Navistar Announces Q3 Net Income
13 August 1998
Navistar Announces Third Quarter Net Income Growth of 43 Percent on 18 Percent Sales Gain Results Reflect Company's Ability to Execute Focused Strategies
CHICAGO, Aug. 13 -- Navistar International Corporation
, producer of International(R) brand trucks, buses and engines,
today announced that net income for the third quarter ended July 31, 1998
totaled $50 million, or $0.72 per diluted common share, compared with 1997
third quarter net income of $35 million, or $0.38 per diluted common share.
Consolidated sales and revenues for the quarter were $1.9 billion, compared
with $1.6 billion in the comparable prior year period.
"We continued to benefit from solid industry demand, but, more
importantly, we're driving strong performance against aggressive plans," said
John R. Horne, chairman, president and chief executive officer of Navistar.
"We are excited about the significant progress we have made with our
five-point truck strategy and our engine strategy. I believe our results are
evidence of our commitment to the company's long-term growth, and I'm very
proud of our employees who are delivering these results."
Manufacturing gross margin for the quarter increased 0.7 percentage points
to 14.5 percent from the 1997 third quarter gross margin of 13.8 percent.
During the third quarter, an offering of 19.9 million shares of common
stock was completed. These shares were the entire holdings of Navistar shares
by the Retiree Supplemental Trust, which was established in 1993 as part of
the Retiree Health Care Restructuring Agreement to supplement the health care
and life insurance benefits provided under the agreement. The transaction
closed on June 8, 1998, and shares were priced at $26.50 per share. The
underwriting spread and other costs of the offering were paid by the company
in accordance with the agreement with the Trust. These costs totaled
$14 million of expense, resulting in a $5 million reduction in net income, or
$0.08 per diluted common share.
In conjunction with the offering, the company purchased 2 million shares,
and its pension plans purchased an additional 3 million shares. During the
quarter, the underwriters exercised their over-allotment option and elected to
purchase 1.1 million shares from the company at $26.50 per share. The company
has offset the dilution through open market purchases; at quarter-end, 713,000
shares had been purchased, and in August, an additional 340,000 shares were
purchased.
Navistar's worldwide shipments in the third quarter grew to 18,200 medium
trucks and school buses (Class 5-7 GVW) and 11,600 heavy trucks (Class 8 GVW),
compared with last year's third quarter totals of 16,200 units and 10,000
units, respectively. The company's shipments of mid-range diesel engines to
other original equipment manufacturers during the quarter increased 14 percent
to 47,700 units versus the prior year's 41,900 units, while sales of service
parts grew 12 percent to $220 million, compared with $197 million in the third
quarter of 1997.
The company also continued to expand its heavy and medium market share,
excluding school buses, in the U.S. and Canada during the quarter. Heavy
truck share was 18.7 percent, an increase of 0.9 percentage points from the
prior year's 17.8 percent. International brand medium truck market share,
excluding school buses, increased to 36.7 percent, up 1.1 percentage points
from the 1997 third quarter share of 35.6 percent. Market share of
International school buses was 54.2 percent compared with 57.6 percent a year
ago, a decline of 3.4 percentage points.
For the first nine months of fiscal 1998, Navistar reported net income of
$155 million, or $2.02 per diluted common share, versus $80 million, or $0.80
per diluted common share in the comparable prior-year period. Consolidated
sales and revenues totaled $5.6 billion for the nine months, an increase of
27 percent, compared with $4.4 billion a year ago. Manufacturing gross margin
for the nine months increased 0.3 percentage points to 14.1 percent from last
year's 13.8 percent.
Recent Developments
During the quarter, Navistar continued to make strides in driving its
five-point truck strategy: focusing its truck assembly plants, simplifying
current product lines, investing in new product development, expanding
internationally and achieving competitive wages, benefits and productivity.
In April 1998 the company opened its Escobedo, Nuevo Leon, Mexico truck
assembly facility to meet the demand of the Mexican and Latin American truck
and bus market. The plant is operating on schedule and is currently producing
12 trucks per day. Navistar's year-to-date market share in Mexico has
continued to grow to 18.2 percent from a 10 percent share through the third
quarter of 1997, an increase of 8.2 percentage points. The company continues
to experience higher-than-planned market share and expects to exceed its
initial plans for units sold in Mexico in 1998. Navistar currently serves the
Mexico market through a growing 42-location dealer network and a parts
distribution center near Mexico City.
During the quarter, Navistar started the assembly and sales of its
medium-duty trucks at the Caxias do Sul, Rio Grande do Sul plant in Brazil.
Manufacturing at the facility is running on schedule, with plans to produce 60
units per month for the next several months. Additionally, delivery to the
company's newly established dealer network has begun.
Don DeFosset, executive vice president and president of the truck group,
said, "We are encouraged by our ability to execute our truck strategy on all
fronts -- all targeted at reaping the benefits of increased productivity and
significant quality improvements for our customers."
On June 23, Navistar celebrated the groundbreaking of a new
273,000-square-foot cab assembly and stamping plant in Springfield, Ohio. The
facility will press, weld and fabricate steel cabs for the International brand
medium-duty trucks, and is slated to begin operation by 2001. The facility is
part of the company's investment in Next Generation Vehicles (NGV).
Additionally, the company completed the majority of the expansion of its
Navistar Technology and Engineering Center (NTEC), located in Fort Wayne,
Ind., which will be the center of operations for the development of NGV. The
expansion included a 26,000-square-foot office building to accommodate
approximately 400 engineers and technicians hired to assist in the development
and design of the new truck and bus lines.
DeFosset added, "We continue to drive the momentum necessary to bring our
NGV to market. Both the Springfield groundbreaking and the Fort Wayne
expansion of NTEC clearly demonstrate our commitment to new product
development."
The rollout of the Diamond SPEC(TM) program, which facilitates a faster,
simplified truck ordering process, continued to meet success. Through the
third quarter, nearly 70 percent of the company's dealer stock orders for
medium trucks were placed using the Diamond SPEC program. Diamond SPEC for
medium trucks was unveiled in October 1997. By packaging individual
components into pre-engineered modules, Diamond SPEC reduces manufacturing
complexity, in turn providing customers with improved quality and enhanced
overall vehicle performance. Following the introduction of Diamond SPEC for
heavy trucks in October 1996, by the end of the third quarter, over 80 percent
of dealer stock orders for premium conventional class 8 stock trucks were
placed using the program.
In response to the growing demand from Ford Motor Company for V8 engines,
production at the Indianapolis Engine Plant is scheduled to increase to 1,176
engines per day in August. In addition, production at the Melrose Park plant
grew from 250 to 275 International brand engines per day.
Regarding the performance of the engine division during the quarter, Dan
Ustian, group vice president and general manager, engine and foundry division,
said, "Our emphasis on leveraging technology to provide innovative solutions
for our customers' needs is paying off in the form of increased demand and
higher engine production levels. As we see throughout the company, it's our
employees who are able to take us to new levels of performance."
Outlook for 1998 Demand
Navistar forecasts industry demand for heavy trucks in the United States
and Canada at 230,000 in fiscal 1998, compared with 196,800 heavy trucks sold
by the industry in 1997. Industry demand for medium trucks in the United
States and Canada is expected to reach 127,000 units in 1998, compared with
the 117,400 trucks sold in 1997, and demand for school buses in fiscal 1998 is
expected to be 32,000, compared with 33,200 last year.
Navistar International Corporation, with world headquarters in Chicago,
and 1997 annual sales of $6.4 billion is the leading North American producer
of heavy and medium trucks and school buses. Navistar maintained its position
as the leader in the combined U.S. and Canadian retail markets for medium and
heavy trucks and school buses through the nine months, achieving a
28.5 percent market share for the International brand trucks, an increase of
1.4 percentage points over last year. The company is also a worldwide leader
in the manufacture of mid-range diesel engines, which are produced in a range
of 160 to 300 horsepower for the International brand.
NAVISTAR INTERNATIONAL CORPORATION
AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF INCOME (UNAUDITED)
(Millions of dollars, except per share data)
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31 JULY 31
1998 1997 1998 1997
Sales and Revenues
Sales of
manufactured
products $1,804 $1,526 $5,456 $4,259
Finance and
insurance
revenue 57 45 149 133
Other income 13 15 38 41
Total sales and
revenues 1,874 1,586 5,643 4,433
Costs and expenses
Cost of products
and services
sold 1,550 1,320 4,707 3,688
Postretirement
benefits 40 50 128 158
Engineering and
research expense 43 28 124 90
Marketing and
administrative
expense 99 97 294 267
Interest expense 31 20 77 57
Financing charges
on sold
receivables 6 4 21 16
Insurance claims
and underwriting
expense 24 11 42 28
Total costs
and expenses 1,793 1,530 5,393 4,304
Income before
income taxes 81 56 250 129
Income tax
expense 31 21 95 49
Net income 50 35 155 80
Less dividends on
Series G
preferred stock -- 7 11 21
Net income
applicable to
common stock $50 $28 $144 $59
Earnings
per share
Basic $.73 $.38 $2.05 $.80
Diluted $.72 $.38 $2.02 $.80
Average shares
outstanding (millions)
Basic 68.6 72.9 69.9 73.3
Diluted 69.5 73.6 70.9 73.6
The Statement of Income includes the consolidated financial results of the
company's manufacturing operations with its wholly owned financial services
operations.
NAVISTAR INTERNATIONAL CORPORATION
AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF FINANCIAL CONDITION (UNAUDITED)
(Millions of dollars)
AS OF JULY 31
1998 1997
ASSETS
Cash and cash equivalents $269 $212
Marketable securities 556 503
825 715
Receivables, net 1,583 1,379
Inventories 553 521
Property and equipment, net 1,007 772
Investments and other assets 325 287
Intangible pension assets 212 267
Deferred tax asset, net 842 976
Total assets $5,347 $4,917
LIABILITIES AND SHAREOWNERS' EQUITY
Liabilities
Accounts payable,
principally trade $1,051 $864
Debt: Manufacturing operations 440 98
Financial services
operations 1,122 957
Postretirement benefits
liability 911 1,221
Other liabilities 1,033 814
Total liabilities 4,557 3,954
Commitments and contingencies
Shareowners' equity
Series G convertible
preferred stock -- 240
Series D convertible
junior preference stock
(liquidation preference $4) 4 4
Common stock
(75.3 and 52.2 million
shares issued) 2,138 1,662
Class B Common stock
(0 and 23.1 million
shares issued) -- 471
Retained earnings (deficit) (1,168) (1,364)
Common stock held in treasury,
at cost (184) (50)
Total shareowners' equity 790 963
Total liabilities
and shareowners' equity $5,347 $4,917
The Statement of Financial Condition includes the consolidated financial
results of the company's manufacturing operations with its wholly owned
financial services operations.
