Navistar International Corporation (NAV)

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Navistar International Corporation (NAV)

F3Q2010 Earnings Call Transcript

September 8, 2010 10:00 am ET

Executives

Heather Kos – VP, IR and Financial Communications

Dan Ustian – Chairman, President and CEO

A.J. Cederoth – EVP and CFO

Archie Massicotte – President, Navistar Defense, LLC.

Jack Allen – President, North American Truck Group

Analysts

Andy Casey – Wells Fargo Securities

Henry Kirn – UBS

Meredith Taylor – Barclays Capital

Jerry Revich – Goldman Sachs

Patrick Nolan – Deutsche Bank

Kirk Ludtke – CRT Capital Group

Tim Denoyer – Wolfe Trahan

Adam Uhlman – Cleveland Research

Ben Elias – Sterne Agee

Brian Sponheimer – Gabelli & Company

Ann Duignan – JPMorgan

Basili Alukos – Morningstar

Presentation

Operator

Good morning and welcome everyone to the Navistar International Corporation third quarter earnings release. Today’s call is being recorded.

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.

Heather Kos

Thank you for your participation today and welcome to Navistar’s third quarter earnings 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 this presentation. Such forward-looking statements include information concerning our possible or assumed future results of operations, including 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 within our Form 10-K for the year ended October 31, 2009, which was filed on December 21, 2009. Although we believe that these forward-looking statements are based upon reasonable assumptions, there are many factors that could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements.

All future written and 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 Exchange Laws, we do not have any obligations or intentions to release publicly 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 that’s been prepared by the company in good faith and based on data currently available to 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 assess and measure the performance of our operating segments. A reconciliation to the most appropriate GAAP number is included in the appendix of this presentation.

With that, I’ll turn you over to Dan Ustian, our CEO, Chairman and President.

Dan Ustian

Good morning. For the agenda today, we are going to talk about the third quarter, we’ll talk about the full year, and then we’ll talk about where we’re going in the future, A.J. will finish it off by talking about what we’re doing for shareowner value.

So if you go through the package on slide number five, I want to remind us as to what we’re trying to accomplish on a long-term basis and that is significant growth; being successful at all points in the cycle, certainly in the tough times like we’re in today managing our investments through leveraging assets. So we’re doing all that with limited investments; giving us also a better cost structure; and controlling our own destiny. So with that backdrop, slide number six shows you some of the product launches that we’re having in 2010 going on in third quarter.

As you can see there is a lot going on. On the military side, the Husky’s independent suspension, some variants, some future type products and new products for the core business. There is a ProStar +. There are some global products in here. You see an electric vehicle. You see some of the products in our expansion model lineups, much going on in the product side.

Perhaps the most significant in the third quarter was the launch of our three major platforms of internal combustion engines, the MaxxForce 7, 9, and 13, keeping in mind that we are the only ones in the world with an internally combustion engines without aftertreatment for NOx. Scania does have a Euro V product that we think actually we have one now and it’s a good product, but other than that we are the only one that’s able to meet emissions with internal combustion.

If you look at slide number seven, the third quarter information. While we’re doing all that, we know we have to make some money and we did that in the third quarter. Segment profit was $278 million. You can see how that relates to prior years, and we made $1.83.

The significant items that went on in the business compared to a year ago was a substantially improved core business. That’s not only in truck, engines, parts, but we call our core business South America as well. South American diesel engine business is strong, and I think we’re about at peak volumes in South America right now. We certainly are at capacity and close to the peak volumes we’ve ever had there. So that part is strong.

On the military side, that was strong as well, and I’d like to step back a minute and talk about what we’ve said in the past about some significant orders that we received early in the year. Those orders were for vehicles that are in Iraq that were going to be converted for use in Afghanistan.

So the way we converted them is through an independent suspension, so replaced the old single suspension with an independent suspension or/and rolling chassis for those vehicles, so slide out the old chassis, the ones that have been damaged and put in a new chassis. The other part of that is new vehicles, and there were 1,000 vehicles that were given to us as an order back early in the year. Those of you that have followed us, you’ll remember, we did not know the timing of all of that.

In working with the military we found that the best answer to get vehicles in the field as quickly as possible was actually to make news ones. So, during the third quarter, we made all of these. We made over 1,000 vehicles. In fact, I think we made these in about 45 days, so this was an outstanding launch and it went through cleanly.

The military then decided that the independent suspension and the rolling chassis, they push out a little bit into what’s going to turn out for us to be 2011 fiscal year. So strong third quarter for MRAPs and presents us with an opportunity for 2011 for the military business. I’ll talk about that in a little bit.

If you look at slide number eight, this is our shipments. You could see from of our shipments there’s somewhat increase in our traditional volumes. It’s relatively a significant increase in our expansionary products to 20,600 in total versus 17,000 last year.

On the engine side, it’s a similar story. Last year, remember, we had the Ford business for pickup trucks in the U.S. and that was about 23,000 units. So if you take that away from last year that would have given us 40,000 OEM shipments in the quarter and this year we’re at 53,000. So, that is growing as well. The result of that was that we had $3.2 billion worth of revenue versus $2.5 billion last year.

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