $(1.62) $(0.35)
Diluted (0.86) 0.05 (1.62) (0.35)
Weighted average shares outstanding:
Basic 93.3 81.7 87.5 81.7
Diluted 93.3 82.0 87.5 81.7
Navistar International Corporation and Subsidiaries
Consolidated Balance Sheets
April 30, October 31,
(in millions, except per share data) 2017 2016
---- ----
ASSETS (Unaudited)
Current assets
Cash and cash equivalents $771 $804
Restricted cash and cash equivalents 112 64
Marketable securities 178 46
Trade and other receivables, net 300 276
Finance receivables, net 1,459 1,457
Inventories, net 946 944
Other current assets 181 168
--- ---
Total current assets 3,947 3,759
Restricted cash 48 48
Trade and other receivables, net 17 16
Finance receivables, net 232 220
Investments in non-consolidated affiliates 55 53
Property and equipment (net of accumulated
depreciation and amortization of $2,480 and $2,553,
respectively) 1,324 1,241
Goodwill 38 38
Intangible assets (net of accumulated amortization
of $130 and $124, respectively) 46 53
Deferred taxes, net 161 161
Other noncurrent assets 84 64
--- ---
Total assets $5,952 $5,653
====== ======
LIABILITIES and STOCKHOLDERS' DEFICIT
Liabilities
Current liabilities
Notes payable and current maturities of long-term
debt $744 $907
Accounts payable 1,240 1,113
Other current liabilities 1,138 1,183
----- -----
Total current liabilities 3,122 3,203
Long-term debt 4,321 3,997
Postretirement benefits liabilities 2,941 3,023
Other noncurrent liabilities 695 723
--- ---
Total liabilities 11,079 10,946
Stockholders' deficit
Series D convertible junior preference stock 2 2
Common stock (103.1 and 86.8 shares issued,
respectively, and $0.10 par value per share and 220
shares authorized at both dates) 10 9
Additional paid-in capital 2,732 2,499
Accumulated deficit (5,105) (4,963)
Accumulated other comprehensive loss (2,579) (2,640)
Common stock held in treasury, at cost (4.9 and 5.2
shares, respectively) (191) (205)
---- ----
Total stockholders' deficit attributable to Navistar
International Corporation (5,131) (5,298)
Stockholders' equity attributable to non-
controlling interests 4 5
--- ---
Total stockholders' deficit (5,127) (5,293)
------ ------
Total liabilities and stockholders' deficit $5,952 $5,653
====== ======
Navistar International Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited) Six Months Ended
April 30,
(in millions) 2017 2016
---- ----
Cash flows from operating activities
Net loss $(129) $(11)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 75 74
Depreciation of equipment leased to others 37 37
Deferred taxes, including change in
valuation allowance (2) (3)
Asset impairment charges 7 5
Loss on sales of investments and
businesses, net - 2
Amortization of debt issuance costs and
discount 23 17
Stock-based compensation 12 7
Provision for doubtful accounts, net of
recoveries 7 8
Equity in income of non-consolidated
affiliates, net of dividends 1 -
Write-off of debt issuance cost and
discount 4 -
Other non-cash operating activities (9) (8)
Changes in other assets and liabilities,
exclusive of the effects of businesses
disposed (133) (232)
Net cash used in operating activities (107) (104)
---- ----
Cash flows from investing activities
Purchases of marketable securities (589) (283)
Sales of marketable securities 440 177
Maturities of marketable securities 17 37
Net change in restricted cash and cash
equivalents (48) (19)
Capital expenditures (66) (53)
Purchases of equipment leased to others (37) (78)
Proceeds from sales of property and
equipment 14 17
Investments in non-consolidated affiliates (2) -
Proceeds from sales of affiliates - 36
Net cash used in investing activities (271) (166)
---- ----
Cash flows from financing activities
Proceeds from issuance of securitized debt 5 75
Principal payments on securitized debt (56) (19)
Net change in secured revolving credit
facilities 21 38
Proceeds from issuance of non-securitized
debt 383 110
Principal payments on non-securitized debt (278) (162)
Net change in notes and debt outstanding
under revolving credit facilities 42 (105)
Principal payments under financing
arrangements and capital lease
obligations (1) (1)
Debt issuance costs (18) (1)
Proceeds from financed lease obligations 16 12
Issuance of common stock 256 -
Stock issuance costs (11) -
Proceeds from exercise of stock options 3 -
Dividends paid by subsidiaries to non-
controlling interest (15) (19)
Other financing activities (3) 1
Net cash provided by (used in) financing
activities 344 (71)
--- ---
Effect of exchange rate changes on cash
and cash equivalents 1 18
--- ---
Decrease in cash and cash equivalents (33) (323)
Cash and cash equivalents at beginning of
the period 804 912
--- ---
Cash and cash equivalents at end of the
period $771 $589
==== ====
Navistar International Corporation and Subsidiaries
Segment Reporting
(Unaudited)
We define segment profit (loss) as net income (loss) from continuing operations attributable to Navistar International Corporation, excluding income tax expense. The following tables present selected financial information for our reporting segments:
(in millions) Truck Parts Global Financial Corporate Total
Operations Services(A) and
Eliminations
Three Months Ended April 30,
2017
External sales and revenues,
net $1,391 $604 $66 $33 $2 $2,096
Intersegment sales and
revenues 7 6 4 23 (40) -
Total sales and revenues, net $1,398 $610 $70 $56 $(38) $2,096
====== ==== === === ==== ======
Income (loss) attributable to
NIC, net of tax $(56) $153 $(7) $15 $(185) $(80)
Income tax expense - - - - (6) (6)
Segment profit (loss) $(56) $153 $(7) $15 $(179) $(74)
==== ==== === === ===== ====
Depreciation and amortization $31 $3 $4 $12 $3 $53
Interest expense - - - 21 68 89
Equity in income of non-
consolidated affiliates 1 1 - - - 2
Capital expenditures(B) 14 1 2 1 2 20
(in millions) Truck Parts Global Financial Corporate Total
Operations Services(A) and
Eliminations
Three Months Ended April 30,
2016
External sales and revenues,
net $1,459 $640 $64 $33 $1 $2,197
Intersegment sales and
revenues 21 7 13 25 (66) -
Total sales and revenues, net $1,480 $647 $77 $58 $(65) $2,197
====== ==== === === ==== ======
Income (loss) attributable to
NIC, net of tax $(23) $176 $(1) $25 $(173) $4
Income tax expense - - - - (16) (16)
Segment profit (loss) $(23) $176 $(1) $25 $(157) $20
==== ==== === === ===== ===
Depreciation and amortization $29 $4 $4 $12 $4 $53
Interest expense - - - 19 62 81
Equity in income of non-
consolidated affiliates 1 1 - - - 2
Capital expenditures(B) 19 1 1 - 3 24
(in millions) Truck Parts Global Financial Corporate Total
Operations Services(A) and
Eliminations
------------
Six Months Ended April 30,
2017
External sales and revenues,
net $2,408 $1,167 $112 $67 $5 $3,759
Intersegment sales and
revenues 17 13 8 43 (81) -
Total sales and revenues, net $2,425 $1,180 $120 $110 $(76) $3,759
====== ====== ==== ==== ==== ======
Income (loss) attributable to
NIC, net of tax $(125) $302 $(11) $28 $(336) $(142)
Income tax expense - - - - (10) (10)
Segment profit (loss) $(125) $302 $(11) $28 $(326) $(132)
===== ==== ==== === ===== =====
Depreciation and amortization $68 $6 $7 $25 $6 $112
Interest expense - - - 41 130 171
Equity in income of non-
consolidated affiliates 2 2 1 - - 5
Capital expenditures(B) 57 1 3 1 4 66
(in millions) Truck Parts Global
Operations Financial Corporate Total
Services(A) and
Eliminations
------------
Six Months Ended April 30,
2016
External sales and revenues,
net $2,540 $1,202 $148 $68 $4 $3,962
Intersegment sales and
revenues 72 15 21 49 (157) -
Total sales and revenues, net $2,612 $1,217 $169 $117 $(153) $3,962
====== ====== ==== ==== ===== ======
Income (loss) attributable to
NIC, net of tax $(74) $326 $(14) $51 $(318) $(29)
Income tax expense - - - - (11) (11)
Segment profit (loss) $(74) $326 $(14) $51 $(307) $(18)
==== ==== ==== === ===== ====
Depreciation and amortization $63 $7 $9 $24 $8 $111
Interest expense - - - 38 124 162
Equity in income (loss) of
non-consolidated affiliates 2 2 (3) - - 1
Capital expenditures(B) 44 2 2 - 5 53
(in millions) Truck Parts Global
Operations Financial Corporate Total
Services and
Eliminations
------------
Segment assets, as of:
April 30, 2017 $1,680 $613 $342 $2,132 $1,185 $5,952
October 31, 2016 1,520 594 407 2,116 1,016 5,653
_________________________
(A) Total sales and revenues in the Financial Services
segment include interest revenues of $40 million and
$76 million for the three and six months ended April
30, 2017, respectively, and $42 million and $84
million for the three and six months ended April 30,
2016, respectively.
(B) Exclusive of purchases of equipment leased to others.
SEC Regulation G Non-GAAP Reconciliation
The financial measures presented below are unaudited and not in accordance with, or an alternative for, financial measures presented in accordance with U.S. generally accepted accounting principles ("GAAP"). The non-GAAP financial information presented herein should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP and are reconciled to the most appropriate GAAP number below.
Earnings (loss) Before Interest, Income Taxes, Depreciation, and Amortization ("EBITDA"):
We define EBITDA as our consolidated net income (loss) from continuing operations attributable to Navistar International Corporation, net of tax, plus manufacturing interest expense, income taxes, and depreciation and amortization. We believe EBITDA provides meaningful information to the performance of our business and therefore we use it to supplement our GAAP reporting. We have chosen to provide this supplemental information to investors, analysts and other interested parties to enable them to perform additional analyses of operating results.
Adjusted EBITDA:
We believe that adjusted EBITDA, which excludes certain identified items that we do not consider to be part of our ongoing business, improves the comparability of year to year results, and is representative of our underlying performance. Management uses this information to assess and measure the performance of our operating segments. We have chosen to provide this supplemental information to investors, analysts and other interested parties to enable them to perform additional analyses of operating results, to illustrate the results of operations giving effect to the non-GAAP adjustments shown in the below reconciliations, and to provide an additional measure of performance.
Manufacturing Cash, Cash Equivalents, and Marketable Securities:
Manufacturing cash, cash equivalents, and marketable securities represents the Company's consolidated cash, cash equivalents, and marketable securities excluding cash, cash equivalents, and marketable securities of our financial services operations. We include marketable securities with our cash and cash equivalents when assessing our liquidity position as our investments are highly liquid in nature. We have chosen to provide this supplemental information to investors, analysts and other interested parties to enable them to perform additional analyses of our ability to meet our operating requirements, capital expenditures, equity investments, and financial obligations.
Structural costs consists of Selling, general and administrative expenses and Engineering and product development costs.
EBITDA reconciliation:
Three Months Six Months Ended
Ended April 30, April 30,
(in millions) 2017 2016 2017 2016
---- ---- ---- ----
Income (loss) attributable
to NIC, net of tax $(80) $4 $(142) $(29)
Plus:
Depreciation and
amortization expense 53 53 112 111
Manufacturing interest
expense(A) 68 62 130 124
Less:
Income tax expense (6) (16) (10) (11)
--- --- --- ---
EBITDA $47 $135 $110 $217
=== ==== ==== ====
______________________
(A) Manufacturing interest expense is the net
interest expense primarily generated for
borrowings that support the manufacturing and
corporate operations, adjusted to eliminate
intercompany interest expense with our
Financial Services segment. The following
table reconciles Manufacturing interest
expense to the consolidated interest expense:
Three Months Ended Six Months Ended
April 30, April 30,
(in
millions) 2017 2016 2017 2016
---- ---- ---- ----
Interest
expense $89 $81 $171 $162
Less:
Financial
services
interest
expense 21 19 41 38
Manufacturing
interest
expense $68 $62 $130 $124
=== === ==== ====
Adjusted EBITDA Reconciliation:
Three Months Six Months Ended
Ended April 30, April 30,
(in
millions) 2017 2016 2017 2016
---- ---- ---- ----
EBITDA
(reconciled
above) $47 $135 $110 $217
--- ---- ---- ----
Less
significant
items of:
Adjustments
to pre-
existing
warranties(A) 7 46 (10) 51
North
America
asset
impairment
charges(B) 5 3 7 5
Restructuring
of North
American
manufacturing
operations(C) 2 - 9 -
Cost
reduction
and other
strategic
initiatives - 3 - 6
Debt
refinancing
charges(D) 4 - 4 -
One-time
fee
received(E) - - - (15)
--- --- --- ---
Total
adjustments 18 52 10 47
Adjusted
EBITDA $65 $187 $120 $264
=== ==== ==== ====
_____________________
(A) Adjustments to pre-existing warranties
reflect changes in our estimate of
warranty costs for products sold in prior
periods. Such adjustments typically occur
when claims experience deviates from
historic and expected trends. Our
warranty liability is generally affected
by component failure rates, repair costs,
and the timing of failures. Future events
and circumstances related to these
factors could materially change our
estimates and require adjustments to our
liability. In addition, new product
launches require a greater use of
judgment in developing estimates until
historical experience becomes available.
(B) In the first and second quarters of 2017,
the Truck segment recorded $2 million and
$5 million, respectively, of asset
impairment charges relating to certain
assets under operating leases. In the
first and second quarters of 2016, the
Truck segment recorded $2 million and $3
million, respectively, of asset
impairment charges relating to certain
long lived assets.
(C) In the first and second quarters of 2017,
we recorded $7 million of restructuring
charges related to the 2011 closure of
our Chatham, Ontario plant and $2 million
of Corporate restructuring charges,
respectively.
(D) In the second quarter of 2017, we recorded
a charge of $4 million related to third
party fees and debt issuance costs
associated with the repricing of our Term
Loan.
(E) In the first quarter of 2016, we received
a $15 million one-time fee from a third
party which was recognized in Other
expense, net.
Manufacturing segment cash, cash equivalents, and marketable securities reconciliation:
As of April 30, 2017
(in millions) Manufacturing Financial Consolidated
Operations Services Balance Sheet
Operations
----------
Assets
Cash and cash
equivalents $747 $24 $771
Marketable securities 171 7 178
--- --- ---
Total cash, cash
equivalents, and
marketable securities $918 $31 $949
==== === ====
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SOURCE Navistar International Corporation
