Q1 2020 Earnings Call
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I'd now like to hand, the conference over to your Speaker today, Mr. Martin <unk>, Vice President Investor Relations. Thank you. Please go ahead.
Jamie Good morning, everyone and thanks for joining us for Navistars first quarter 2020 earnings conference call.
Today, we will discuss the national performance of Navistar International Corporation for the fiscal period ended January 31st 2020.
With me today, our Troy Clarke, our Chairman President Chief Executive Officer, Walter Borst, Our executive Vice President and Chief Financial Officer.
<unk> Executive Vice President and Chief operating Officer.
After completing our prepared remarks, we'll take questions from participants.
Before we begin I'd like to cover a few items.
Copy of this mornings press release <unk> presentation flights as opposed to be Investor Relations page of our website for reference.
Non-GAAP financial measures discussed on this call are reconciled to the U.S. GAAP equivalent can be found in the press release that we issued this morning as well as in the appendix presentation slide deck.
Today's earnings press release Investor presentation in our prepared remarks include forward looking statements about our expectations for future industry International performance.
The company expressly disclaims any obligation to update you statements.
Actual results could differ materially no suggested by our comments made here.
Additional information concerning factors that could cause actual results to differ materially from that was included in todays presentation. Please refer to our most recent FCC five.
We would also refer you to the safe Harbor statement and other cautionary notes to slimmer.
Presented in today's material for more information on the subject.
As you all know on January 30 of 2020, we received an unsolicited offer from traits and to purchase the remaining shares at the company for $35 per share in cash.
As far as board of directors isn't evaluating the offer and we have no further updates for you at this time.
Today's call will only cover our first quarter results and we won't respond to any questions regarding the trade off.
With that let's turn the call over to try Clark for opening comments Troy.
Thank you Marty good morning, and thanks for joining us this morning.
Open with few highlights on the quarter and then provide some thoughts on the balance of 2020, then I'll hand, it over to Walter to walk you through the details.
Okay first quarter results.
As I mentioned during our fourth quarter call in December our fiscal first quarter, so right on top of the industry's transition period.
Where we came off to extremely strong years now transitioning to replacement levels.
This is reflected in the results you've seen this morning.
Revenues were lower year over year.
We implemented actions to lower cost as noted.
Lets call.
It lower industry volumes caused us to incur losses.
Quarter.
This was not a surprise to us.
We remain on plan to achieve the guidance we provided the December.
What are monitoring developments related to the Corona virus closely in the event it begins to impact our operations more meaningfully.
During the quarter.
We continue to see strong share gains in school bus and severe service.
In the medium and heavy segments, we are seeing impact a weaker rental leasing purchases that we also discussed in September and December.
We have a higher penetration in these segments.
Which supports some of our share growth in 2018 19.
Today.
And for new trucks for large leasing in rental companies is lower.
Their orders are expected to be down as much as 50%.
2019.
2020, U.S. GDP is projected to grow around 2%.
That's the basis of an industry replacement demand.
Strong labor market is supporting robust consumer confidence and spending.
Solid construction housing starts and easing recessionary signals.
These items are offsetting weakness in manufacturing and other economic uncertainties.
As the economy works through these uncertainties the positive factors lead us to be optimistic for stronger second half.
Record deliveries of new trucks over the past two years has increased supply of used trucks depressing their prices.
There is just a lot of truck capacity right now chasing a relatively constant number looks.
Pressure right.
This is the classic truck cycle.
The freight market will still take a few more months to work through this.
However, recent spot rates have stabilized.
Well step signaling capacity is beginning to adjust to debate.
Q1 industry orders were weak.
Just reorder activity will accelerate going forward.
The freight market works through this excess capacity.
Used truck prices stabilize and economic uncertainties dissipate.
But that being said January orders were up nominally for the first time since October 2018.
Recently.
We've cleaned up our order board.
Eliminating some slots that were held for certain dealers and customers.
We've also seen some recent cancellations.
Well with the balance of the year, our results will improve we experienced the first quarter.
We expect the second half a 2020 well be stronger first.
2020 began as we expected.
The market as it transitions.
Absent a meaningful impact from the Croda virus issue.
Optimistic outlook for the economy as well as our industry.
Navistar.
We are maintaining our twentytwenty guidance.
As I am confident succeeding quarters will improve sequentially.
So let me turn it over Walter.
That's right.
As I indicated headwinds from the industry transition impacted our results this quarter.
We're taking steps to improve our performance over the balance of the year. We're on track to achieve our fiscal 2020 guidance pending any changes to our operations from the impact of the chronic fibers.
Which I'll briefly touch on shortly.
Then introduction, let's dive into the results.
For the first quarter consolidated revenues were $1.8 billion.
Down 24% some last year.
Core chargeouts were 39% lower consistent with our guidance, reflecting soft industry conditions.
Worldwide, we produced 16000 units in the quarter down 23% year over year as class four or five sales, partially offset the decline in core volumes.
First quarter 2020 gross margin was 16.8%.
Down from last year due to industry headwinds impacting both truck and parts volumes and higher reserve adjustments against used truck inventories.
Structural costs, including <unk> expenses, and engineering costs were $268 million down both sequentially and year over year.
Interest expense declined 24% to $65 million, reflecting debt repayments in 2019.
In total we incurred a net loss of $36 million in the first quarter or 36 cents per diluted share.
In the prior year, we had income of $11 million or 11 cents per diluted share.
Excluding onetime items on an after tax basis, adjusted net loss was $33 million in Q1.
Adjusted EBITDA was $59 million or the first quarter after excluding onetime items on a pre tax basis.
Moving to the segment results.
The truck segment was impacted by weaker industry conditions.
In Q1, the truck segment reported sales of $1.2 billion and a loss of $58 million.
Compared to the prior year worldwide charge outs decreased 23%, reflecting the weaker rental and leasing sales mentioned by Troy.
Actually offset by the ramp up of sales of our new class four or five trucks.
EBIT margin was impacted by the lower volume.
And reserve adjustments to proactively manage used truck inventories.
Warranty expenses increased year over year as the prior year benefited from favorable preexisting warranty adjustments in higher supplier recoveries.
Additionally, the prior year benefited from a 54 million dollar gain.
Related to the sale of 70% of the Navistar defense business.
Which also impacted year over year sales.
Segment profit comparisons.
Sales in our parts business were $493 million down 10%.
It was representative of weaker conditions in the parts industry as a whole.
Segment profit decreased to $190 million, reflecting the lower parts volumes.
Global operations segment maintain breakeven profitability on revenues of $68 million.
Revenues were lower year over year due to softer volumes and unfavorable foreign exchange rate movements.
Additionally, the profit in the prior period includes a 5 million dollar gain related to the sale of our interest in the China joint venture.
Lower truck volumes also impacted the financial services operations.
Segment revenues were $57 million and segment profit was $17 million.
The weaker year over year results were due to lower originations in average receivable balances.
We ended the first quarter with nearly $1 billion of manufacturing cash.
During the quarter working capital was a net use of cash due to seasonality.
As well as increased inventories as we prepare for higher production volumes in Q2.
This together with cash used to make interest payments capital expenditures in pension contributions more than offset EBITDA generated by our operations.
Also note that during the quarter, we receive final approval.
Exports EG our engine legal settlements in the U.S.
As a result, we funded the cash portion of the settlement.
Which totaled $85 million in the beginning of our fiscal second quarter.
Before moving forward.
Take a moment to share some thoughts on the Corona virus.
We're monitoring our supply chain that have been able to mitigate minor disruptions to date.
We're working closely with our suppliers, including expedited freight and parts substitutions in certain circumstances to maintain or production schedules.
If the status were to change.
Our guidance may require revision.
With that said, let's look over the balance of 2020.
We expect our results improved throughout the year due to several factors.
One improving class it industry conditions, as Troy mentioned, resulting in higher sales in the second half a year.
To stronger vocational and school bus sales as we enter important seasonal periods for these products segments.
Three.
More robust revenues and profits from our parts and international operations, which typically have stronger results in the second half of the year.
For lower manufacturing costs through ongoing assembly logistics efficiencies as well as overall greater stability in production scheduling.
Five material cost savings from new long term contracts with suppliers.
I want to participate in our Navistar 4.0 strategic vision.
And six benefit from implementing the cost actions discussed on the December call, including adjustments to our worldwide staffing levels.
These factors will allow us to improve upon the first quarter performance.
We expect to run the.
Close to breakeven levels for the first half 2020.
At the adjusted net income level.
Then operating performance accelerates in the second half as market conditions improve.
With that I'll turn it back to the operator to begin the QNX.
Thank you as a reminder, if you'd like to ask a question. Please press Star then one on your touched on telephone.
Withdraw your question press the pound key.
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Our first question comes from Andy Casey with Wells Fargo Securities. Your line is now open.
Thanks, Good morning, I mean.
On the Corona virus could you quantify.
Maybe how much exposure have an annual basis to China manufacturing three or supply chain.
And then also what are your customers telling you about.
End of the potential disruption to their business operations, primarily focused on North American truck.
And then separately.
I appreciate the comments about used truck, but have you seen any sort of stabilization post quarter end. Thanks.
Okay.
Hey, Andy Disbursed released war on the I, probably won't be specific on Oh exposure as a nominal no no spend but we don't have we have suppliers in the in in the region. We don't have managed suppliers, who who made province.
Actually most of these supply base is the direct supply base in this roundys off the area and we'd be monitoring Oh, 100% off them for what we can't see.
Obvious that need to monitor what happens with tier two and two or three supplies through our soon nor our suppliers that provide components to us and we have I think a good monitoring process for that as well. So yes. That's right alluded. We are monitoring this we need to understand what happens, but from a supply chain standpoint, we haven't seen.
Major disruptions and we keep Rowley almost a month ahead of US are no oh readiness for production, which is as far as we can see today based on the fact that would be no. So that's the first one I.
I think from customers I think part of what you're seeing is moved down we can see that right is that we'd be did to the certain.
There are conversations on the back in the economy and how that may impact the bids so we'll need to monitor that a little bit as well.
In the third question was used truck prices stabilizing yeah.
Here's how we think about used trucks we have.
Wholesale an auction prices are still coming down I know that is no early to say anything about retails, we saw an uptick on retail sales in January but it's just one data point, so <unk> gazed that prices are stabilizing our modeling the pizza.
Do you see price reductions on just trucks now through the summer.
Optimistic out so I used trucks, we pick that that bottoming out of used truck prices happens.
In the middle of this summer Masa plus or minus at this particular point in time.
With regard to the kroner buyer, so anything that I would add it.
In some regards were already see some tightening of the transportation that work you know as material starts to flow in filling the pipeline.
There is probably going to be a search for a need for additional transportation sources, especially as the current virus gets behind US and then all the supply chains, we get to refill not just for industrial manufacturing goods, but because we're using some premium transportation in some cases, but also for.
Commercial goods as well so you know a really good sign I think that this is really getting behind this will be.
Things like are you know improvements in spot rates.
And things like that so there'll be a lot of telco indicators what starts just left behind us.
Okay. Thanks very much.
Thank you. Our next question comes from Brian Sponheimer with Gabelli funds. Your line is now open.
Hi, good morning, everyone.
I appreciate the commentary hurdle or that there'll be no commentary about the train bid I guess I'm, just curious as to whether theres been any change in customer behavior.
In the last month or so since.
Since this fall.
Bid was a was announced.
Brian Disbursed, so no I can say obvious that we get questions from all more many stakeholders, but no change in behavior at all businesses you.
Okay and.
And then.
As you think about both your inventory and dealer inventory in the field.
With the caveat that we all know that days on hand is a backward looking.
Figure.
Hi, where are you as far as where you want to be regarding underproduction <unk> in order to to make sure dealer inventory is is at the level you want it.
We are right, where we plan to be for the quarter actually you remember that last last December we talked about adjusting our production as part of 40% now that's a actually with ended up at 39%. So we wrote off the plant. Yeah. We said that then we're going to do that Morningstar and maintain.
As far as stable dealing with parties, 8% more in absolute numbers, although when you look at the number the days off supply the news of supply wind up to 37 days, a little bit off our range, but now that that was where we need with what's going to be because more yeah retail sales that respond.
The calculation second quarter are going to be back within direct.
Yeah, just my dad, the inventory portion of that a ratio calculation actually declined about 10% in the first quarter, it's just that the denominator.
It had to quite a lot more because of the the lower due to use.
So we anticipate to be back then that 80 to 120 day range by the end to the second quarter.
Understood. Thank you very much.
Thank you. Our next question comes from and doing then with JP Morgan. Your line is now open.
Hi, Good morning, just carrying on that you had said to have production sufficiently in Q1, if orders picked up in January February March, but we just got the February orders last night and they were not very.
Great now good and so you know how much confidence how much visibility do you really have into h. to at this point.
Well I think we feel we feel positive event, although the February numbers came down P. Morgan glass state as you saw our total not ordering taken share orders went up as we planned to be so we saw recovery and in meet them, we saw recovery and see views sharp we saw recovery in and bus.
He is where I think its do have the no some constraints in the overall industry, but I think we aren't within the industry Oh that momentum so actually no sequentially. Our first quarter in orders is 14% better than before work so and that you know that arming our first quarter ended in general so factories.
Up from a from January so we are you at supporting forecast into production that you have for the second with the order.
And and Big basically production schedules are built for the second quarter. So the orders that were talking about picking it today are would impact or lack of third quarter fourth quarter.
Well I think if I may yet to that and I think Troy I alluded to let us know some that clean opposite.
No Wonder board actually we did that because of leasing in rental and leasing arrangement coming down we usually have some reservations lots in order for just decided to take it down so even with that our net orders in the corner is oh sequentially, 40% higher than workforce.
I think misses on in us and right of ways for what we need for second quarter and answering the second half.
And just to care you said, 14% now 40 41 for 14% <unk> Okay.
I wanted to make sure and then on the used equipment prices argues database does say that the used values continue to fall significantly and.
On top of that you've got that celadon liquidation through Ritchie brothers through the portion that's month mean.
Well you lay supplier of trucks to celadon, whether your brand be impacted by the number of trucks that are being liquidated.
We have been at supplier to celadon and there's some number of our trucks coming through there but.
It hasn't cars, the very specific problem for us it's not that it's not that volume we look at the celadon liquidation is being more it's just contributing to the industry pricing trend not specifically impacting our pricing trends the volume of units that are ours going through there or not or not that's it.
Okay, and on Craig and I know, you're not going to comment but that anything on timing.
No I think what we'll just let the board continue to work to work through that.
And.
We'll split the process work mall, we won't spend the time, commenting on this call. Thanks.
Okay. Thank you I appreciate it.
Thank you. Our next question comes from David Leiker with Baird. Your line is now open.
Good morning. This is there and welcome back on for David.
[noise] parent.
My first question is if you could just extrapolate a little bit about what's going on in the parts business. I know you mentioned some lower industry volumes that are in general just any color you can provide on on that.
Yeah, a couple of things you know a parts as you indicated Aaron we're seeing this kind of across the industry were down 10%. It was actually a little little lower up a decline than what we saw an industry overall, we look at things like Mckay.
Studies to two to see that information.
We've been trying to understand what that is as well has been a milder winter. So that's one factor and secondly.
The the fleet is fairly new so our customers have other products that they can use while they're waiting to repair. These vehicles that said, we do expect that the.
Parts industry as a whole will be relatively flat year over year. So we would expect expect that to accelerate sales accelerate over the course of the year, particularly in the second half of this year.
Okay. Thanks, and then my second question is just on the market share growth in both the school bus segment into their service I can you just dig into the factors driving that as well.
Well I think that disperse here.
First on on bus we have.
Have a.
Alternate.
Our trains.
We beat the refresh on safety features we have.
The strongest that fee collision mitigation system in the marketplace to the only active collision mitigation system available in the industry and the customers are feeling that so we're seeing that ends up a very positive no that driver off our penetration in bus vocational construction market is overall.
Right right now and what we've been doing is since we launched our no less H.B., which was part of the rising platform. The problem is performing.
You can see better customers are really excited about that and we have I think picked up a lot of momentum in terms of some specific customers. So I think it's just hard work and we ended products are performing very.
Very well.
Great. Thanks for taking my question.
Thank you. Our next question comes from Rob Wertheimer Smelliest Research. Your line is now open.
Oh, Thanks, and good morning. My first question is just on the you know the pullback in ordering and leasing in rental in the medium duty mentioned.
Can you characterize that versus prior downturns as that perfectly typical behavior or is there any excess caution visible economic uncertainty or otherwise.
No I mean, I think it's a little bit different than years past, but I think you know. These are these are very astute business people and so what happens is when there's kind of a contraction or in this particular case this excess capacity in the market, there's less need for rental trucks.
So there's a large rental and leasing agencies or companies they'll use rental trucks to supply lease truck needs. Okay. So they're actually taking trucks from their rental fleet and putting them into the leases because they're being underutilized and rental and they can be fully utilized leasing.
And they are actually very sophisticated how they do this they have a very good last night.
In the market like today, where there's slots available it's a low risk.
No risk proposition for them because they do have some orders that they have given us and so they can work with the timing of those orders to fill any needs.
The market starts to come back for us how we see this is kind of a double whammy right. We don't sell as many to them Brent because they have lower rental leads and then they're putting a rental lease so we're not selling attracting them for leasing. So it's kind of an exaggerated impact when you have a larger portion of.
Their business. So in some regards we understand it very well and it's a good problem to have because.
Good good case really demonstrates the success, we've had providing superior products and service are really critical portion of the market.
I'd just highlight to you look over to Michael can ancillary here, but you know I think the two largest rental companies you know they occupied about 40% I think of the total medium duty trucks that are better book that are purchased a medium duty industry in a year. So it's a good thing is we've made a big footprint in that particular part of.
But you know our our share now is going to ride that wave a little bit, but I'd, rather I'd, rather right ride that wave.
Okay, and if I understood. The first the first part where you said I mean, they're being more efficiently managing that and therefore tightening up orders more this cycle than in past.
Just just well.
In our particular case.
Given our fourth quarter call, we began to make production cuts early and we became very aggressive about cleaning up our order board.
Because we want to have a very.
Very we whenever good backlogs are some of the manufacturing or material cost reductions at Walter noted is really a bunch of the fact that we're managing our capacity and how we interpret orders into that capacity.
Hi backlog, so that we can make the right kind of production plans and keep our costs.
So I think we're managing and I think a little more aggressively than we had in years past.
I think it in a clarification and this one maybe difficult to answer your.
And I know it say today, but obviously you had Chinese new year, you had extended production shutdowns. Afterwards, and then you have this uncertainty that everyone is feeling around whether supply chain disruptions will be severe or manageable, maybe able to say or you are you a is it getting better at this point is stable is it still completely on certain there is this still getting worse on just the.
Volatility, it's much well given that that's really difficult to answer I'm going to give us a person [laughter].
[music].
Look I think if we just talked about both the although China itself it is containing more visible.
Thank you to gets more difficult when you get no offense, we'd like easily join me all the no the area softening Pacsun now we have another area for instance that we need to get into okay water tier twos and threes.
Our operating those areas and are they are committed before the disruption. So I think you've got more complex that's it spreads worldwide.
But the way we monitor is the same way. So I think we have a good handle them what we see today as I alluded, we don't see no what is yet to come.
Very helpful. Thank you for sure. Thanks.
Thank you. Our next question comes from Rob Salmon with Wolfe Research. Your line is now open.
Hey, good morning, and thanks for taking the questions with regard to the <unk> up the used truck adjustments that you made is that kind of contemplating the average value did you mark to market at the ended the quarter, what I'm trying to get a sense of the if used prices continue to degradation sequentially fiscal first quarter to the second quarter should we be caught.
Completing an incremental adjustment looking out.
Yeah, let me start on that so.
We have about a 25% reserve against our gross inventories.
About $50 million reserve against overall used truck inventory about $250 million.
We did increase that in the quarter.
And we do take a look at that every corner.
Can we take a look at market conditions at that time.
And typically our controller staff also takes another look just before we publish our results to see the further top up is necessary further adjustment as necessary. So I.
I would say that our reserves are current.
And we'll take another look at that at the end to the second quarter. So if.
No used truck prices were to continue to weekend.
See some additional adjustments there over the course of the over the course of the year, but work write downs of today.
That's helpful and shifting gears in terms of the new pricing.
The new truck pricing within the fiscal first quarter could you give us a sense of how that trended on a year over year basis, and what you guys are currently seeing between your your price cost mix.
Well dispersed show <unk>, well, we what you're seeing is new truck pricing for model year is to hold the mainly because of the new products that are in the market ours, there's Peter in terms of performance and fuel economy. So I think if I, if I say the new truck pricing itself is.
Yeah, but no let's not forget that there is a combination of factors when you talk about net pricing for our company, which is in the case off.
Trades for instance, overall allowances are getting no bigger than they were a year ago. So we've tried to balance that because really it is the average price for the blended price and all gets impacted by the the changes in over a losses that are somehow tied to the used truck prices market. So.
We monitor that and that's why I think the industry's loan is low now in the first quarter is because.
There is more availability it off used truck prices used truck prices come down no trade no company that we're going to trade their vehicles, they decided to postpone the trade which is happening right now pretty much now customers are saying that while we wait for another quarter before we get into this always uptake of such a huge no loss in the U.S.
And that's really how how we're thinking about it and we're managing as well right. So the fact is happening the first quarter first part of the year and the the the information we have for our customers look we could lean into a number of deals where we take more used risk, which then would deteriorate our pricing goals for.
The year, and then potentially expose us to further write downs the previous questions, depending up on where that market goes.
The other half because we're confident that the basics improved throughout the year and the fact that theres. So much capacity in the market right now that they really don't need it truck, we don't feel the need to create that demand. We should just wait until used truck prices stabilize and then ultimately begin to improve and a lot of those deals are still available out there.
But we can do that without having to damage our pricing or deteriorate or pricing. So early in the year and so I think you know Bobby your pricing is holding as pursue it indicated because the products do demonstrate themselves to improve the operating results of the company's that acquire them. The real trick right now is this concept.
Over allowance so we really don't feel the need at this point in time to do much different than we are doing because it will improve as we go through the year and as it does it allows us to manage pricing.
Appreciate the time guys. Thanks.
Thank you. Our next question comes from Jeff Kauffman with loop capital markets. Your line is now open. Thank you very much good morning and congratulations.
Two quick questions writer came out about two weeks ago would cut in their capex of about 50%.
More for a company specific reasons, but it would your comments about rental and leasing being down by half is it mostly based on the writer guidance are you seeing similar reductions it Penske internationally, some kind of the rest of the industry.
This is a national no all industries no no doing exactly the same Jeff we are not not we're not pointing to one customer or one customers specifically, it's happening so all customers that operate both rent.
Okay, and then second question, if I kind of stepped back from the uncertainty in the current market in kind of look at Navistar 4.0, and the investments you're making in the factories and some of these longer term supplier contracts you alluded to is there anything you're seeing to lead you to believe that you're not capable of hitting.
That 10% or 12% EBITDA margin target for 2020 to 2024 or pick up market share as you were anticipating.
Short answer would be no.
You know where.
As a matter of fact.
We're trying to be very measured on the call because we realize there's lot of important things that need to be explained on the call. The inside the company were even more excited about prospects and Navistar 4.0 is really creating fraction number the very significant.
James and I would just say inside the company. Despite the fact that the first quarter.
It's a difficult one it was an expected one and our plans prepared around that we are full speed ahead.
Great progress.
So point being if you believe that you are capable of executing less in the market. Eventually normalizes you continue to believe that there is much larger earnings potential two to three years out for this company.
Yes, yes so.
We believe.
Oh, I I'm trying to think of return <unk> real quick up.
Stronger than that but we write.
This is you know this is a tremendous amount of excitement as we continue to peel the onion.
Opportunities that we outlined in our navistar portfolio strategy, our confidence continues to build.
All right. That's all I have thank you.
Thank you and as a reminder, if you'd like to ask a question. You mean press Star then one on your Touchtone telephone to withdraw your question press. The pound key our next question comes from Jerry Rabbits with Goldman Sachs. Your line is now open.
Yes, hi, good morning.
Can you talk about the retail market share cadence that you expect to play out over the course of next couple of quarters.
Maybe expand on the slide showing marketshare coming down for the first time in a bit for class eight heavy trucks and classics for some medium duty trucks and.
Expand on what drove the lower share.
From a retail standpoint, this past quarter.
Okay, well I think Oh this quarter. So as we mentioned the share in the in the quarter, mostly driven by using a rental unit and is moved down have you know class eight market.
That's that's basically what drove that than we are seeing that up now and orders actually our reflection that that is of that as well. So I don't think there's any more than we can elaborate on their dan seasonality as well through alluded is very strong no elements are not business and traditionally meat.
Jim duty construction trucks and buses and I'll go up and all starting the second quarter third quarter. So that's that's just something natural part of the business then we'd have a strong presence in those segments that admissions do you think or order share in those segments are also know picking up in January February so we feel positive about.
Our forecast right now.
And particularly I guess the reason why it looks like there might have been a production issue or something along those lines because I I don't remember, we're seeing class eight heavy truck market share for you folks is as low as 6%. So was there a customer concentration issues should we not good product out the door and I appreciate the comment on seasonality, but it.
Just haven't seen you folks have that type of class eight heavy market churn number before.
Yeah, no nothing specifically that I can point to no production Nishu. This is actually the production not was adjusted as we plan to happen, let's not forget also do is that November December is the what the and got the calendar year fiscal year for most of our competitors, but they also because a lot of no kind of constant.
Traded no sales.
But as we mentioned in the in December we're really not driving no significant pressuring the dealer to stock up work with more products in the marketplace. We didn't want to do that and then it would be the right thing to do as we see the dealer.
But they're positive.
Remember that.
As as planned.
Okay, and Troy I I'm on the progress with the treatment joint purchasing team scale can you just talk about how you're tracking versus the cost savings targets that you laid the you laid out a upon forming.
Partnership Ben just update us on timing are we seeing any benefit in yeah, 20, and what's the cadence and 21 22 about expected benefit. Thanks.
Yeah, It's Walter Jerry I'm happy to say, we continue to be on plan with our projections that we had for the procurement joint ventures, though.
There are three years in actually this this month and we continue to be on pace to.
Exit a year five was 200 million of.
Annual and 500 million cumulative savings.
And Walter So what are the expectations or this is savings in 20 embedded within the guidance.
You know, we've not broken those out.
But we do track them internally. So you know we're into the into the second phase of our three phase plan.
Which is to continue to work with our alliance partners to.
Find those those opportunities with the with the supply base and.
And that would bring it out on the call but.
We're on we're on target.
And lastly, you guys can you just talk about yeah, you're contingency plans from facilities standpoint, if you folks get to a point where employee absences.
Just this step us through how you're thinking about either inventory builds or other contingencies, if we do get to that point.
Yeah, I mean, obviously, we've been working really hard this week to develop contingency plan. Let me let me just say this that coming together were very quickly.
We've.
We've managed through issues like this before maybe not potentially caused by the same thing but caused by other things you may recall like in 2018, you know with a market. So high we had a lot of issues with regards to suppliers and ability to to catch up and stuff. So we have all the tactics that we know we're just kind of making sure that are that all.
Those buttons when we push them.
Work one of the things that works really well for us the flexibility that we have between our facilities, we basically have the ability to ship production.
Rather quickly between our two plants with the exception has a class of the class four or five.
So you know please rest assured we just like we didn't 28.
2019.
We know how to work the supply chain, we ought to work our production capacity and you know obviously, we this is Phil I don't want to add to the.
The sensationalism on the issue is still very small issue I believe you know as far as those type of impact, but you know we get paid to be prepared and we spent a lot type as best we just just doing that yes, Jared Sarah Yeah sure I'd just add.
We've done that both with the supply base as well as with our employment. So as recently as the beginning of this week, we've gone out to you know are poised to.
Prepare them for you know any any possibility similar to what you're seeing from other.
Industrial companies.
Thank you Adam you can assume Handwashing went up about 10 times [laughter]. If you guys conspiracy parental please send it over.
Thanks, a rough.
Thank you and I'm showing no further questions in the queue at this time I'd like to turn the call back to try Clark for any closing remarks.
Okay, Hey, I really bigger customers employees dealers and certainly all himself for the support decade, Navistar and our brands.
Just want to reiterate the industries in transition. This was expected this was planned for.
I am optimistic for a strong second half in our ability to deliver on our 2020 guides, we do remain and I'm glad we did get a question on this on our Navistar 4.4 goals that are very exciting certainly inside the company would it take our annual adjusted EBITDA margin from the 8% range. It was it in 2019% to 10% by Twentytwenty too and 12.
That said by 2024, our plans are still on track today, we're making the right decisions for us to achieve these goals if for any follow ups. Please reach out to the IR team for any additional questions. Thank you. So much for your interest in our company I just want wish everybody a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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