Navistar Posts $28 Million Loss in 3Q; Market Share Goal On Track, CEO Says

Truck maker Navistar International Corp. posted a fiscal third-quarter loss of $28 million, or 34 cents a share, on revenue that declined to $2.54 billion, with one-time charges last year and currently contributing to the relative downturn.

That compares with the three months ended July 31, 2014, when the Lisle, Illinois-based original equipment manufacturer lost $2 million, or 2 cents a share, on quarterly revenue of $2.84 billion — the company’s best performance in the past three years.

Navistar’s truck business lost $36 million on quarterly sales of $1.78 billion. A year earlier, it lost $3 million on sales of $1.96 billion.

The truck division had a one-time charge against earnings this quarter because of an increase to reserves to cover low used-truck values. A year ago, there was a one-time benefit because warranty claims decreased.

The parts division enjoyed increasing profitability, rising to $151 million from $137 million in last year’s quarter.

Global operations declined to a $26 million loss from $21 million lost a year earlier.

“We are encouraged that overall, our core truck business continues to improve year-over-year, driven by steady and improving performance in medium, school bus and severe service, where we are on track to achieve our full-year market share goals,” CEO Troy Clarke said.

“We continue to take actions to improve both the revenue and cost sides of the business,” Clarke said in the company’s Sept. 2 earnings statement.

The OEM presented both optimistic and troubling news. Capital expenditures are being used to bring two new heavy-duty trucks to market: a premium vocational truck in the first half of 2016 and a highway tractor known for now as Project Horizon, based on a concept vehicle first displayed in 2013.

Clarke said Horizon will be an important piece of Navistar’s campaign to recapture truck sales to large and medium over-the-road fleets.

But the company also acknowledged that, on the same day as the conference call, it had received investigation notices from the U.S. Securities and Exchange Commission related to its 2011 and 2012 MaxxForce heavy-duty diesel engines.

Often referred to as “Wells notices,” the SEC documents were sent to the company and its former Chairman and CEO Daniel Ustian announcing that the federal agency will be conducting an investigation.

The probe could result in an injunction, a cease-and-desist order or monetary penalties, the Navistar report said. The company said it is cooperating with the SEC and that it can offer no prediction as to what will happen in the matter.

When the federal government tightened emissions standards in 2010, Navistar and Ustian’s first choice in technology — third-generation exhaust gas recirculation — did not work out. In 2012, the company conceded the point and switched to the more common selective catalytic reduction approach, and Ustian resigned.

At that point, Clarke became chief operating officer and, shortly thereafter, CEO.

The complex report generated mixed reaction by analysts.

“All in, this was an ‘OK’ quarter for Navistar,” said Stephen Volkmann of Jefferies Group, who also described the company’s progress as “slow but steady.” Volkmann rates Navistar at “buy,” citing its already low share price.

The stock closed at $16.61 a share Sept. 2.

Ann Duignan of J.P. Morgan Securities rates Navistar “underweight” and was less confident.

“We believe that while the [Navistar] turnaround is now past its inflection point, there are still significant execution as well as growing legal risks ahead,” she said.

In addition to SEC’s Wells notices, Duignan’s investors note mentioned civil litigation over MaxxForce engine warranties, an Environmental Protection Agency notice of violation on the same engines and shareholder litigation.

Clarke acknowledged that “legacy” engines from Ustian’s tenure still pose challenges, but said management has significantly improved the quality of its current trucks, emphasizing durability and reliability, or uptime, as the highest value.

Sales of Classes 6-7 medium-duty trucks, Class 8 severe-service trucks and school buses grew during the recent quarter, Clarke said.

The fourth major component of Navistar’s North American market is heavy-duty highway tractors, where the company “has not seen the breakthrough we expected,” Clarke said.

The company is well-positioned for growth in that segment, too, Clarke said, and he mentioned Navistar’s deal with Quality Cos. for 9,000 trucks. Quality is a division of Celadon Group.

Earlier the same week, the company announced plans to begin offering over-the-air reprogramming of engine control modules for its International brand trucks powered by in-house N-series engines.

“Over-the-air reprogramming in International trucks will revolutionize the way our customers’ trucks are serviced and maintained,” said Bill Kozek, president of Navistar’s truck and parts business.

The technology will enable customers to initiate reprogramming of the truck’s engine control module at their own facilities over a secure Wi-Fi connection, Navistar said.

Staff Reporter Seth Clevenger contributed to this story.