Navistar International Corporation (NAV)

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Navistar International (NAV)

Q2 2011 Earnings Call

June 07, 2011 10:00 am ET

Executives

Heather Kos - Vice President of Investor Relations

Daniel Ustian - Chairman of the Board, Chief Executive Officer, President, Member of Executive Council, Chairman of Executive Committee, Chairman of International Truck & Engine Corporation, Chief Executive Officer of International Truck & Engine Corporation and President of International Truck & Engine Corporation

Unknown Executive -

John Allen -

Andrew Cederoth - Chief Financial Officer and Executive Vice President

Analysts

Ann Duignan - JP Morgan Chase & Co

Kristine Kubacki - Avondale Partners, LLC

David Leiker - Robert W. Baird & Co. Incorporated

Stephen Volkmann - Jefferies & Company, Inc.

Henry Kirn - UBS

Andrew Casey - Wells Fargo Securities, LLC

Adam Uhlman - Cleveland Research Company

Patrick Nolan - Deutsche Bank AG

Joel Tiss - Buckingham Research Group, Inc.

Presentation

Operator

Good morning, and welcome, everyone, to the Navistar International Corporation Second Quarter Earnings Call. 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. Before we begin, I'd like to cover a few items. A copy of this morning's press release and the presentation slides that we'll be using today have been posted on our Investor Relations website for your reference. The financial results presented here are on a GAAP basis and in some cases, a non-GAAP basis. The non-GAAP financial measures discussed in this call are reconciled to the U.S. GAAP equivalent as part of the appendix in the slide deck. Finally, today's presentation includes some forward-looking statements about our expectations for future performance. Actual results could differ materially from those suggested by our comments made here. For additional information concerning factors that could cause actual results to differ materially from those projected in today's presentation, please refer to our most recent report on Form 10-K and 10-Q and our other SEC filings. We'd also refer you to the forward-looking statements and other cautionary note disclaimers presented in today's material for more information on this subject. And with that, I'll turn the call over to Dan Ustian.

Daniel Ustian

Yes, thanks, Heather. AJ and I will go through the Q2 and the full year. We have the business leaders here with us, in case there's some Q&A that you'd like to ask of them. If you look at the right side of Page 4 though, these are the things we keep in front of us that we have talked to all of our investors about, the highlight film of which is gaining good profits in the downtime and growing the company with our increasing share and increasing presence in all markets. On Page 5, product is certainly one of the leading things that we work on constantly. And of course, emissions and fuel economy is at the forefront of all that. And in the quarter, you can see we were able to improve fuel economy while lowering our NOx. So we're now -- from 0.5, we went to 0.45, and then we went to 0.39. We also launched a 15-liter that we have certification on. That happened in the second quarter. On the right side of this, these are the kind of programs that we have been working on and by the end of the year, will all be launched into the marketplace.

On Slide 6 then are the numerics for the quarter. And as you can see in every area, the market is better. Our revenue is better. Profits, commensurate with that, are better and we had $1.02 earnings per share. Included in that was an increase in our reserve for warranty related to early products, either late '04 or '07 products. And you might consider some of these, at least, being goodwill, but we saw the trend there. We thought we needed to increase our reserve, and we've committed to finding a way to overcome that in the balance of the year. So we stay on the high side of the guidance that we provided earlier on in the year. AJ will talk some more about that.

Slide 7 is a chart that shows the charge-offs we have in truck and engine, and you can see everything is increased. We shipped about $3.4 billion worth of revenue. We also had included in that about $850 million worth of revenue. This is for the first 6 months, $850 million worth of revenue as related to the military.

Slide 8 is market share. Basically, what we expected, and we expect the year to come out as we expected it, and I just want to highlight a couple of things here. On the school-bus side, as you can see we're at 48% for the first half of the year. That's -- we expect that to grow substantially up to maybe 55% to 60%. Our goal is 60%, and with one adjustment to this, we have decided not to play in the natural-gas sector of this market. And that's going to be about 10% of the volume. And the reason is this: the investment it would take for us cannot really be paid back. Today, these are being sold at a cost of about $40,000, and the only viable answer to that is because of the government incentives. So we've decided at this point, there's not a commercially viable, long-term answer for that natural-gas application in school bus, and we're going to pass on those volumes this year. We do believe that those are short-term -- that natural gas at this point is short term in school bus industry. That's not to say that it won't be affected, and we will have products in medium and the Class 8 market. We will have gas products -- natural gas products in those markets because they can be supported by a business case.

So now let's turn over to Slide 9, and let's talk about Class 8 and try to make it clear on what our strategy is and how it's working. So we'd like to step back first, and our strategy was to convert U.S. and Canada Class 8 products to a proprietary engine, and it's 2-fold. Obviously, it gives us some differentiation, but it also helps our Parts business. And AJ will talk some more about the successes we've had in the Parts business in terms of growth as a result of that.

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