CHICAGO, May 13 -- Navistar International Corporation (NYSE: NAV), producer of International® 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.