Revenues for Navistar, which manufactures International trucks and buses, were down 36% in Q2 of 2020 versus Q2 2019, now at $1.9 billion. This was largely due to the impact of COVID-19, which forced nationwide stay-at-home orders, plant shutdowns and hundreds of order cancellations, the company reported during an earnings conference call.
But due to a host of belt-tightening tactics, the company was able to mitigate a steeper decline. Net losses for the quarter of $38 million were 20% lower than the same period in 2019 Q2, which totaled $48 million.
"Like a number of businesses, our company has been impacted by the COVID-19 pandemic and that is reflected in our results," said Troy A. Clarke, Navistar chairman, president and chief executive officer. "Our team has done a tremendous job managing the business throughout this challenging time, and we have taken a number of steps to position the company to weather this crisis."
The most direct action was a series of agile accounting maneuvers to conserve $300 million in cash. Navistar deferred:
- $162 million in pension contributions until 2021
- Employer payroll tax (under CARES Act provisions)
- Non-union U.S. employee base salaries by 10 to 35% (expected to be paid out by March 15, 2021)
- 401(k) match contributions
Contractor work weeks were also cut by 20%.
The company also reduced capital expenditures by 30%, equal to $65 million. At the close of Q2, the company maintained $1.5 billion of manufacturing cash.
"We are focused on preserving cash and reducing cost, but not at the risk of sacrificing our future," said Walter Borst, Navistar chief financial officer. "We remain steadfast in pursuing Navistar 4.0, and while some programs and expenditures have been delayed, they have not been canceled. It's important that we continue to invest in our company, even in these difficult times, to ensure our long-term success."
The Navistar 4.0 plans included the construction of a $250 million assembly factory for Classes 6-8 trucks in San Antonio, Texas, and an additional investment of $125 million at the Huntsville, Ala., engine plant to produce electrified medium-duty trucks and buses by 2021, such as the eMV medium-duty truck. Improvements in the OnCommand Connection telematics platform to enhance total cost of ownership were also mentioned.
On the sales end, measures were also put in place to bump up orders.
“During the quarter, we launched ‘International Cares’ for a limited time, which features no payments for six months, free access to International 360 and worry-free vehicle service coverage,” Clarke said.
He added Navistar also “provid[ed] meals, coupons and personal protective equipment to truck drivers of all makes so that they can safely deliver goods and essential services.”
Net losses for the quarter of $38 million were 20% lower than the same period in 2019 Q2. The reason is the truck segment in Q2 2019 took a major hit from a non-recurring $159 million charge to wrap up the EGR settlement.
All of this helped the company dodge some of the barrage of bad news reigning down on the trucking manufacturing industry. For the industry, FTR projected a 15% quarter-over-quarter annualized rate of decline, comparable to Great Recession levels. Real GDP was forecasted to drop 11% in Q2, with the goods transport segment down 24% from Q1.
“You have just this whole cascade of issues that [truckers] are having to deal with,” explained Avery Vise, FTR vice president, trucking.
Industry weekly orders for Class 8 trucks plummeted from 3,000 in February to 1,000 in April, Clarke said. That month, 300 customers canceled orders for International Class 8 trucks. Low replacement demand following record-breaking sales in 2018 and 2019 added to the precipitous fall.
Across all business sectors, Navistar saw huge losses in net orders:
- School buses down 52%
- Class 6 and 7 down 62%
- Class 8 heavy trucks down 68%
- Class 8 severe service down 50%
OEMs shuttering factories in March to prevent the spread of the novel coronavirus also factored into the rough quarter.
“We encountered some disruptions, and we lost about 50 plant days of production across our three assembly plants in the quarter,” Clarke said.
Half of these were attributed to the Springfield, Ohio, plant closing on March 23 and not reopening until the second week of May. Line 2 is still down there and should come back online in mid-June.
Navistar also makes General Motors Cutaway G vans in Springfield, but GM was unable to supply engines for those and Class 4 and 5 trucks due to its own nationwide production stand-down.
Borst said supply disruptions in Mexico impacted the Escobedo facility, which could affect Q3 as well.
Clarke also noted parts sales declined by about 20%, which was inline with the rest of the industry. According to Oncommand Connection data, leasing and rental was down 6-8%.
The good news is that the stay-at-home phase is giving way to the recovery phase, which has Clarke feeling positive about the future.
“I think the recovery starts out gradually and gains momentum throughout the balance of the year,” Clarke said. “The economy is driven by the consumer. and consumption will return. Recovery will require trucks and trucking, increasing fleet utilization. I think orders will improve modestly.”
