Navistar Reports Second Quarter Earnings Highest in 25 Years
13 May 1999
Navistar Reports Second Quarter Earnings Highest in 25 Years
Higher Volume and Improved Margins Continue to Drive Results;
Earnings Again Exceed Analyst Estimates
CHICAGO, May 13 -- Navistar International Corporation
, producer of International(R) brand trucks, buses and engines,
today reported that earnings for the second quarter of its fiscal year were
the highest for the period in more than 25 years, with diluted per share
earnings up nearly 60 percent over the same period a year ago. It marked the
10th consecutive quarter that per share earnings exceeded the consensus
estimate of financial analysts.
The company said that net income for the quarter ended April 30, 1999 rose
to $96 million, or $1.42 per diluted common share, from $67 million, or $0.89
per diluted common share in the same period a year ago.
Consolidated sales and revenues from manufacturing and financial services
operations for the second quarter totaled $2.3 billion, up 12 percent from the
$2.0 billion reported in the second quarter of 1998. Manufacturing gross
margins for the quarter increased 3.5 percentage points to 17.9 percent from
the 1998 second quarter gross margin of 14.4 percent.
For the first six months of fiscal 1999, Navistar reported net income of
$157 million, or $2.33 per diluted common share, up from $105 million, or
$1.30 per diluted common share in the opening half of 1998. Consolidated
sales and revenues rose 12 percent to $4.2 billion from $3.8 billion last
year.
John R. Horne, chairman, president and chief executive officer of
Navistar, said second quarter results benefited somewhat from higher volume
but the main contributions came from ongoing productivity improvement and the
continued successful implementation of the company's focused truck and engine
strategies. Navistar's truck facilities at Chatham, Ontario and Springfield,
Ohio and its engine facility at Indianapolis ran at capacity levels during the
quarter, Horne noted.
"We continue to beat our quarterly results year to year, while also making
major investments in order to reach our long-term goal of a 17.5 percent
return on investment over the business cycle," Horne said. "This
accomplishment underscores the winning attitude of our employees, who continue
to show their ability to set ambitious goals and then deliver on them."
Horne said that the 43 percent gain in second quarter earnings was
achieved even though Navistar continued to invest heavily in programs designed
to support future growth. He noted that the company has budgeted $450 million
for capital expenditures this year and will increase spending for product
development, new plant startup expenses and costs associated with marketing
the company's International brand by $145 million to $165 million over the
prior year spending.
"Demand is continuing at record levels and as a result, we recently
increased our 1999 industry forecast to 415,000 heavy and medium trucks and
school buses from the 380,000 forecast last fall," Horne said.
Shipments of International brand heavy and medium trucks and school buses
during the second quarter totaled 36,100 units, a gain of 8 percent over the
33,600 units shipped in the second quarter of 1998.
"Truck and bus volume was consistent with our strategy," Horne said. "We
are not interested in simply chasing market share; however, our market share
at all times has to be large enough to develop and maintain scale in all
aspects of our business."
International operations continue to grow, Horne said. In Mexico, there
are now 54 dealer locations covering more than 90 percent of the country.
Also, the Brazilian market began to see signs of recovery and Navistar
received one of the largest single orders in the region in recent years -- 200
trucks to a municipal government in Brazil. There currently are 11
International dealers in Brazil.
Shipments of mid-range diesel engines to other original equipment
manufacturers during the quarter totaled 72,200, a gain of 29 percent over the
same 1998 period. Sales of service parts rose 3 percent to $223 million.
According to Horne, the company is addressing heavy truck capacity
constraints primarily through expansion of the company's assembly plant in
Escobedo, Nuevo Leon, Mexico. By October, the Escobedo facility will have the
ability to produce in excess of 50 premium heavy trucks per day.
Second Quarter Developments
In addition to continued strong demand for diesel engines, Dan Ustian,
group vice president and general manager of the engine division, said three
significant developments occurred during the quarter that will boost diesel
growth in the years ahead, including the finalization of two joint ventures
and the announcement of a new assembly facility.
In March, Navistar finalized a deal to acquire a 50 percent interest in
Maxion Motores Ltda., headquartered in Brazil and the diesel engine market
share leader in the Mercosul market. The company was renamed Maxion
International Motores S.A. to reflect the addition of International brand
diesels to its product offering. The joint venture will continue to produce
the current Maxion products while adding the 7.3L V-8 turbo diesel engine from
Navistar to the venture's product line.
In another joint venture, plans were finalized with Siemens Automotive
Corporation to develop and manufacture next-generation diesel fuel injectors
incorporating proprietary digital valve technology under license from Sturman
Engine Systems, L.L.C. The fuel injectors will help Navistar and its
customers meet reduced diesel emission standards in advance of the 2004
compliance deadline set by the Environmental Protection Agency.
Finally, on April 23, Navistar announced that new high technology diesel
engines will be produced in Huntsville, Ala. An investment of $250 million
will be made, contingent on ratification of incentives offered by and through
the State of Alabama.
"The Huntsville facility, scheduled to begin production in 2001, will
facilitate the transition from the current product to the next-generation
diesel engine and will strengthen our diesel technology leadership position
for the International brand and our OEM customers," Ustian said.
In other activity during the quarter, Navistar introduced restyled
International 9000i series of premium conventional trucks that feature
improved aerodynamics and fuel economy largely achieved with a wraparound
windshield that opens up the cab's interior, adding to overall visibility.
A new line of vehicles, the International 5000i series, designed for
construction, a municipal, forestry and refuse customer was also introduced
during the quarter.
Navistar International Corporation, with world headquarters in Chicago,
and 1998 annual sales and revenues of $7.9 billion, is a leading North
American producer of heavy and medium trucks and school buses. The company is
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, and
a private-label designer and manufacturer of diesel engines for full-size
pickup truck and van markets and selected industrial and off-highway markets.
NAVISTAR INTERNATIONAL CORPORATION
AND CONSOLIDATED SUBSIDIARIES
STATEMENT OF INCOME (UNAUDITED)
(Millions of dollars, except per share data)
THREE MONTHS ENDED SIX MONTHS ENDED
APRIL 30 APRIL 30
1999 1998 1999 1998
Sales and Revenues
Sales of manufactured
products $2,215 $1,981 $4,052 $3,653
Finance and
insurance revenue 59 47 121 92
Other income 13 14 38 24
Total sales
and revenues 2,287 2,042 4,211 3,769
Costs and expenses
Cost of products
and services sold 1,824 1,703 3,368 3,157
Postretirement
benefits 65 43 114 88
Engineering and
research expense 66 46 124 81
Marketing and
administrative
expense 123 97 249 195
Interest expense 35 29 67 46
Other expense 20 16 36 33
Total costs
and expenses 2,133 1,934 3,958 3,600
Income before
income taxes 154 108 253 169
Income tax
expense 58 41 96 64
Net income 96 67 157 105
Less dividends on
Series G Preferred
stock -- 4 -- 11
Net income applicable
to common stock $96 $63 $157 $94
Earnings per share
Basic $1.44 $.90 $2.37 $1.32
Diluted $1.42 $.89 $2.33 $1.30
Average shares
Outstanding
(millions)
Basic 66.2 69.2 66.3 70.6
Diluted 67.5 70.5 67.3 71.7
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 APRIL 30
1999 1998
ASSETS
Cash and cash equivalents $181 $453
Marketable securities 406 491
587 944
Receivables, net 2,611 2,044
Inventories 646 576
Property and equipment, net 1,186 968
Investments and other assets 338 334
Intangible pension assets 199 212
Deferred tax asset, net 834 871
Total assets $6,401 $5,949
LIABILITIES AND SHAREOWNERS' EQUITY
Liabilities
Accounts payable, principally trade $1,307 $1,214
Debt: Manufacturing operations 477 464
Financial services operations 1,702 1,592
Postretirement benefits liability 967 910
Other liabilities 1,063 977
Total liabilities 5,516 5,157
Commitments and contingencies
Shareowners' equity
Series D convertible junior preference stock 4 4
Common stock
(75.3 and 55.4 million shares issued) 2,140 1,750
Class B Common stock
(19.9 million shares issued
at April 30, 1998) -- 388
Common stock held in treasury, at cost (236) (138)
Retained earnings (deficit) (683) (1,019)
Accumulated other comprehensive loss (340) (193)
Total shareowners' equity 885 792
Total liabilities and shareowners' equity $6,401 $5,949
The Statement of Financial Condition includes the consolidated financial
results of the company's manufacturing operations with its wholly owned
financial services operations.