Navistar's 3Q Net Plunges; Company Outlines Cost Reductions
09/06/2012| 10:45am US/Eastern
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--Navistar's third-party sales, loss better than expected.
--Company targets $150 million to $175 million a year in cost cuts
--Company issues no fourth-quarter guidance.
(Updates with details throughout.)
By Bob Tita
Navistar International Corp.'s (>> Navistar International Corp) fiscal third-quarter profit plunged, but the results were better than expected, as the truck maker attempts to rebound from a failed engine emissions strategy that ushered in a new management last month.
The company on Thursday refrained from providing sales and profit guidance for the fourth quarter until it is able to gauge an uncertain truck market and the effects of cost-reduction initiatives started by interim Chief Executive Lewis Campbell.
The company expects reductions in its salaried work force to save $70 million to $80 million a year, about half of the $150 million to $175 million a year in cost reductions being targeted by Navistar starting in 2013. Mr. Campbell also disclosed he's reviewing the company's portfolio of side businesses with the intent of improving returns on investments. In recent years, the Lisle, Ill., company has expanded into recreational vehicles, cement mixers and a variety of overseas truck and engine-making ventures.
Mr. Campbell stressed his primary focus is restoring the company's commercial truck business. Sales and profit have been undermined recently by increasing warranty problems with the company's new 13-liter engines and an inability to comply with the latest federal standard for diesel engine exhaust.
"I believe we can accelerate the pace of progress to deliver significant improvements during the next 12 to 18 months," said Mr. Campbell, a former Textron Inc. (>> Textron Inc.) executive, who was hired following the resignation last month of Chairman and Chief Executive Daniel Ustian.
In the company's truck business, third-quarter losses narrowed to $30 million from $75 million the year before. Costs for relocating the company's engineering operations to suburban Chicago from Fort Wayne, Ind., fell to $11 million from $129 million a year ago.
Navistar's engine business lost $47 million, reflecting lower sales volumes and $14 million in costs for the engineering move to and fines paid to the U.S. government for engines that don't meet the government's requirement for an ultra-low level of smog-causing nitrogen oxide in diesel exhaust.
The company had attempted to meet the standard with an exhaust treatment process that was different from the system used by other North American truck makers. After more than two years of unsuccessful attempts at compliance, Navistar abandoned the controversial treatment process this summer and announced it would purchase treatment components and 15-liter engines from engine maker Cummins Inc. (>> Cummins Inc.)
Navistar said Thursday said deliveries of Navistar trucks with Cummins' 15-liter engines should begin in December. Navistar expects to begin delivering is own engines with Cummins-made exhaust-treatment components by next April.
In the meantime, the company will continue selling noncompliant engines and paying fines of up to $3,779 per engine. The U.S. Environmental Protection Agency last week raised the noncopmpliance fines from about $2,000 per engine.
"We now have greater clarity on the transition to our new clean engine solution in 2013, which is our top priority," Chief Operating Officer Troy Clarke said.
The company reported an adjusted, pretax loss of $74 million, or 20 cents a share, compared with an $82 million profit, or 40 cents a share, a year earlier. Revenue from the quarter slipped to $3.3 billion from $3.5 billion. Analysts polled by Thomson Reuters recently forecast a loss of $1.36 cents with revenue at $2.96 billion.
Overall, for the quarter ended July 31, Navistar reported a profit of $84 million, or $1.22 a share, versus a year-before profit of $1.4 billion, or $18.24 a share. The most-recent quarter included an income tax benefit of $196 million, while the year-before period included a $1.46 billion income tax gain. Revenue from the quarter slipped to $3.3 billion from $3.5 billion.
Navistar shares were recently trading up 6.7% at $21.79 a share.
--Saabira Chaudhuri contributed to this report
Write to Bob Tita at robert.tita@dowjones.com
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