Navistar Narrows Loss on Lower Expenses

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Wall Street Journal / September 3, 2014

Navistar International Corp. sharply narrowed its fiscal third-quarter loss by lowering operating costs and warranty expenses, but the company's share of the big truck market remained at a standstill.

Navistar's share of the North American heavy-duty truck market ended the quarter at 14%, flat from a year earlier and down slightly from the second-quarter ended in April. The company had forecast that its share of the market for trucks weighing above 33,000 pounds would be about 21% by the end of the year. But Navistar said Wednesday its year-end share will likely be one to two percentage points less than that as the rollout of Navistar's 9-liter and 10-liter engines with Cummins-supplied emissions treatment systems progressed at a slower pace than originally anticipated.

"We certainly would love the recovery in market share to come out of the gate a little faster, " said Chief Executive Troy Clarke. "We know those orders are coming. We're confident that the share is coming. Give us another quarter."

The Lisle, Ill., company's sluggish market share was largely offset by significantly better operating performance. Navistar reported a pretax profit of $21 million from continuing operations—its first since 2011—after enduring heavy spending for truck warranties and changes to the engine exhaust treatment system on Navistar trucks. The company said warranty spending in the third quarter fell 22% from a year ago and declined 14% from the second quarter.

Reliability problems with Navistar's engines, beginning with 2010-model trucks, eroded the company's market share and sales. Navistar is currently in fourth place in North American sales of heavy-duty trucks behind rivals Volvo, Paccar (the maker of Peterbilt and Kenworth trucks) and market leader Freightliner (a unit of Daimler AG).

"The trucks we fixed are staying fixed," Mr. Clarke said. "Our cost of repairs is coming down. The newer trucks don't have the same kind of warranty spending early in their life that the older trucks do."

The company's North American truck business reported a $12 million loss during the quarter, down from $143 million loss a year ago. Income from replacement parts rose to $127 million from $98 million last year. The company reported a $2 million loss from overseas operations, down from $22 million loss a year ago. Navistar said its Brazilian engine business remains under pressure because of a weak economy in Brazil.

For the period ended July 31, Navistar reported a loss of $2 million, or two cents a share, compared with a year-earlier loss of $247 million, or $3.06 a share. The latest period included $20 million in restructuring charges and write-downs. Overall revenue was nearly flat from a year ago at $2.84 billion. Analysts were expecting a per-share loss of 67 cents from revenue of $2.95 billion.

Navistar's stock was recently up 2.2% at $39.35 a share.