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December 21, 2016

Navistar reports US$34m loss in Q4

Navistar International Corporation has announced a fourth quarter 2016 net loss of US$34m, or $0.42 per diluted share, compared to a fourth quarter 2015 net loss of $50m, or $0.61 per diluted share. Revenues in the quarter were $2.1bn.

Navistar International Corporation has announced a fourth quarter 2016 net loss of US$34m, or $0.42 per diluted share, compared to a fourth quarter 2015 net loss of $50m, or $0.61 per diluted share. Revenues in the quarter were $2.1bn.

Fourth quarter 2016 EBITDA was $95m versus EBITDA of $86m in the same period one year ago. This year’s fourth quarter included $9m in net charges for asset impairments and restructurings, and $8m in pre-existing warranty adjustments. As a result, adjusted fourth quarter 2016 EBITDA was $112m.

Revenues in the quarter declined 17% compared to fourth quarter 2015. The revenue decrease was largely driven by an 18% decline in the company’s Core (Class 6-8 trucks and buses in the US and Canada) charge-outs, to 13,000 units. This decline largely reflects continued softening of Class 8 industry volumes in the US and Canadian markets.

Navistar finished the fourth quarter 2016 with $850m in consolidated cash, cash equivalents and marketable securities and $800m in manufacturing cash, cash equivalents and marketable securities.

“In the fourth quarter and throughout the full year, we’ve demonstrated our ability to lower our break-even point and improve our operations,” said Troy A. Clarke, Navistar president and chief executive officer. “We recorded our fourth consecutive year of adjusted EBITDA improvement and significantly improved our adjusted EBITDA margin year on year, despite a substantial decline in revenues primarily due to the challenging conditions in the Class 8 market.”

During the fourth quarter, the company launched the International LT Series, its new flagship line of Class 8 over-the-road trucks featuring advanced technologies that deliver unrivalled fuel efficiency, best-in-class uptime and unparallelled driver appeal. It also announced plans for a wide-ranging strategic alliance with Volkswagen Truck & Bus, which includes an equity investment in Navistar, strategic technology and supply collaboration and a procurement joint venture.

“We continued to invest and launch new products in 2016 and had our third consecutive year of record Parts profits,” Clarke said. “We also saw solid truck and bus order share performance, which positions us for higher retail market share in the future. As for our pending alliance with Volkswagen Truck & Bus, we are excited by the opportunities it will provide.”

Navistar provided an update on its pending strategic alliance, confirming that all appropriate regulatory filings have been made, and that it has already received antitrust approvals in the US and Poland. In addition, other regulatory approvals are pending, and other agreements between the parties that constitute closing conditions remain on track, including final terms for the procurement joint venture and the companies’ first powertrain collaboration, the details of which will be announced soon after the closure of the alliance. The company expects the transaction to close in the first quarter of calendar year 2017.

As for full-year 2016 results, Navistar reported a net loss of $97m, or $1.19 per diluted share, versus a net loss of $184m, or $2.25 per diluted share, for fiscal year 2015. Fiscal year 2016 adjusted EBITDA was $508m, versus $494m adjusted EBITDA for 2015. Full-year adjusted EBITDA margins increased 140 basis points to 6.3%. Revenue for the fiscal year 2016 was $8.1bn, compared to $10.1bn in fiscal year 2015.

“Although we expect tough industry conditions to continue through the first half of 2017, we see further opportunities to continue to reduce our break-even point, including leveraging some early cost synergies from the Volkswagen Truck & Bus alliance,” Clarke said. “The alliance announcement has been positively received by our customers, which when combined with our ongoing cadence of new product offerings, confirms our confidence in our improving standing in the market.”

The company provided the following guidance:

  • Retail deliveries of Class 6-8 trucks and buses in the US 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 $800m, including the capital injection from Volkswagen Truck & Bus.

Summary of Financial Results: Sales and revenues, net: Q4 2016 – $2,063m; Q4 2015 – $2,488m; FY 2016 – $8,111m; FY 2015 – $10,140m Segment Results: Truck: Q4 2016 – $(-)61m; Q4 2015 – $(-)36m; FY 2016 – $(-)189m; FY 2015 – $(-)141m Parts: Q4 2016 – $162m; Q4 2015 – $163m; FY 2016 – $640m; FY 2015 – $592m Global Operations: Q4 2016 – $(-)2m; Q4 2015 – $(-)27m; FY 2016 – $(-)21m; FY 2015 – $(-)67m Financial Services: Q4 2016 – $23m; Q4 2015 – $26m; FY 2016 – $100m; FY 2015 – $98m Loss from continuing operations, net of tax(A): Q4 2016 – $(-)34m; Q4 2015 – $(-)51m; FY 2016 – $(-)97m; FY 2015 – $(-)187m Net loss(A): Q4 2016 – $(-)34m; Q4 2015 – $(-)50m; FY 2016 – $(-)97m; FY 2015 – $(-)184m Diluted loss per share from continuing operations(A): Q4 2016 – $(-)0.42; Q4 2015 – $(-)0.62; FY 2016 – $(-)1.19; FY 2015 – $(-)2.29 Diluted loss per share(A): Q4 2016 – $(-)0.42; Q4 2015 – $(-)0.61; FY 2016 – $(-)1.19; FY 2015 – $(-)2.25

Truck Segment – For the fourth quarter 2016, the Truck segment recorded a loss of $61m, compared with a year-ago fourth quarter loss of $36m. The year-over-year change was primarily due to increased used truck losses and a mix shift to units with lower margins in our Core market, partially offset by lower adjustments to pre-existing warranties and the non-recurrence of restructuring charges recorded in the prior year from a voluntary separation program. For the 2016 fiscal year, the Truck segment recorded a loss of $189m, compared with a fiscal year 2015 loss of $141m. The increase in segment loss was primarily driven by higher adjustments to pre-existing warranties of $70m, increased used truck losses, lower Mexico margins due to the strengthening of the US dollar, and lower export volumes. These impacts were partially offset by improved purchasing and structural costs.

Parts Segment — For the fourth quarter 2016, the Parts segment recorded profits of $162m, similar to the year-ago fourth quarter, as cost-reduction initiatives and lower intercompany access fees offset the impact of the expected decline of our Blue Diamond Parts, LLC joint venture with Ford. For the 2016 fiscal year, the Parts segment recorded record profits of $640m, compared to a fiscal year 2015 profit of $592m. The 8% increase was primarily driven by margin improvements in the US market, cost-reduction initiatives, and lower intercompany access fees, partially offset by unfavourable movements in foreign currency exchange rates.

Global Operations Segment — For the fourth quarter 2016, the Global Operations segment recorded a loss of $2m, compared to a year-ago fourth quarter loss of $27m. The year-over-year improvement was primarily driven by ongoing actions to lower the company’s break-even point in its South American engine business to offset the impact of the ongoing downturn in Brazil’s economy. For the 2016 fiscal year, the Global Operations segment recorded a loss of $21m compared to a year-ago fiscal year loss of $67m. The Global Operations segment results improved by 69%, primarily due to lower manufacturing and structural costs as a result of the company’s prior year restructuring and cost reduction efforts and foreign currency exchange rates.

Financial Services Segment— For the fourth quarter 2016, the Financial Services segment recorded a profit of $23m, compared with fourth quarter 2015 profit of $26m. The year-over-year change was primarily driven by the impact on interest expense of higher interest rates, partially offset by our cost reduction initiatives. For the 2016 fiscal year, the Financial Services segment recorded a profit of $100m, slightly higher than in fiscal year 2015. The increase is primarily driven by operating lease early terminations, decreases in the provision for loan losses in Mexico and cost reduction initiatives. These increases were partially offset by a decrease in revenue and an increase in interest expense due to rate increases.

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