Navistar International Corp. reported its first quarterly profit in three years, thanks to healthy parts sales and in spite of lower revenue. The company on Tuesday announced second quarter 2016 net income of $4 million, or $0.05 per diluted share, compared to a second quarter 2015 net loss of $64 million, or $0.78 per diluted share.
"For the first time since we launched our turnaround more than three years ago, Navistar reported a quarterly profit," said Troy Clarke, Navistar president and chief executive officer, in a statement. "Our performance this quarter begins to demonstrate the earnings potential of this company.
“The fact that we earned a profit despite lower Class 8 truck volumes that impacted the entire industry, underscores the tremendous progress we continue to make in managing our costs effectively and improving our operations," he added.
Revenues in the quarter were $2.2 billion, down 18% compared to $2.7 billion in the second quarter last year. The decline reflects lower volumes in the company's main American and Canadian markets, due to softer industry conditions and the discontinuation of the company's Blue Diamond Truck joint venture with Ford in mid-2015, the announcement said.
Another factor was lower engine sales volume in Brazil, which is in a deep economic slump amid political turmoil. This was partially offset by higher sales in the company's parts segment, per the announcement.
The company achieved $56 million in structural cost reductions during the second quarter. Year to date, structural cost reductions are at $113 million, the announcement said. When combined with material spending reductions and manufacturing savings, the company is on track to well exceed its total cost reduction goal of $200 million for 2016.
Navistar ended second quarter 2016 with $817 million in consolidated cash, cash equivalents and marketable securities. Manufacturing cash, cash equivalents and marketable securities were $732 million at the end of the quarter.
However, for the second half of 2016, Navistar lowered its industry guidance range by 20,000 units, due to softening Class 8 market conditions. Given this, along with slower than anticipated market share growth domestically, weaker export markets, and the impact of a stronger dollar, the company reduced its full-year revenue and adjusted guidance for earnings before interest, taxes, depreciation and amortization (EBITDA).
"While we were net income positive in the second quarter, it will now be difficult for us to be profitable for the entire year given the tougher than anticipated market conditions, primarily due to the lower outlook for Class 8 industry volumes," Clarke said. "We are confident we will generate and implement additional performance improvements to partially offset current industry conditions."
Second quarter 2016 EBITDA was $135 million, compared to second quarter 2015 EBITDA of $85 million, the company said. This year's second quarter results included $52 million in adjustments, including $46 million to pre-existing warranty reserves.
As a result, second quarter adjusted EBITDA was $187 million, up 83%, compared to adjusted EBITDA of $102 million in the comparable period last year. The improvement was driven by continued strong cost management, product cost improvement and record Parts segment profitability.
Navistar emphasized bright spots in its products and services offerings. It said that orders for the HX series of premium vocational trucks, introduced in early February, are already more than 70% of what was expected for the fiscal year. Later in the quarter, the company announced the addition of the 8.9-liter Cummins ISL9 diesel as an option for its DuraStar and WorkStar models.
The company also said it made advances on its telematics-based, connected vehicle services during the quarter. OnCommand Connection, Navistar's open-architecture remote diagnostics service to International and other makes of trucks, surpassed the 200,000 subscriber mark.
Navistar also launched what it said is the industry's first Over-the-Air Programming service, which enables drivers or fleet managers to utilize a mobile interface to initiate engine programming over a safe, secure Wi-Fi connection. Since then, Navistar announced that it is offering Over-the-Air Programming with Cummins engines, including Cummins engines in vehicles not built by International.