Navistar Trims Net Losses in 4Q, Fiscal 2016
This story appears in the Jan. 2 print edition of Transport Topics.
Truck and engine maker Navistar International Corp. reported lower net losses, year-over-year, for its fourth quarter and 2016 fiscal year ended Oct. 31.
Revenue declined in both periods, but the original equipment manufacturer expects to improve its standing in the market after it completes a pending alliance with German automotive manufacturer Volkswagen AG’s truck and bus unit, the Lisle, Illinois-based OEM said Dec. 20.
Navistar, the parent company of International brand trucks, posted a net loss of $34 million, or 42 cents per diluted share, for the quarter, compared with a net loss of $50 million, or 61 cents, a year earlier. Revenue slipped to $2.1 billion compared with $2.5 billion in fiscal 2015.
“In the fourth quarter and throughout the full year, we’ve demonstrated our ability to lower our break-even point and improve our operations,” Navistar CEO Troy Clarke said in a statement.
Tough industry conditions will continue through the first half of 2017, Clarke said, but “we see further opportunities to continue to reduce our break-even point, including leveraging some early cost synergies from the Volkswagen Truck & Bus alliance.”
Customers have reacted positively to the alliance, Clarke said. In September, VW agreed to a $256 million equity investment for 16.6% of Navistar common stock.
“We think the Volkswagen alliance … is a game changer for Navistar longer-term and will provide additional liquidity to help the company navigate any potential downturns,” Longbow Analyst Neil Frohnapple wrote in a note to investors after the earnings conference call, also on Dec. 20.
The transaction is expected to be completed during the first quarter of the new year, and shortly after that, the companies intend to announce their first powertrain collaboration, Navistar said.
During the fourth quarter, the OEM launched the International LT Series, its new flagship line of Class 8 over-the-road trucks designed to replace ProStar.
Also, “in 2017, we will be launching an LT truck with our new 13-liter engine, as well as a new regional haul product, a refreshed LoneStar and a new medium truck,” Clarke said during the call.
For the quarter, though, the truck segment recorded a loss of $61 million, compared with a year-ago fourth quarter loss of $36 million.
Navistar attributed the deterioration to higher losses on used trucks and a mix shift to vehicles with lower profit margins in its core market. This was partially offset by lower adjustments to pre-existing warranties and the completion of restructuring charges recorded in the prior year from a voluntary employee separation program.
Profits at the parts segment were $162 million, similar to the $163 million in the 2015 fourth quarter, according to Navistar.
Profits at its financial services segment slipped to $23 million, compared with $26 million a year earlier due largely to interest-related issues, the company said.
Meanwhile, for the full-year, Navistar reported a net loss of $97 million, or $1.19 a share, compared with a net loss of $184 million, or $2.25, for fiscal 2015. Revenue fell to $8.1 billion, compared with $10.1 billion for the previous year.
“If one excludes full-year, pre-existing warranty adjustments from continuing operations of $78 million and one-time restructuring and impairment charges of $24 million, we would have been slightly profitable in 2016,” CFO Walter Borst said during the call.
The last time Navistar had a profitable year was the 12 months ended October 2011, when the company made $1.72 billion. Of the five annual losses that have followed, fiscal 2016 was the lowest.
A year ago, Navistar had predicted it would return to profitability in 2016. After the fiscal quarter ended April 30, the company reported its first quarterly profit since the fiscal third quarter of 2012.
Clarke has been leading the company since 2012, when he was promoted to repair problems resulting from choices made by previous management, especially engine technology choices related to 2010 changes in federal regulatory standards on truck engines.
For the year, the truck segment recorded a loss of $189 million, compared with $141 million the year before. The company said the increase was primarily driven by higher adjustments to pre-existing warranties of $70 million, increased used-truck losses, lower Mexico margins due to the strengthening of the U.S. dollar and lower export volumes.
The parts segment posted a record profit of $640 million, compared with $592 million in fiscal 2015. The 8% increase was from margin improvements in the U.S. market and cost-reduction initiatives, the company said.
For the year, the financial services segment recorded a profit of $100 million, up from $98 million a year earlier.
