Navistar makes big year to year gain, reports $154M loss in fourth quarter

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Updated Dec 26, 2013

prostar 1Navistar — maker of International trucks and Navistar engines — reported this week a $154 million net loss in the fourth quarter of 2013, making some strides from its $2.8 billion loss in the same quarter last year.

The company began last September transitioning away from its EGR-only approach to meeting 2010 EPA emissions standards, partnering with Cummins to offer the ISX 15 as its 15-liter option and using the engine makers’ aftertreatment technology on its 13-liter engines. Navistar announced the completion of that transition in October.

In the 2013 fiscal year, Navistar reported a net loss of $898 million — down from last year’s $3 billion net loss.

Related: Court rules against EPA in Navistar engine case

Its revenue in the quarter, however, fell $400 million from the same quarter in 2012 to $2.8 billion. Navistar said in an earnings call this morning the revenue drop was due to lower sales across all segments, stemming from weaker industry conditions and a drop in market share during its transition away from EGR.

It’s also still feeling the punch of pre-existing warranty adjustments for its EGR-only engines, said CEO Troy Clarke during an earnings call Dec. 20.

Walter Borst, Navistar’s Chief Financial Officer, says if the company could take out warranty hits and asset impairment charges, Navistar likely would have made about $5 million in profit to close out the year.

“These warranty issues have overshadowed the good things the company has accomplished this year,” he says.

Borst also says Navistar is half-way through its maximum warranty exposure of 2010 EGR emission engines, noting most of these engines are now in their extended warranty period and should cycle out completely by the end of 2015.

Not coincidently, Navistar as earmarked 2015 at the year it returns to profitability.

Clarke says the company is working to cut warranty costs to near 2.5 percent of revenue, which Clarke says is in line with industry standards. He added the company is on track to achieve that mark with the introduction of SCR engines.

Overall, Clarke says Navistar had a good year in making headway and meeting the goals set forth in its turnaround plan.

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“Navistar is a much better company today than we were a year ago,” he says.

Jack Allen, Navistar Chief Operating Officer, echoed Clarke and Borst’s sentiments that the limited bad news that has plagued Navistar over the past 24 months continues to cast a black cloud over truckloads of progress.

“It’s very frustrating that this (warranty) issue has overshadowed our progress, because a lot of good work has been done this year across our business,” he says, recognizing that Navistar is not seeing warranty issues with its SCR products.

Warranty claims aside, Navistar closed out the year on several strong notes. The company’s Class 6-8 truck orders were up 12 percent in the fourth quarter versus the third and climbed 34 percent from the final quarter of 2012. Class 8 retail market share hit 16 percent this past quarter, the highest it has been all year. Fourth quarter Class 6-7 retail market share reached 20 percent with order intake at 27 percent, another high for the year.

Allen says the company has also received more than 16,000 orders for the 15-liter ISX since its launch in September of last year and that the company’s 13 liter with SCR has been well received, logging more than 7,500 orders since its launch in March.

Looking into 2014, Clarke says there is plenty of room for optimism but conceded that the first quarter was likely to be “soft.”

He says the company has fielded more than 6,000 truck and bus orders for its medium-duty trucks with the Cummins ISB engine in the last three months, adding about 500 will have been built and shipped by end of this month.

Allen also says Navistar expects modest growth in North American Class 8 truck demand in the coming year to between 220,000-230,000 units, which he says will help boost the company’s combined market share to 21 percent by the end of 2014.

“2014 will be a better year for Navistar,” Clarke says.