The mediumduty International DuraStar is among the truck models built by Navistar that are now available with SCRequipped Cummins diesel engines Photo: Navistar International
<p><strong><em>The medium-duty International DuraStar is among the truck models built by Navistar that are now available with SCR-equipped Cummins diesel engines.</em></strong></p>

Navistar pins weak Q4 on lower sales across the board

Volumes said to be down largely due to “engine emissions strategy transition and military sales”

Navistar International Corp. (NAV) this morning announced a net loss of $154 million (or $1.91 per diluted share) for the fourth quarter of 2013. By comparison, for Q4 2012, the holding company recorded a net loss of $2.8 billion (or $40.13 per diluted share).

As for the full 2013 fiscal year, Lisle, IL-based Navistar said its net loss was $898 million (or $11.17 per diluted share) compared to the net loss of $3 billion (or $43.56 per diluted share) recorded for fiscal year 2012.

Navistar’s Q4 2013 revenues came in at $2.8 billion— that was down from $3.2 billion for the same period a year ago.

According to the truck, bus and engine maker, that drop in Q4 revenues “reflects lower sales across all business segments, primarily due to weaker industry conditions and lower market share during the company's emissions strategy transition.”

On the other hand, the company pointed out that it reduced its structural costs by $94 million in the quarter compared to Q4 2012, and finished the full year with reduced structural costs of $330 million vs. 2012.

Additionally, Navistar stated that it achieved its Q4 cash guidance, finishing the quarter with approximately $1.52 billion in manufacturing cash and marketable securities Those included net proceeds of $196 million from the issuance of new senior subordinated convertible notes and an intercompany loan of $270 million in the quarter.

With those transactions excluded, the company stressed, manufacturing cash would have been $1.06 billion, “in line with its its guidance” of $1.0 billion to $1.1 billion.

"Operationally, we hit our plan this quarter, and we ended the year with an order backlog that is up 26% compared to this time last year,” remarked Navistar president & CEO Troy Clarke in a statement.

“Those are just two examples of the continued progress we are making on our ‘Drive to Deliver’ turnaround plan," he affirmed.

Clarke also pointed out that during Q4, Navistar:

  • Strengthened its cash position
  • Continued to reduce structural costs
  • Completed its on-highway Class 8 transition to SCR emissions technology
  • Progressed with its medium-duty product transition launches—“resulting in 500 medium-duty SCR trucks and buses built this month, as planned”

Candidly addressing the negative impact of Navistar’s prior reliance on non-SCR engines, Clarke admitted, “Clearly, we are disappointed that our previous engine strategy continues to negatively impact us in the form of additional warranty expense, but we will continue to stand behind our products and manage this issue as these engines work their way through the standard and extended warranty cycles.

"We're not letting it [EGR technology] overshadow the strong progress we've made to fundamentally change Navistar's operations and culture in 2013,” he added. “We still have a lot of hard work ahead of us, but we are pleased to be entering 2014 in a much stronger position than we were [in] one year ago."

Here are key results via Navistar’s newly revised reporting segments:

  • North America Truck. For Q4 2013, the segment recorded a loss of $355 million, compared with a year-ago fourth quarter loss of $396 million.  “The year-over-year improvement was primarily driven by structural and functional cost reductions, partially offset by the non-cash charge of $77 million in goodwill impairments”

For fiscal year 2013, the segment recorded a loss of $902 million, compared with a fiscal year 2012 loss of $736 million. “In addition to the impairments impact, the year-over-year decline was also driven by lower volumes, due in large part to the company's engine emissions strategy transition, and decreased military sales. Fiscal year 2013 results included charges for adjustments to pre-existing warranties of $404 million versus $400 million in fiscal year 2012.”

  • North America Parts. For Q4 2013, the segment recorded a profit of $147 million, compared with a year-ago fourth quarter profit of $103 million, “driven primarily by strong margins and structural cost reductions.”

These same factors were “the primary drivers of the segment's 31% improvement in full-year performance, as the segment posted a profit of $476 million in fiscal year 2013, compared to the prior year profit of $343 million.”

  • Global Operations. For Q42013, the segment recorded a loss of $6 million, compared with a year-ago fourth quarter loss of $73 million.  “The year-over-year improvement included the impact of increased margins, primarily related to the company's South American engine business as well as benefits realized from prior year structural cost reduction actions.”

For the fiscal year 2013, global operations posted a loss of $6 million, compared to a fiscal year 2012 loss of $168 million, “driven by these same operational improvements, as well as the impact of the company's divestiture of its India joint venture earlier in 2013 as part of its ROIC actions.”

  • Financial Services. For Q4 2013, the segment recorded a profit of $17 million, up slightly from fourth quarter 2012 profit of $16 million, “primarily driven by reductions in operating expenses that more than offset lower net interest margin from lower average assets.”

For the fiscal year 2013, the segment recorded a profit of $81 million, compared to a year-ago profit of $91 million. “The decrease was primarily driven by the lower net financial margin due to the decline in the average finance receivables balances, partially offset by lower U.S. employee-related expenses that resulted from our 2012 cost-reduction initiatives.”

In its Q4 earnings release, Navistar also peered ahead. The company is forecasting a Class 8 industry of 220,000 to 230,000 retail sales in the U.S. and Canada for its fiscal year 2014.

And during that fiscal year, the company stated that it “expects to generate an additional $175 million in structural cost savings and projects its capital expenditures will be similar to 2013 spending.”

What’s more, Navistar said it expects to end its Q1 2014 with manufacturing cash and marketable securities between $1 billion and $1.1 billion.

"Traditionally, our first quarter represents the low period of the year as volumes are lower due to the Thanksgiving and winter break downtimes, which is compounded this year by significantly lower military sales and the late-in-the-quarter ramp up of our Cummins ISB engine offering in our medium-duty trucks and buses," Clarke explained.

"However,” he added, “we anticipate stronger year-over-year performance starting in the second quarter, driven by higher volumes in truck, parts and our global operations and slightly improved pricing, coupled with ongoing structural and material cost improvements."

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