Hampered by warranty costs, Navistar posts $154M loss in Q4

Jason Cannon December 20, 2013

Navistar International Corporation slashed its quarterly losses in the fourth quarter. The company reported a net loss of $154 million Friday compared to a fourth quarter 2012 net loss of $2.8 billion.

The net loss for fiscal year 2013 was $898 million, versus a net loss of $3 billion for fiscal year 2012.

Revenues for the quarter were $2.8 billion, down from $3.2 billion in the same quarter last year, reflecting lower sales across all business segments, primarily due to weaker industry conditions and lower market share during the company’s emissions strategy transition, the company says.

“Operationally, we hit our plan this quarter, and we ended the year with an order backlog that is up 26 percent compared to this time last year,” says Troy A. Clarke, Navistar’s president and chief executive officer. “Those are just two examples of the continued progress we are making on our Drive to Deliver turnaround plan.

In the company’s earnings call Friday Clarke noted the company’s Q4 loss was primarily due to unanticipated pre-existing warranty adjustments for its EGR-only engines, something that has been a drag on the company’s profitability all year.

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 in profit to close out the year.

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

“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,” Clarke says. “We’re not letting it overshadow the strong progress we’ve made to fundamentally change Navistar’s operations and culture in 2013. 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 one year ago.”

Borst also added 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.

For the fourth quarter 2013, the North America truck segment recorded a loss of $355 million, a slight drop compared to a year-ago fourth quarter loss of $396 million.

For the year, the North American truck segment recorded a loss of $902 million, compared with a loss of $736 million last year. Navistar says the year-over-year decline was driven by lower volumes, due in large part to the company’s engine emissions strategy transition, and decreased military sales.

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