Navistar Has Reported a Mixed Second Quarter in 2016

June 7th, 2016

Revenue in the second quarter of 2016 were $2.2 Billion USD, vs the $2.7 billion in the second quarter last year. This amounts to an 18% decline. Don't panic, the decline is due partially to the lower volume of revenue in the primary U.S. and Canadian markets, due to softer industry conditions, and the discontinuation of the joint venture with Blue Diamond Truck in mid-2015. Also contributing to the slide were lower engine volumes in Brazil, which can be attributed to poor economic conditions that have pervaded that country for some time. The decline in revenue is partially offset by higher sales in the Navistar parts department.

The Second Quarter Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) came in at $135 million dollars, which stacks up against 2015's second quarter EBITDA of $85 million USD. The 2016 results include adjustments of over $50 million, of which $46 million is earmarked for pre-existing warranty reserves. Overall the second quarter EBITDA is adjusted to $187 million, up 83% from the 2015 second quarter result of $102 million. This fiscal improvement is attributed to a continuing focus on strong cost management, product cost improvements, and record profitability in Navistar's parts segment.

Troy A. Clark, President and CEO of Navistar, spoke optimistically about the second quarter results: For the first time since we launched our turnaround more than three years ago, Navistar reported a quarterly profit. Our performance this quarter begins to demonstrate the earnings potential of this company. The fact that we earned a profit despite lower Class 8 truck volumes that impacted the entire industry, underscores the tremendous progress we continue to make in managing our costs effectively and improving our operations."

Navistar began its second quarter by launching the new HX® series of vocational trucks. Orders for the HX series have already reached 70% of the company's expectations for the fiscal year. Later in the second quarter Navistar also announced it is augmenting its DuraStar and WorkStar models with the option to incorporate a Cummis ISL 9-liter engine, pushing the company forward as a leader in offering comprehensive powertrain options.

Also in the second quarter, the company reported improvement in it's delivery of the OnCommand™ Connection remote diagnostics service, which reach the 200,000 subscriber mark. In addtion, Navistar launched an industry first Over-the-air programming service which gives drivers and fleet managers the ability to initiate engine programming over a secure wi-fi connection. This improves customer experience, delivers superior fuel economy, and provides nearly instant access to updated engine calibration.

Even with all of the great news and innovation, Navistar remains concious of the softening Class 8 market both at home and abroad. As such they reduced their industry guidance range by 20,000 units.

"While we were net income positive in the second quarter, it will now be difficult for us to be profitable for the entire year given the tougher than anticipated market conditions, primarily due to the lower outlook for Class 8 industry volumes," Clarke said. "We are confident we will generate and implement additional performance improvements to partially offset current industry conditions."

GUIDANCE

Industry

• Reduced its forecast of fiscal year 2016 retail deliveries of Class 6-8 trucks and buses in the United States and Canada to 330,000 - 360,000 units.
• Reduced its Class 8 market projection to 220,000 - 250,000 units.
• Maintained its projection that the medium, school bus and severe service segments will grow in 2016 versus 2015.

Navistar

• Revised 2016 revenue guidance downward to $8.2 billion - $8.6 billion.
• Reduced 2016 adjusted EBITDA guidance to $550 million - $600 million.
• Updated total cost reduction guidance to well exceed $200 million.
• Reduced its end-of-year manufacturing cash guidance to be approximately $800 million.