Navistar International Corp. Value Stock - Dividend - Research Selection
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Description of the company
Navistar International Corporation ("NIC"), incorporated under the laws of the State of Delaware in 1993, is a holding company whose principal operating entities are Navistar, Inc. ("NI") and Navistar Financial Corporation ("NFC"). References herein to the "Company," "we," "our," or "us" refer to NIC and its consolidated subsidiaries, including certain variable interest entities ("VIEs") of which we are the primary beneficiary. We report our annual results for our fiscal year, which ends October 31. As such, all references to 2017, 2016, and 2015 contained within this Annual Report on Form 10-K relate to the applicable fiscal year unless otherwise indicated.
We are an international manufacturer of International® brand commercial and military trucks, proprietary diesel engines, and IC Bus® ("IC") brand school and commercial buses, as well as a provider of service parts for trucks and diesel engines. We also provide retail, wholesale, and lease financing services for our trucks and parts.
Our Products and Services
Our principal products and services include:
• Trucks—We manufacture and distribute Class 4 through 8 trucks and buses in the common carrier, private carrier, government, leasing, construction, energy/petroleum, military vehicle, and student and commercial transportation markets under the International® and IC brands. We design and manufacture proprietary diesel engines for our International branded trucks and military vehicles and IC branded buses.
• Parts—We support our International® brand commercial and military trucks, IC brand buses, and our proprietary engines, as well as our other product lines, by distributing proprietary products together with a wide selection of other standard truck, trailer, and engine service parts.
• Financial Services—We provide retail, wholesale, and lease financing of products sold by the Truck and Parts segments, as well as their dealers, within the U.S. and Mexico.
Our core business is the United States and Canada truck and parts markets, where we participate primarily in the Class 6 through 8 vehicle market segments (our “Core” markets). In the United States and Canada, nearly one in four Class 6 through 8 vehicles on the road today is an International truck, with more than a million trucks on the road. We produce over a third of all school buses used in North America. We have one of the largest commercial vehicle parts distribution networks in the United States and a captive finance company. Outside of our markets in the United States and Canada, International is one of the leading truck brands in Mexico and much of Latin America. We are also the largest independent diesel engine company in Brazil, with our wholly-owned subsidiary International Industria Automotiva da America do Sul Ltda. (“IIAA”), formerly MWM International Industria de Motores da America Do Sul Ltda. We also export trucks, buses, and engines to niche markets around the world.
Our 2017 Accomplishments
I. Consummated VW T&B Alliance: In February 2017, we consummated our previously announced strategic alliance with VW T&B pursuant to a Stock Purchase Agreement, dated as of September 5, 2016, by and among us and VW T&B (“the Stock Purchase Agreement”), a License and Supply Framework Agreement and a Procurement JV Framework Agreement. Pursuant to the Stock Purchase Agreement, we issued and VW T&B purchased 16.2 million shares of our common stock for an aggregate purchase price of $256 million at $15.76 per share, equal to a 19.9% stake in the Company (16.6% on a fully-diluted basis).
II. Launched products and product features: In 2017, we remained committed to focusing on our Core markets and investing in product development to increase customer value. We expect to continue to announce a new or redesigned product, on average, every four to six months through 2018. By the end of 2018, our entire portfolio will consist of newly designed trucks.
• In February 2017, we introduced our new International® A26 diesel engine, an all-new 12.4L engine design which we believe offers improved fuel economy and will deliver the uptime that our customers demand. In July 2017, we fulfilled customer shipments of our first on-highway vehicles powered by the International® A26 engine.
• In April 2017, we introduced the International® RH™ Series, our new Class 8 regional haul tractor powered by the new International® A26 engine. The RH Series is designed to deliver further improvements in vehicle uptime and driver productivity.
• In June 2017, we announced an IC Bus® gas powertrain offering to provide school bus customers additional powertrain options.
• In July 2017, we made our OnCommand® Connection (“OCC”) Telematics solution available for purchase. We also announced OCC Marketplace, a new, open-architecture, cloud-based technology platform; OCC Electronic Driver Log (“EDL”), which automates federal hours of service compliance requirements. During the year, we also introduced electronic Driver Vehicle Inspection Reporting, fuel tax reporting, live-action plans, and over-the-air programming for Cummins engines.
• In September 2017, we introduced the International® HV™ Series, our new Class 8 severe service truck powered by the new International® A26™ diesel engine.
• In September 2017, we announced the launch of an electric medium-duty truck in North America by late 2019 with our partner VW T&B. We also expect to launch an IC electric bus as early as 2019. The IC Electric Bus chargE™ was unveiled in late 2017.
III. Improved quality and uptime: We continued our relentless focus on improving quality and uptime in 2017.
• We have reduced dealer dwell time through improvements in diagnostics and repair procedures. An increasing number of service locations have achieved certification under the Diamond EdgeSM Certified Program, which is a dealer service performance program that is based on rigorous adherence to exacting parts and service metrics.
• We have made great strides in improving the quality of components manufactured by our supply base. The quality performance of our supply base has improved to the point that over the last four years, there has been a reduction of more than 70% in supplier-related internal defects observed at our manufacturing facilities. We expect that the continued reduction in supplier-related internal defects will have a positive impact on the uptime and performance of our vehicles.
• Warranty expense continued to decline as a result of our improved product quality and reliability. Excluding pre-existing charges, warranty expense as a percentage of manufacturing revenue was 2.4% in 2017, versus 2.7% in 2016.
• Our new product Command Center has been in place since August 2017 focused on new products dwell time improvement. The goal is a maximum 24 hours dwell time for 80% of the vehicles and 48 hours dwell time for 100% of the vehicles. OCC will support Command Center goals through proactive diagnostics and predictive tools.
IV. Delivered on our plan to reduce costs: In 2017, we continued cost management practices that are improving margins.
• Procurement and engineering design processes remain focused on lowering material costs.
• We revised our used truck strategy in the second quarter of 2017 which accelerated our sales and drove lower inventories and used truck reserve adjustments in the second half of the year.
• We rationalized 9/10-liter engine production at our plant in Melrose Park, Illinois (the "Melrose Park Facility") and decided to cease production beginning in the third quarter of fiscal 2018.
• The VW T&B alliance is on plan to deliver procurement, technology, and other synergies.
V. Built sales momentum: Our Class 6-8 retail market share is gaining momentum, growing by over 150 share points over the course of fiscal 2017.
• Customer acceptance of new heavy duty products is growing steadily compared to 2016.
• Our share of the rental and leasing businesses is increasing, boosting our market share in the Medium truck segment.
• At the North American Commercial Vehicle ("NACV") show in September 2017, we launched the new International® LoneStar®, International® HV™, and the International® A26 engine in our International® HX™ series.
• Our all-makes Fleetrite® and remanufactured ReNEWed® parts sales grew by double digits compared to 2016.
VI. Sought New Sources of Revenue: We continue to seek new sources of revenue.
• In March 2017, we announced that Navistar Defense, LLC ("ND"), was awarded two foreign military contracts by the U.S. Army Contracting Command. Under the first contract, ND will produce and support MaxxPro® Dash
DXM™ Mine Resistant Ambush Protected (“MRAP”) vehicles for Pakistan. Under the second contract, ND will reset, upgrade and support MaxxPro® MRAP Excess Defense Article vehicles for the United Arab Emirates (“U.A.E.”). The majority of the work will take place at our West Point, Mississippi assembly plant. Delivery is planned to be completed for Pakistan in calendar year 2017 and for the U.A.E. in calendar year 2018.
• We ramped up contract manufacturing for General Motors Company ("GM") in our Springfield, Ohio plant.
• We announced a strategic relationship with Education Logistics, Inc. (“Edulog”), an industry leader in pupil transportation solutions, which will offer the additional comprehensive telematics solutions to the school bus market using our OCC remote diagnostics and telematics solution for all makes and models.
VII.Evaluated non-Core activities: We also continue to evaluate our portfolio of assets to optimize our cost structure. In May 2017, we completed the sale of a fuel injector business line that had been included in our Parts segment. During August 2017, we also sold our fabrication business in Conway, Arkansas.