Navistar Trims Fiscal Loss; Trails Analysts’ Projections

This story appears in the Dec. 22 & 29 print edition of Transport Topics.

Navistar International Corp. reduced its losses for its fiscal fourth quarter and full year, but the results fell short of analysts’ expectations.

The truck and engine maker’s loss was $72 million, or 88 cents a share, for the quarter ended Oct. 31, compared with a loss of $154 million, or $1.91, a year earlier.

CEO Troy Clarke characterized the quarter as one marked by “continued progress.”

“Our performance is on track and trending in the right direction, as it has been all year,” he said on the company’s Dec. 16 call, pointing to rising sales of its International-brand trucks, lower warranty expenses and declining structural costs.

On a sequential basis, however, Navistar’s bottom line weakened from the third quarter, when the company lost $2 million, or 2 cents.

Many analysts had projected the company would reach the break-even point or turn a small profit in the fourth quarter, according to Bloomberg News data.

After the report, Navistar’s stock dropped nearly $6 to $29.10 on Dec. 16, its lowest level since July 2013, although it did bounce back to $30.34 the next day.

Analyst Ann Duignan of J.P. Morgan Securities described the selloff as “overdone.”

“We believe that the turnaround is now past its inflection point and, while there is significant execution risk ahead, we remain encouraged by the progress this management team has made to date,” she said.

She reiterated her “overweight” rating of the stock.

Rhem Wood of BB&T Capital Markets described Navistar’s fourth quarter as “a disappointment” even though it achieved its target for adjusted earnings before interest, taxes, depreciation and amortization for the fifth consecutive quarter. Ebitda is a measure of tax-free cash flow.

“We believe Navistar is entering year three of what is likely to be a four- to five-year turnaround effort,” said R.W. Baird analyst David Leiker.

Wood rates the stock “buy” and Leiker “neutral.”

Navistar’s fourth-quarter revenue grew to $3.01 billion from $2.75 billion a year ago.

The quarter included $60 million in restructuring, impairments and other charges, which were partially offset by a $10 million adjustment in pre-existing warranty.

For the full year, Navistar posted a loss of $619 million, or $7.60, compared with a loss of $898 million, or $11.17, in 2013. Full-year revenue edged up to $10.81 billion, from $10.78 billion.

The Lisle, Illinois-based manufacturer said its warranty expenses fell 22% during the quarter, driven by lower repair costs and a declining number of its previous-generation engines featuring advanced exhaust gas recirculation still in their warranty periods.

Clarke also touted the higher quality of both those EGR engines that remained under warranty and its newer products using selective catalytic reduction.

The company said it sold 9,900 Class 8 trucks to customers in the United States and Canada during the quarter, up 14% from a year earlier. For the full fiscal year, Class 8 charge-outs rose 12% to 34,700 units.

“We saw a strong full-year performance in Class 8 because this is where we’ve had SCR products in customers’ hands the longest,” Clarke said.

At the same time, charge-outs for Classes 6-7 jumped 41% to 3,800 units in the fourth quarter and increased 9% to 16,000 in fiscal 2014 as the company offered vehicles with the Cummins ISB engine.

At the end of its fiscal year, Navistar’s total order backlog for trucks and buses was up 24% year-over-year, the company said.

Despite those gains, Clarke acknowledged that Navistar’s market share “hasn’t come back as quickly as we’d hoped.”

For the full year, Navistar said it captured 14% of the total Class 8 market in fiscal 2014, down from 15% in 2013 and 18% in 2012. Its market share for Classes 6 and 7 fell to 21% in 2014, from 24% in 2013 and 32% in 2012.

“Rebuilding sales and market share continues to be one of our highest priorities,” Clarke said.

A day prior to its report, Navistar announced plans to close the Indianapolis foundry where it produces engine blocks and heads for its MaxxForce engines.

The closure, slated to occur during the first half of 2015, will eliminate about 180 jobs while reducing costs by about $13 million per year, the company said.

“This action is another part of our efforts to eliminate non-core operations as we continue to improve our cost structure and return the company to profitability,” Clarke said.

Meanwhile, a federal panel in Charleston, South Carolina, has approved a request by Navistar to consolidate and transfer to a federal district court in Chicago 13 of 14 engine lawsuits filed against the company.

The U.S. Judicial Panel on Multidistrict Litigation said it would allow one of the litigants, Ross Neely Systems of Birmingham, Alabama, to proceed with its lawsuit pending in the Northern District of Texas in Dallas.

The panel said the 13 lawsuits, which center on allegations that Navistar sold defective MaxxForce 13-liter engines featuring advanced EGR, “involve common questions of fact.”

“As a matter of policy, we don’t comment on pending litigation,” Navistar spokesman Steve Schrier said Dec. 17.

Staff Reporter Eric Miller contributed to this story.