September 19, 2019 / 1:09 PM / a month ago

Navistar to build new truck plant in Texas, aims to boost margins

LISLE, Ill. (Reuters) - U.S. truck maker Navistar International Corp (NAV.N) said on Thursday it will invest more than $250 million in a new, more efficient truck plant in San Antonio, Texas, that will produce three different sized trucks and create around 600 jobs.

FILE PHOTO: Exterior of Navistar office is seen in Lisle, Illinois, October 4, 2012. REUTERS/Jim Young

The new plant follows an announcement from Navistar in June that it would invest $125 million in its Huntsville, Alabama, engine plant as part of an alliance with German truck maker Traton (8TRA.DE).

Navistar will make Class 6, Class 7 and Class 8 trucks on the same production line in San Antonio. Class 8 trucks, or semi-trucks, are America’s biggest trucks and haul goods along the country’s highways.

Speaking ahead of an investor day on Thursday at Navistar’s Lisle, Illinois, headquarters, Chief Executive Officer Troy Clarke told Reuters that the plant, which will run two shifts more consistently than its older facilities and move between different truck sizes on the same line, was part of the company’s long range plans to raise its margins.

Navistar told investors Thursday it plans to raise its earnings before interest, taxes, depreciation and amortization (EBITDA) margin to 10% by 2022 and 12% by 2024, from the 8% margin it expects in 2019.

“The engine (in Huntsville) and the (Texas) plant won’t be what gets us to 10% by 2022, but they will be part of what gets us from 10% to 12% in 2024,” Clarke said. “This will have a longer range effect.”

Navistar will break ground on the new plant later this year and launch production around 24 months after that, which Clarke said should come as the U.S. truck market is on an upswing.

North American orders for Class 8 trucks - of which the U.S. forms the vast majority - have slumped this year after hitting a record of nearly 500,000 in 2018, but truck makers have had a good year so far in 2019 as they worked through large order backlogs. Fleets have plenty of trucks and slowing U.S. economic growth has left many reluctant to order new trucks.

Navistar CEO Clarke said he expects industry Class 8 sales to drop around 20% in 2020, but the impact on the company would offset by its school bus and medium-duty truck businesses.

“Next year will be a good year for Navistar, it just won’t be a great year,” Clarke said.

Navistar said on Thursday it expects 2020 EBITDA in a range from $775 million to $825 million. Analysts have forecast 2020 EBITDA of $794.8 million, according to Refinitiv I/B/E/S.

The company expects 2020 revenue of between $10 billion and $10.5 billion. Analysts have predicted revenue of $10.6 billion.

In 2016, Traton parent company Volkswagen AG (VOWG_p.DE) agreed an engine technology and purchasing alliance with Navistar and bought a 16.6 percent stake in the U.S. firm.

Navistar said on Thursday it is on track to achieve savings of $500 million in the first five years of that alliance, with $200 million in annual savings in the fifth year.

When VW bought the stake, it was widely anticipated the German company would eventually buy all of Navistar.

VW floated an 11.5% stake in Traton in June to give unit to greater independence to pursue growth. Traton executives have made clear they are in no hurry to take over Navistar completely and Clarke echoed that point.

“Is it (a complete takeover) on their agenda? I would assume so,” Clarke said. “But it’s not something that we anticipate in an imminent nature and it’s okay, we’re getting that we need today.”

Reporting by Nick Carey; Editing by Bernadette Baum

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