Navistar Reports Third Quarter 2018 Results

Navistar International Corporation has announced third quarter 2018 net income of $170 million, or $1.71 per diluted share, compared to third quarter 2017 net income of $37 million, or $0.38 per diluted share. 

Third quarter 2018 EBITDA was $284 million, versus EBITDA of $160 million in the same period 1 year earlier. The third quarter of 2018 included $66 million in adjustments, including a $71 million gain from a one-time settlement, $4 million of pre-existing warranty accrual reversals, and $9 million in charges for asset impairments and restructuring costs. Excluding those items, adjusted EBITDA was $218 million in the third quarter of 2018, compared to $194 million in the same period 1 year ago. While adjusted EBITDA for the third quarter was affected by supplier constraints that delayed deliveries and impacted volumes, the company aggressively managed these headwinds. These vehicles are making their way through the delivery process and will be reflected in fourth quarter sales.

Revenues in the quarter were $2.6 billion, up 18% from the same period 1 year ago, primarily due to a 26% increase in Core market (Class 6-8 trucks and buses in the United States and Canada) volumes.

"We had a strong quarter that took full advantage of healthy industry volumes and the market's enthusiasm for our new products," says Troy A. Clarke, Navistar Chairman, President and Chief Executive Officer.

Navistar ended third quarter 2018 with $1.12 billion in consolidated cash, cash equivalents and marketable securities. Manufacturing cash, cash equivalents and marketable securities were $1.08 billion at the end of the quarter.

The company had a number of product highlights during its third quarter. Year-over-year growth in Class 8 heavy retail market share, up 2.7 points, was attributable to strong sales of the LT Series on-highway truck and the 12.4-L A26 engine. International A26 engine market share penetration more than doubled from the year ago quarter, and the engine is now also available in the company's severe service vehicles, the HV Series and HX Series. Additionally, the new MV Series contributed to 66% growth in medium-duty orders.

In the school bus segment, the company was the first in the industry to make electronic stability control and collision mitigation technology standard on its IC Bus CE Series and RE Series school buses. With these new standard systems in place, IC Bus has the most robust collision mitigation offering in the industry.

Additionally, the company announced that all new on-highway International trucks will be equipped with an OnCommand Connection telematics device with two free years of service included. The OnCommand Connection device integrates a cellular-enabled hardware platform with a range of technology solutions, including telematics and the OnCommand Connection Advanced Remote Diagnostics platform.

2018 INDUSTRY AND FINANCIAL GUIDANCE

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

• Industry retail deliveries of Class 6-8 trucks and buses in the United States and Canada are forecast to be 390,000-410,000 units, with Class 8 retail deliveries of 260,000-280,000 units.
• Navistar revenues are expected to be between $10.1 billion and $10.4 billion.
• The company's adjusted EBITDA is expected to be between $775 million and $825 million.
• Year-end manufacturing cash is expected to be above $1.25 billion.

Additionally, the company forecasts the industry's 2019 retail deliveries of Class 6-8 trucks and buses in the United States and Canada to be in the range of 385,000-415,000 units, with Class 8 retail deliveries between 255,000 and 285,000 units.

"Our team has delivered substantial accomplishments this year, including growing Class 8 share, building our backlog and effectively managing costs," Clarke says. "Our progress positions us well for a very strong fourth quarter and another good year in 2019."

SEGMENT REVIEW

Truck Segment — Truck segment net sales increased 25% to $1.9 billion compared to third quarter 2017, due to higher volumes in Core markets, an increase in military sales and a favorable shift in model mix.

For the third quarter 2018, the Truck segment recorded a profit of $165 million compared to $7 million for the same period one year ago. The improvement was primarily driven by the impact of higher volumes in Core markets and lower charges related to legacy engine litigation recorded in the third quarter of 2017. The segment also benefited from a settlement of a business economic claim. The segment was negatively impacted by industry supplier constraints that resulted in higher company inventory, lower volumes, cost inefficiencies in the assembly process and additional freight costs.

Parts Segment — Parts segment net sales increased $19 million, to $605 million, compared to third quarter 2017, due to continued double-digit growth of the Fleetrite brand, partially offset by lower Blue Diamond Parts (BDP) sales.

For the third quarter 2018, the Parts segment recorded a profit of $144 million, down eight percent compared to third quarter 2017, primarily due to lower proprietary parts sales, higher freight-related expenses and intercompany access fees.

Global Operations Segment — Global Operations net sales increased 6%, to $89 million, compared to third quarter 2017, due primarily to higher engine volumes.

For the third quarter 2018, the Global Operations segment profit was $4 million, comparable to the same period one year ago.

Financial Services Segment — Financial Services net revenues increased by $3 million to $65 million compared to third quarter 2017, primarily due to higher average portfolio balances in the U.S. and Mexico.

For the third quarter 2018, the Financial Services segment recorded a profit of $23 million, comparable to third quarter 2017. During the quarter, Navistar Financial Corporation issued a $400 million 7-year senior secured Term Loan B.