Navistar International Corporation has announced a third quarter 2016 net loss of $34 million, or $0.42 per diluted share, compared to a third quarter 2015 net loss of $28 million, or $0.34 per diluted share.
Third quarter 2016 EBITDA was $96 million versus EBITDA of $106 million in the same period one year ago. The third quarter 2016 included $36 million in adjustments, including $19 million of pre-existing warranty charges and $17 million in asset impairments and restructuring costs, compared to adjustments of $23 million in the third quarter of 2015. Excluding these items, adjusted EBITDA was $132 million in the third quarter 2016 compared to $129 million in the same period one year ago.
Revenues in the quarter were $2.1 billion, down 18% from the same period one year ago, primarily reflecting lower year-over-year chargeouts in the company's core markets (Class 6-8 trucks and buses in the United States and Canada), which was impacted by softer industry conditions, primarily in the Class 8 market. The company achieved $32 million in structural cost reductions during the third quarter, raising year-to-date structural savings to $145 million. Combined with product and purchasing cost savings, the company's total year-to-date costs savings exceed $300 million.
"This quarter's results show that we continue to make progress in the face of tougher market conditions, particularly in the heavy segment," says Troy A. Clarke, Navistar President and Chief Executive Officer. "As we pursue our goal of market share growth, we do see some encouraging signs in the area of order share, where year-to-date share of new orders continues to be up for the past three quarters. We are confident that as the industry works through its near-term challenges, particularly in Class 8, our improvements in order share will translate to improved retail share as well."
Navistar ended third quarter 2016 with $687 million in consolidated cash, cash equivalents and marketable securities. Manufacturing cash, cash equivalents and marketable securities were $640 million at the end of the quarter.
The company had a number of commercial and product highlights during its third quarter. Regarding new products, Navistar announced the expansion of its medium-duty engine offerings to include the Cummins L9 engine for its IC Bus RE Series school bus and demonstrated a gasoline-powered CE School Bus, which it plans to add to its school bus portfolio.
Navistar also made some impressive strides in bringing new technologies to market. The company announced its GPS-based Predictive Cruise Control Technology; continued to make progress in Connected Services with OnCommand Connection, which now serves more than 230,000 connected trucks; and launched its Accelerator write-up tool, a first-of-its-kind mobile application that will streamline the write-up and diagnostic process to improve customer uptime.
Finally, the company has continued to build on its partnerships with some of the best companies in the industry. In Q3, Navistar expanded on its partnership with General Motors by entering into an agreement to manufacture GM's Cutaway G Van commercial chassis, which will go into production in early 2017.
Earlier this week, Navistar announced that it has formed a wide-ranging strategic alliance with Volkswagen Truck & Bus, which includes an equity investment in Navistar by Volkswagen Truck & Bus and framework agreements for strategic technology and supply collaboration and a procurement joint venture. The planned alliance will enable Navistar to offer customers expanded access to leading-edge products and services through collaboration on technology and the licensing and supply of Volkswagen Truck & Bus' products and components, while better optimizing its product development spend.
Navistar expects significant synergies from both the strategic technology collaboration and the procurement joint venture. The company expects the alliance to be accretive beginning in the first year, and for cumulative synergies for Navistar to ramp up to at least $500 million over the first 5 years. By year five, it expects the alliance will generate annual synergies of at least $200 million for Navistar. This annual run rate is expected to grow materially thereafter as the companies continue to introduce technologies from the collaboration.
"We are making significant investments in new products, services and technologies and partnerships that set us apart as the leader in Uptime and a company clearly focused on our customers' needs," Clarke says. "This company is well positioned - operationally and product and service wise - to capitalize as market conditions improve."
The company maintained the following guidance for fiscal year 2016:
- Revenue of $8.2 billion - $8.6 billion.
- Adjusted EBITDA of $550 million - $600 million.
- Manufacturing cash to be approximately $800 million at year end.
SEGMENT REVIEW
Truck Segment — Truck segment net sales declined 24% to $1.4 billion compared to third quarter 2015, due to lower core truck and export truck volumes, a shift in product mix in the company's core market and lower used truck revenue. Chargeouts in the company's core markets were down 23% year over year.
For the third quarter 2016, the Truck segment recorded a loss of $54 million, compared with a year-ago third quarter loss of $36 million. The Truck segment's loss increased due to higher adjustments to pre-existing warranty and lower used truck margins, which more than offset the impact of a positive shift in product mix, lower structural and product costs, and improved purchasing costs.
Parts Segment — Parts segment net sales declined $28 million or 4% versus third quarter 2015 due to lower volumes, primarily driven by soft market conditions in its Core and Mexico markets.
For the third quarter 2016, the Parts segment recorded a profit of $152 million, flat compared to third quarter 2015, primarily due to margin improvements in its U.S. market and the impact of cost improvement initiatives that were offset by unfavorable movements in foreign currency exchange rates.
Global Operations Segment — Global Operations net sales declined $24 million year over year to $85 million, primarily due to a decrease in volumes in its South American engine operations. The continued economic downturn in the Brazil economy contributed to 46% lower engine volumes versus third quarter 2015.
For the third quarter 2016, the Global Operations segment recorded a loss of $5 million compared to a year-ago third quarter loss of $26 million. The 81% year-over-year improvement was primarily driven by lower manufacturing and structural costs resulting from prior year restructuring and cost reduction efforts.
Financial Services Segment — Financial Services net revenues decreased by $3 million to $60 million compared to third quarter 2015 primarily due to lower overall finance receivable balances and unfavorable movements in foreign currency in its Mexico portfolio.
For the third quarter 2015, the Financial Services segment recorded a profit of $26 million, equal to third quarter 2015. Gains from operating lease early terminations, decreases in the provisions for loan losses in Mexico and ongoing cost reduction initiatives were offset by an increase in interest expense, the year-over-year decrease in revenues and the unfavorable movement in foreign currency exchange rates.
