Navistar International Corporation (NAV)

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Navistar International Corporation (NAV)

F1Q10 Earnings Call

March 10, 2010 10:00 AM EST

Executives

Heather Kos – VP of IR and Financial Communications

Daniel Ustian – Chairman, President and CEO

A.J. Cederoth – CFO

Archie Massicotte – President, Navistar Defense

Analysts

Meredith Taylor – Barclays Capital

Andy Casey – Wells Fargo

Steve Volkmann – Jefferies

Jerry Revich – Goldman Sachs

Henry Kirn – UBS

Patrick Nolan – Deutsche Bank

J. B. Groh – D. A. Davidson

Kirk Ludtke – CRT Capital Group

Ann Duignan – JPMorgan

Joel Tiss – Buckingham Research

Vlad Steinberg – Realm Partners

Presentation

Operator

Good morning and welcome everyone to the Navistar International Corporation first quarter earnings release. Today’s call is being recorded. And for opening remarks and introductions, I would like to turn the program over to the Vice President of Investor Relations and Financial Communications, Heather Kos. Please go ahead, ma’am.

Heather Kos

Welcome and thank you for joining us today for our Navistar’s first quarter 2010 conference call.

Information provided in statements contained in this presentation that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements only speak as of the date of this presentation and the company assumes no obligation to update the information included in the presentation. Such forward-looking statements include information concerning our possible, or assuming future results of operations include descriptions of our business strategy.

These statements often include words such as believe, expect, anticipate, intend, plan, estimate or similar expressions. These statements are not guarantees of performance or results and they involve risks, uncertainties and assumptions. For a further description of these factors, see item 1A, Risk Factors, included in our Form 10-K for the year ended October 31st, 2009, which was filed on December 21st, 2009.

Although we believe that these forward-looking statements are based on reasonable assumptions, there are many factors that could affect our actual financial results or results of operations that could cause actual results to differ materially from those in the forward-looking statements.

All future written and/or oral forward-looking statements by us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to above.

Except for our ongoing obligations to disclose material information as required by the Federal Securities Laws, we do not have any obligations or intentions to release publically any revisions to our forward-looking statements to reflect events or circumstances in the future or to reflect the occurrence of unanticipated events.

Other Cautionary Notes: The financial information herein contains audited and unaudited information and has been prepared by management in good faith and based on data currently available by the company. Certain non-GAAP measures are used in this presentation to assist the reader in understanding our core manufacturing business.

We believe this information is useful and relevant to assess and measure the performance of our core manufacturing business as it illustrates manufacturing performance without regard to selected historical legacy costs, i.e. our pension and other post-retirement costs.

It also excludes financial services and other expenses that may not be related to the core manufacturing business. Management often uses this information to access and measure the performance of our operating segments. A reconciliation to the most appropriate GAAP number is included in the appendix of this presentation.

And with that, I will turn it over to Dan Ustian.

Daniel Ustian

Yes, thanks, Heather, and good morning. What we would like to today in today’s discussion and in prior – and in subsequent quarters is reference what we spoke about the January 19th shareowners and investment meeting where on slide four we talked about a revised goal of a $20 billion revenue company during normal times would commensurate profits with great products, competitive costs and the three pillars of remaining the same.

Two other things of importance is to find a way to be profitable during all of the cycles, control our own destiny and leverage the assets that we have. So in every conference, we will always references, and today, of course will be no different.

If you look at slide five, this is what we talked about. We mentioned that we had made progress on our original goals to the extent that we felt we could revise those goals upwards. And when normal industry comes back, we believe we have all the actions in place to be a $20 billion company, especially when the global impact hit us.

We also said that we were well positioned to improve our core business margins and we will talk about that today, while we are growing in this global sector. We will also have A.J. talk about the balance sheet impacts including what we are doing in the financial services situation, so we now believe our capital structure is constant and in place going forward.

On slide six, this is what we said 2010 would look like. These are the parameters going on in 2010. I will reference these as to what we think now. We said that the industry would be up slightly 5% to 10%. We said that the first half of the year though would be flat, the third quarter would be down, and the fourth quarter back up, we remain with that. In fact, we have more confidence in that today and here is how we get through the – if you are going up part at least.

We are seeing freight move increasing. We are seeing the utilization of trucks out there increasing. It will take some time for that reaction to head into buying trucks and we do believe we are exactly on what we said, first quarter being – first half being flat, third quarter being down a bit, and then an uptick in the fourth quarter and that’s exactly what our plan was and I believe we are on track today.

We also said that in the first quarter of the year, we would have our diesel production fairly constant. But the second part of the year, the second quarter of the year, we would be in a transition period, so volumes would be lower in the second quarter on diesels as we launch our 2010 products.

On the military side, we said we would have $2 billion which would be our normalized revenue for the military business. As we will talk about later, we think we have opportunities to improve that today.

We also mentioned that interest expense on the cash side would actually be down from our restructuring, but accounting we would have a $60 million accounting hit and that remains the same.

Truck margins we said would be flat in the first half of the year versus where we ended last year. And what we are going to show you today is they are a little bit better than where we ended last year. But the real impact for us is in the second half of the – with the 2010 launch.

We also mentioned that global situation with Mahindra, we would have a launch on the MNAL in the January of this year, which took place and we will start selling products there in end of the second quarter. We said our R&D would be similar, which is still the case. And we said we would have launch costs related to this startup of 2010 products and that’s mostly in the second quarter.

So with that, let’s go through what happened in the first quarter at slide seven. As anticipated, our revenue and sales on the truck side was basically constant to what it was in 2009 on the engine was up a little bit, somewhat last year, Ford was very low and so it increased this year. But we have also had some improvements in our South American business which is going to sustain itself through 2010 as well. So engine is up a little bit.

Our revenue on the military side, within that $2 billion worth of plan was about $350 million worth of plan in the first quarter, and that’s where we were. That compares to close to a $1 billion in 2009. So you can see we are less than 2009, but we are on track for the $2 billion that we had as an ongoing business.

Turning to page eight, let’s talk about profits. In the quarter, we had a $168 million worth of manufacturing segment profit, included in there a couple of one-time things. One was a positive thing as we closed out the situation with Ford on what we had accrued for suppliers and for other commitments that we had getting out of the Ford business, we finalized all of those negotiations, which ended up with an improvement of $17 million, that was in the quarter.

We chose to do something in Brazil, primarily related to a former business with MWM on taxes with the government there. We chose to conclude negotiation with them that resulted in a $16 million hit in the quarter. And the reason for that and we will talk some more about it in offline if there are any questions on this is we believe it will get us benefits in subsequent years of $5 million to $10 million. So we have a $17 million advantage in the quarter and a $16 million hit in the quarter. Those two wash themselves out. So we think the $168 million is representative of what an ongoing business would be for the first quarter.

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