Navistar reports fiscal Q2 net loss of US$297M, compared to loss of US$374M in year-ago period, as revenue rises 8% to US$2.7B

LISLE, Illinois , June 5, 2014 (press release) – - Navistar reports net loss of $297 million on revenues of $2.7 billion

- Results include $151 million in asset impairment charges, primarily related to Brazil operations

- EBITDA exceeds guidance, excluding one-time items and pre-existing warranty expense

- Orders and retail market share for medium- and heavy-duty up sequentially and year-over-year

- Company reduces structural costs by $92 million

- Ends quarter with $1.06 billion in manufacturing cash, in line with guidance

- Finishes quarter with 82 percent increase in order backlog year-over-year

Navistar International Corporation (NYSE: NAV) today announced a second quarter 2014 net loss of $297 million, or $3.65 per diluted share, compared to a second quarter 2013 net loss of $374 million, or $4.65 per diluted share. Revenues in the quarter were $2.7 billion, up from $2.5 billion in the second quarter of 2013. Second quarter 2014 results include $151 million in intangible asset impairment charges and a $29 million tax valuation allowance, both primarily related to declines in actual and forecasted results for the company's operations in Brazil.

"We continue to make progress with our 'Drive to Deliver' and we have seen a number of encouraging signs this quarter, including improvements in our market share and strong order backlog, positive trends in our warranty expense and spend, and higher than expected structural cost reductions," said Troy A. Clarke, Navistar president and chief executive officer. "This is the third consecutive quarter where we've met or exceeded our EBITDA guidance and we have now met or exceeded our cash guidance for seven straight quarters."

Second quarter 2014 EBITDA was a loss of $119 million, which included the $151 million intangible asset impairment charge, $42 million in pre-existing warranty adjustments and $8 million in restructuring charges. As a result, adjusted EBITDA was $82 million, which exceeded the company's second quarter guidance of between $25 million to $75 million, excluding pre-existing warranty and one-time items. Navistar finished the second quarter 2014 with $1.06 billion in manufacturing cash, cash equivalents and marketable securities, in line with its cash guidance range of $1.0 billion to $1.1 billion.

"We still have much work to do in our core North America operations as well as in Brazil, where we are taking actions to lower our breakeven point to offset the ongoing economic challenges in that country," Clarke added. "Overall, we feel good about our steady gains and positive momentum."

Second quarter highlights include sequential and year-over-year improvements both in orders and retail market share for medium- and heavy-duty trucks. The company's medium-duty Class 6/7 retail market share was 26.4 percent for the quarter, up from 17.3 percent in the first quarter of 2014 and 25.8 percent in the second quarter of 2013. Combined Class 8 retail market share was 14.9 percent for the quarter, up from 13.9 percent in the first quarter of 2014 and 14.5 percent in the second quarter of 2013. Navistar's combined Class 6-8 truck and bus retail market share for the second quarter was 18.5 percent, and the company ended the period with an order backlog 82 percent higher than this time one year ago.

Navistar reduced its year-over-year structural costs in the quarter by an additional $92 million, including $75 million in savings from selling, general, and administrative (SG&A) expense and $17 million in reduced engineering costs. Last month, the company initiated additional restructuring activities in North America, which will be completed by the end of this fiscal year and are expected to generate $40 million in SG&A savings annually starting in 2015.

Earlier in the quarter, Navistar announced its plans to consolidate mid-range engine manufacturing by idling its Huntsville, Ala. mid-range engine plant and moving production to Melrose Park, Ill. Those plans remain on track and once completed later this summer, are expected to reduce Navistar's operating costs by more than $22 million annually.

The company also announced during the second quarter its plans to add selective catalytic reduction (SCR) emissions technology to the company's proprietary 9- and 10-liter, high horsepower inline six-cylinder (I-6) engines. That launch is on track and progressing well, with first customer deliveries slated for later this summer. Test units have been running for the past several months and initial results indicate an 8-12 percent improvement in fuel economy, depending on the application.

Navistar's warranty spend improved in the second quarter, down $23 million—or 13 percent—year-over-year. This improvement was driven by lower costs per repair, fewer EGR engines in the warranty period and ongoing quality improvements for its EGR engines as well as new product launches with SCR engines.

Also during the quarter, the company completed the sale of $411 million of new convertible notes due in April 2019. The net proceeds from the issuance were used to repurchase the majority of the convertible notes that come due in October 2014. The company anticipates repaying the $166 million balance with cash on hand. As a result, the company will have no major debt maturities come due until 2017.

The company provided the following guidance updates:

Raised Class 8 industry forecast for FY2014 (U.S./Canada) to 225,000-235,000.

Increased FY2014 structural cost savings goal to $250 million, versus its previous goal of $175 million.

Projects Q3 EBITDA between $75 million - $125 million, excluding pre-existing warranty and one-time items.

Projects between $950 million and $1.05 billion in manufacturing cash, cash equivalents and marketable securities at the end of Q3.

"We saw our market share bounce back strongly in the second quarter and we look to build on this in the second half of our fiscal year," Clarke said. "We also expect our financial performance will continue to build quarter-over-quarter, with third quarter results better than second quarter, and our fourth quarter performance better than the third quarter. We are progressing and building momentum."

Summary of Financial Results:

North America Truck — For the second quarter 2014, the North America truck segment recorded a loss of $134 million, compared with a year-ago second quarter loss of $303 million.
The year-over-year improvement was primarily driven by lower charges for adjustments related to pre-existing warranties and increased structural cost savings. Chargeouts for traditional markets were up 25 percent, reflecting a 49 percent increase of Class 8 heavy-duty trucks and a 20 percent increase in Class 6/7 medium-duty trucks.

North America Parts — For the second quarter 2014, the North America parts segment recorded a profit of $126 million, compared to a year-ago second quarter profit of $114 million. Parts revenues in the quarter declined by 2 percent due to lower military sales, which were partially offset by higher commercial parts sales. However, profit improved by 11 percent year-over-year driven by lower SG&A expenses resulting from the company's ongoing cost-reduction initiatives and the stronger performance in commercial markets.

Global Operations — For the second quarter 2014, global operations recorded a loss of $150 million compared to a year-ago second quarter profit of $32 million. The year-over-year decline was primarily driven by asset impairment charges related to declines in actual and forecasted results for the company's operations in Brazil. Also, second quarter 2013 results included a $28 million gain from the sale of the company's interest in the Mahindra joint ventures.

Financial Services — For the second quarter 2014, the financial services segment recorded a profit of $24 million compared to second quarter 2013 profit of $19 million. The year-over-year increase was due primarily to lower structural costs resulting from the company's ongoing cost-reduction initiatives and intercompany loans.

About Navistar

Navistar International Corporation (NYSE: NAV) is a holding company whose subsidiaries and affiliates produce International® brand commercial and military trucks, MaxxForce® brand diesel engines, and IC Bus™ brand school and commercial buses. An affiliate also provides truck and diesel engine service parts. Another affiliate offers financing services. The International® ProStar® with Cummins ISX15 and International® TerraStar® 4x4 were named 2014 heavy-duty and medium-duty commercial truck of the year, respectively, by the American Truck Dealers (ATD) association. Additional information is available at www.Navistar.com.

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