Navistar cuts loss as Clarke’s measures bite

It appears that measures implemented by Navistar International’s boss Troy Clarke are beginning to take effect, raising the possibility of the company being put up for sale

Navistar International Corporation has posted its smallest quarterly loss in two years, narrowly missing the break-even point. Third-quarter results to 31 July point to a net loss of $2 million, compared with a loss of $247 million in the same period a year earlier.

If it had not been for huge warranty expenses of $140 million the company would have turned in a profit; a throw-back to the previous displaced chief executive, Daniel Ustian.

Even so, Clarke and his team have managed to trim warranty costs by 22 per cent from a year ago. They also declined 14 per cent against the previous quarter, driven by lower cost per repair, improved performance of newer engines fitted with selective catalytic reduction (SCR) and fewer 2010-2011 engines in their warranty period.

All of which augurs well if Clarke is moving in the direction of a disposal – when he is ready. In the meantime, Navistar has extended a plan to protect the tax value of its net operating losses until 3 November. Navistar created the plan in June to protect against an unintended ownership change under federal tax law.

Certainly Clarke is emerging as a ‘turnaround’ man as the company claws its way back from the brink and weighs up the full implications of market share versus corporate profitability. In this sense, it might appear that Navistar is selling fewer vehicles at a loss; that discounting is taking place on fewer vehicles.

Revenue for the third quarter declined to $2.84 billion compared with $2.86 billion a year ago. And the company reported $21 million from continuing operations before taxes – the first time it has delivered a positive level since 2011.

Navistar’s Class 8 calendar year market share to end of July was 15.1 per cent up from 14.4 per cent in the full-year 2013.

However, according to Clarke, the slower-than-expected market gain for the last two quarters is behind plan. He expects market share to recover.

Navistar is expected to build over 20 per cent more trucks in the fourth quarter than it did a year ago. In the last quarter, Navistar invoiced 9,000 Class 8 trucks to customers in the US and Canada, up 10 per cent on a year ago. It is also benefitting from reduced structural costs.