LISLE, Ill. — Navistar International Corporation (NYSE: NAV) today announced third quarter 2012 net income of $84 million, or $1.22 per diluted share, compared to third quarter 2011 net income of $1.4 billion, or $18.24 per diluted share.
Current quarter results included an income tax benefit of $196 million that primarily resulted from a third quarter change in the company’s estimated annual effective tax rate, as well as the impact of $16 million in costs related to engineering integration and $10 million in nonconformance penalties (NCPs). The third quarter of 2011 included a $1.48 billion benefit from the release of a portion of the company’s income tax valuation allowance.
The company reported a pre-tax loss of $100 million in the third quarter 2012 versus a $54 million loss in the third quarter 2011. Revenues in the quarter were $3.3 billion, down 6 percent from the third quarter of 2011. The loss was driven by lower net sales in the company’s U.S. and Canada truck and engine segments, primarily due to lower military sales and reduced engine volumes in South America, respectively.
“Clearly we are not pleased with these results,” said Lewis B. Campbell, Navistar chairman and CEO. “However, I was satisfied to learn on day one that Troy Clarke and his team were already working on a plan to deal with many of the important issues we face, most importantly restoring our core North American Truck, Engine and Parts businesses to their market leader positions. I believe we have good line of sight and a keen sense of urgency for moving forward.”
“Navistar is a great company with great people and great brands,” added Campbell. “With a laser focus on getting our quality right and hitting our clean engine launch dates, combined with actions to maximize cash flow and improve our balance sheet, I believe we can accelerate the pace of progress to deliver significant improvements during the next 12 to 18 months.”
The company announced that it is completing a voluntary separation program and a reduction in force of its salaried workforce. It anticipates these actions will generate $70-$80 million in annual savings, which will contribute to Navistar’s overall goal to reduce costs by $150-$175 million year-over-year, starting in fiscal year 2013. Additionally, Navistar is increasing efforts to cut discretionary spending and further reduce its material costs as part of its overall cost reduction program.
The company also announced it has launched a review of all of its non-core businesses with the goal of improving its return on invested capital and driving long-term profitability. As a result of this, along with uncertain industry conditions, the company is not providing fourth quarter earnings guidance until industry volumes solidify and these potential actions are defined.
EMISSIONS STRATEGY UPDATE
The company announced that it is on track to finalize its agreement with Cummins Inc. by the end of October 2012. As part of the agreement, Navistar will offer the Cummins ISX15 engine in certain truck models, expanding Navistar’s vehicle offerings. Navistar expects to launch the ISX15 in its ProStar+ model starting with initial customer deliveries in December 2012.
Additionally, the agreement with Cummins Emission Solutions is on track to provide their proven selective catalytic reduction (SCR) aftertreatment system, which will be combined with Navistar’s MaxxForce 11- and 13-liter engines as part of the company’s clean engine solution. Navistar plans to begin production of its most popular 13-liter models with the SCR aftertreatment system in April 2013.
Last week, the U.S. Environmental Protection Agency (EPA) issued its Final Rule for NCPs for on-highway heavy-duty diesel engines, clearing the way for Navistar to continue to build and ship vehicles during the transition to its clean engine technology products.
“With the EPA Final Rule set to take effect and our progress with Cummins, we now have greater clarity on the transition to our new clean engine solution in 2013, which is our top priority,” said Troy Clarke, Navistar president and chief operating officer. “I am committed to ensuring that we remain diligent in achieving key milestones and delivering a smooth launch.”
Truck — For the third quarter 2012, the truck segment recorded a loss of $30 million, compared with a year-ago third quarter loss of $75 million. Segment results included charges of $11 million for engineering integration, compared to $129 million in engineering integration and restructuring charges in the third quarter of 2011.
The segment’s loss was driven by a combination of segment performance and deteriorating industry volumes, partially offset by manufacturing efficiencies. Year-over-year sales declined 5-percent, primarily due to lower military sales and decreased traditional volumes. Traditional chargeouts were down 7-percent, primarily due to a 22-percent decrease in Navistar’s Class 6 and 7 medium trucks, partially offset by a 32-percent increase in school bus volumes.
Engine — For the third quarter 2012, the engine segment recorded a loss of $47 million, compared with a year-ago third quarter profit of $32 million. The loss reflects lower sales volumes and $14 million in expenses related to non-conformance penalties and engineering integration.
Segment Sales — Decreased by 13-percent, primarily due to lower sales volumes in South America, resulting from a pre-buy of pre-Euro V emissions engines in the prior year quarter. Partially offsetting the decrease in sales was lower SG&A and engineering spend.
Parts — For the third quarter 2012, the parts segment recorded profit of $73 million, compared with a year-ago third quarter profit of $70 million. The year-over-year increase was driven by continued improvements in commercial markets and lower SG&A expenses, partially offset by lower military sales.
Financial Services — For the third quarter 2012, the financial services segment recorded profit of $22 million, down from third quarter 2011 profit of $30 million primarily due to lower portfolio balances.
