Ever more confident of its strengthening position in the commercial truck market, Navistar International is rolling out what it calls its Navistar 4.0 business strategy. It shared details at its Sept. 19 Investor Day at company headquarters in Lisle, Illinois.
The new plan was detailed at the investor event just weeks after the company reported in its Q3 earnings call that its market share in both Class 8 and Class 6-7 is increasing and its revenue and earnings are growing, fueled by the growth in its truck segment.
In an advance news release, Navistar Chairman, President and CEO Troy Clarke described Navistar 4.0 as “laying out a clear path” that builds on the “major advances achieved in the last five years,” including gains from its strategic alliance with Germany-based Traton Group, so the company can continue improving and strengthening its financial performance.
“Navistar is committed to building on the gains of the past five years to improve financial returns to shareholders,” said Clark. “Navistar 4.0 establishes a clear road map to grow EBITDA [Earnings before interest, tax, depreciation and amortization; an accepted measure for weighing operating performance] margins to 12%, while also winning in the marketplace.”
Navistar 4.0 includes these key goals:
- Improve EBITDA margins to 10% by 2022 and to 12% by 2024
- Grow market share and become the number-one choice of the customer through new product offerings and customer segmentation
- Implement a single platform strategy to optimize use of R&D resources and commonization of parts and tooling;
- Increase modular design resulting in customer benefits, speed to market and lower product costs
- Build a new truck assembly facility in San Antonio, Texas, reducing logistics and manufacturing costs
- Leverage alliance with Traton Group to provide significant procurement savings, more efficient R&D spend and new integrated powertrain offerings for customers
- Grow “aftersales” revenues with an expanding distribution network, growing private label sales and e-commerce initiatives;
- Improve financial results allowing the company to invest in growth initiatives, “de-lever the balance sheet” and fully fund its defined benefit pension plans by 2025
Truck Plant in Texas
A new truck plant in Texas builds on a recently announced $125 million investment in its Huntsville, Alabama, engine plant to produce next-generation, big-bore powertrains developed as part of the alliance with Traton Group.
Saying that it “intends to create the most cost-competitive manufacturing network in the industry,” Navistar plans to invest more than $250 million in a new “industry benchmark” facility in San Antonio, Texas, contingent on approval of various incentives.
“The new facility will have the flexibility to build Class 6-8 trucks incorporating the most advanced lean manufacturing practices, enabling lower conversion costs and an optimized supply chain,” said Navistar COO Persio Lisboa in a release.
“Over the last five years, Navistar has made significant investments to improve our position in the market,” said Clarke. “This investment will create a benchmark assembly facility to improve quality, lower costs and provide capacity to support anticipated industry growth, as well as market share gains.”
The Texas site is located along Interstate 35, which links Navistar’s southern United States and Mexico supply bases, “allowing for significant logistic improvements, resulting in lower cost and enhanced profitability.” The plan is to break ground on the property later this year, with production anticipated to begin about 24 months later.
Leveraging Traton Alliance
Navistar said that increased benefits from the two companies’ procurement joint venture are achieved by leveraging global scale, ultimately through common powertrains and other systems.
“Our savings from the global alliance with Traton are on track to yield $500 million in the first five years, with $200 million in annual savings by year five,” said Navistar CFO Walter Borst.
Longer-Term Financial Guidance
In its presentation, Navistar also provided industry and company financial guidance for 2020, including:
- Industry retail deliveries of Class 6-8 trucks and buses in the U.S. and Canada are forecast to be between 335,000 and 365,000 units
- Revenues are expected to be between $10.0 billion and $10.5 billion
- Adjusted EBITDA is expected to be $775 million to $825 million
- Manufacturing free cash flow is expected to be breakeven excluding changes in working capital
In addition, Navistar said it has plans in place to grow EBITDA margin from the 8% currently anticipated for 2019 to 10% by 2022. Helping to make that so, according to the OEM, will be “higher revenues and market share through new product offerings and market segmentation initiatives; incremental product cost improvements in procurement and manufacturing through supply and logistics savings and lean manufacturing activities; and lower structural costs from active cost management and lower pension and OPEB costs.”
By 2024: 12% EBITDA Margins
Navistar plans to achieve EBITDA margins of 12% by 2024. The company said this will be achieved by “development of integrated powertrain offerings, a single platform strategy, modular product design and optimization of the company’s manufacturing footprint.”
Navistar summed up its strategic vision by citing what ut sees as “unique opportunities:”
- New product lineup, quality improvements and uptime focus are gaining market share
- Gross margins will grow with the lower costs derived from the Traton alliance and enhanced manufacturing strategy
- “Aftersales” revenue will grow with market share gains and integrated powertrains improve the parts mix
- Substantial improvements in net income as free cash flow is used to pay down debt and fund pension plans
“Navistar’s recent improvements in both market share and financial returns are sustainable and will grow in the years ahead,” Clarke concluded. “I believe Navistar is the best investment opportunity in the commercial vehicle space.”