Navistar shares hit by 4Q loss
Dec 19, 2012 (Menafn - Chicago Tribune - McClatchy-Tribune Information Services via COMTEX) --Navistar International Corp. stock fell more than 5 percent, to 21.53 per share, after the company reported a fourth-quarter loss on tax and warranty expenses, fines and costs related to its turnaround plan.
The Lisle-based truck-and-engine maker reported a fourth-quarter loss of 2.8 billion, or 40.13 per diluted share, compared to a net income of 255 million, or 3.48 per diluted share, a year ago.
The loss included a non-cash tax expense of 2 billion, 149 million in additional warranty expenses, 73 million in cost reduction actions, 16 million in restructuring charges and 14 million in fines on engines that do not meet 2010 federal emission standards.
Revenue was 3.3 billion, down 24 percent from a year ago, due to lower sales of commercial trucks and military revenue.
Analysts interviewed by Bloomberg expected a fourth-quarter loss of 1.08 per share on revenue of 3.18 billion.
"At a high level, I'd characterize the fourth quarter as one in which we made good progress in many key areas, but unfortunately surfaced some of the last lingering quality issues, which must be eliminated to make our turnaround more successful," Lewis B. Campbell, Navistar chairman and chief executive, said in a conference call.
As part of its turnaround plan, Navistar announced in September a number of cost-cutting initiatives that include the sale or closing of business units and layoffs. The company plans to cut costs by 175 million per year.
Navistar said the unexpected warranty spike was related to 2010 and 2011 big bore, diesel engines. Those engines were built with Navistar's technology to reduce levels of smog-causing nitrogen oxide. The company spent more than 700 million developing the technology, which failed to meet 2010 federal emission standards. To sell the engines, Navistar pays fines to the Environmental Protection Agency.
Troy Clark, Navistar's president and chief operating officer, said that while most of the engines' issues have been fixed, the remaining ones are costing the company more than expected. For example, he said that Navistar had made improvements to the engines' exhaust gas recirculation valve to fix some issues, but it still had problems. So, it decided to invest more to significantly improve the design and move forward, Clark said.
"It's not easy to make decisions like this," Clark said, adding that the decision was costly and diverged engineering resources. "But it's just the right thing to do."
After failing to develop an engine that meets federal standards, Navistar changed course. This year, it announced a plan to sell diesel engines from competitor Cummins Inc. in its heavy-duty trucks. It will also plans to combine its technology with Cummins' to make big bore engines that meet federal emission standards. Navistar plans to submit its application in January to get the new engines certified by the EPA and start making them in March.
On Wednesday, Campbell said he plans to return the company to profitability by the end of 2013.
"We have a plan in place that's very strong," Campbell said in a conference call. "We have people assigned with clear accountability to make each element of the plan happen."
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