Navistar International Corp. (NYSE: NAV) reported better-than-expected earnings for its fourth quarter but said it is reducing is worldwide workforce 10%, or about 1,300 jobs.
The Lisle, Illinois-based truck maker recorded its seventh consecutive full-year improvement in earnings before interest, taxes, depreciation and amortization (EBITDA). Navistar gained 1.3 percentage points of core market share to 18.8% covering heavy-duty (Class 8) and medium-duty (Class 6-7) trucks and buses.
Navistar plans to increase EBITDA to 10% by 2022 and to12% by 2024 as part of a plan that includes a goal of 25% core market share. Share in the fourth quarter touched 21%.
But after reducing production 15% at plants in Springfield, Ohio, and Escobedo, Mexico, between July and October, Navistar in November reduced production an additional 10%, canceling the second shift in Escobedo. Overall production rates are now 25% lower at both plants.
“We are taking actions to adjust our business to current market conditions, including reducing production rates and SG&A expenses while restructuring our global and export operations,” Navistar CEO Troy Clarke said.
First-quarter 2020 orders are expected to trail the year-ago quarter by 40%, putting the company on target for a break-even financial performance, Clarke said.
Conditions should improve in the second half of 2020, or sooner, Clarke told analysts on a conference call Dec. 17.
He projects 2020 will be a fourth consecutive year of share improvement. And that will be accomplished without lowering prices. Navistar needs to be patient while depressed used truck prices recover. When that happens, fleets will sell those trucks and order replacement equipment, Clarke said.
“Building on the strong gains achieved over the last several years, Navistar has a clear road map in place for sustained growth that will set it apart from the industry,” he said in a statement.
Fourth-quarter net income was $102 million, or $1.02 per share, compared with $188 million, or $1.89 per share, in the same period a year ago.
A consensus of analysts projected 96 cents per share in fourth-quarter net income, according to investor site Seeking Alpha.
Net income for fiscal year 2019 was $221 million, or $2.22 per share, compared with $340 million or $3.41 per diluted share, for fiscal 2018. Adjusted net income for fiscal year 2019 increased 29% to $423 million versus $327 million in 2018.
UAW strike impact
Adjusted net income for the fourth quarter was $114 million versus $189 million in the same period a year ago. That included a $140 million revenue hit from the United Auto Workers’ strike against General Motors Co. (NYSE: GM). Navistar builds medium-duty pickup trucks for GM, which canceled orders for 4,000 units lost to the strike.
Navistar built more than 10,000 Class 4-5 medium-duty trucks for GM and for sale under the International brand in fiscal 2019, the first year of production. That number would have been higher without the 40-day UAW strike.
Navistar expects to make up about 1,000 units of strike-impacted production for trucks it sells as International models during 2020. Higher production of those trucks for GM is expected in 2020, but a smaller increase than projected earlier.
Fourth-quarter revenue was $2.8 billion, down 16% compared to the very strong year-earlier quarter. The fourth quarter of 2018 included the sale of 70% of Navistar Defense. Fiscal-year revenue rose 10% to $11.25 billion, led by a 26% increase in worldwide retail sales of 106,500 units.
Navistar’s third consecutive year of core market share growth included an increase in school bus market share to an industry-leading 35.8%. Class 6-7 medium-duty market share rose 3.7 percentage points to 27%. Class 8 market share grew six-tenths of a point to 14.1%.
For 2020, Navistar predicts industry retail deliveries of Class 6-8 trucks and buses in the United States and Canada in the lower end of a range between 335,000 and 365,000 units, with Class 8 retail deliveries between 210,000 and 240,000 units.
It projects revenues in the range of $9.25 billion to $9.75 billion, with adjusted EBITDA in the range of $700 million to $750 million.
The company’s order banks are full into the second quarter of 2020, Clarke said. Other pending orders need to be finalized before being built because Navistar wants to avoid overloading its International dealerships with trucks.
With a balance of orders closer to 50-50 Class 8 heavy-duty and Class 7-8 medium-duty and school buses, Navistar is in a better position than competitors whose mix is closer to 2:1 Class 8, whose orders have fallen in 11 of the last 12 months.
“With a proven track record of managing costs and improving operating results, Navistar is in a much better position than in the past to do well even during cyclical downturns,” Clarke said.