Navistar Reports First Quarter 2018 Results

Navistar International Corporation announces a first quarter 2018 net loss of $73 million, or $0.74 per diluted share, compared to a first quarter 2017 net loss of $62 million, or $0.76 per diluted share. First quarter 2018 results included $46 million of charges as a result of the company's debt refinancing in November 2017. 

Revenues in the quarter were $1.9 billion, a 15% increase compared to $1.7 billion in the first quarter last year, driven by a 24% increase in the company's Core (Class 6-8 trucks and buses in the United States and Canada) volumes.

First quarter 2018 EBITDA was $55 million, compared to first quarter 2017 EBITDA of $63 million. First quarter 2018 includes $49 million in net adjustments, including the debt refinancing and other items. Adjusted EBITDA was $104 million versus $55 million in first quarter 2017.

Navistar finished the first quarter 2018 with $975 million in consolidated cash, cash equivalents and marketable securities and $947 million in manufacturing cash, cash equivalents and marketable securities.

"We are off to a strong start in 2018 thanks to our ability to grow Navistar's position in a strengthening market," says Troy A. Clarke, Chairman, President and CEO. "We grew our Class 8 market share and improved our margins, on the way to delivering our best first quarter on an adjusted EBITDA basis since 2011."

Navistar's first quarter Core chargeouts were up 2,400 units year-over-year led by Class 8 Heavy, which was up 56% compared to first quarter last year. The company's Class 8 market share was up 1.2 points versus the same period 1 year ago. Gross margin for the quarter was 19.6% of revenue, up 2 percentage points from first quarter 2017.

"Our improvement this year is due largely to the market's positive reaction to our new products, including the LT Series on-highway tractor and the 13-L A26 engine," Clarke says. "In fact, the strong interest in our A26 engine has us nearly doubling our share of trucks with 13-L engines in the first quarter of 2018 compared to a year ago."

Continuing its cadence of new product launches, Navistar unveiled its new International MV Series medium-duty vehicle at the NTEA Work Truck Show. The launch of the MV Series completes the company's Project Horizon product refresh, and reflects that program's improved cab design, along with the same driver-centric enhancements already launched in Class 8 vehicles.

Additionally, the company's alliance with Volkswagen Truck & Bus is accelerating Navistar's development of future technologies, including electric powertrains, which are already in development for school buses and medium-duty trucks. The company is currently testing its first prototype electric school bus, the chargE, which Navistar will be demonstrating for customers and government officials starting later this month.

"As a leader in the medium and school bus segments, we know our customers and the jobs their trucks and buses do, which is why we're convinced these will be the market segments best suited for e-powertrains in the near term," Clarke says. "These vehicles travel shorter distances and typically return to their base overnight, making the charging infrastructure less complex. And, perhaps most significantly, they will provide environmental benefit, especially in urban areas."

Based on stronger industry conditions, the company raised its 2018 full-year guidance:

• Retail deliveries of Class 6-8 trucks and buses in the United States and Canada are forecast to be in the range of 360,000 units to 390,000 units, with Class 8 retail deliveries of 235,000 to 265,000 units.
• Revenues are expected to be between $9.25 billion and $9.75 billion.
• Adjusted EBITDA is expected to be between $700 million and $750 million.
• Year-end manufacturing cash is expected to be about $1.1 billion.

"We expect market conditions to remain robust and we are determined to take advantage of opportunities to grow share while delivering strong margin performance," Clarke says. "Given the progress made in Q1, and our positive outlook for the remainder of the year, we are confident that 2018 will be the breakout year for Navistar."

SEGMENT REVIEW

Truck Segment – Truck segment first quarter 2018 net sales increased to $1.3 billion, primarily due to higher volumes in the company's Core markets, an increase in military sales, and production of GM-branded units manufactured at Navistar's Springfield, OH, plant, which launched in the second quarter of 2017. This was partially offset by a decline in the company's Mexico and export truck volumes.

The Truck segment loss was $7 million in the first quarter 2018, versus a loss of $69 million in the same period 1 year ago. The improvement was primarily driven by the impact of higher volumes in the company's Core markets, a decrease in used truck losses, and an increase in military sales, partially offset by higher structural costs.

Parts Segment – In the first quarter of 2018, the Parts segment net sales were $568 million, slightly lower than the prior year primarily due to the expected runoff in Blue Diamond Parts (BDP) sales, partially offset by higher U.S. and Canada parts sales related to the Fleetrite and ReNEWed brands.

The Parts segment profit was $137 million, down 8%, primarily due to lower BDP margins and higher freight-related expenses.

Global Operations Segment – In the first quarter of 2018, the Global Operations segment net sales increased 62% to $81 million, primarily driven by higher engine volumes in the company's South America engine operations due to improvement in the Brazilian economy.

For the first quarter 2018, the Global Operations segment loss was $7 million versus a $4 million loss in the first quarter 2017. Higher engine volumes and a benefit recognized as an adjustment to restructuring charges only partially offset a one-time benefit in the first quarter of 2017 of $9 million related to an adjustment to pre-existing warranties.

Financial Services Segment – In the first quarter of 2018, the Financial Services segment net revenues increased to $59 million primarily due to higher portfolio yields, higher overall finance receivable balances in Mexico and favorable movements in foreign currency exchange rates impacting the company's Mexican portfolio.

The Financial Services segment profit increased to $20 million primarily due to a decrease in the provision for loan losses in Mexico and improved interest margins.