Navistar International Corp (NYSE:NAV) on Wednesday reported a larger-than-expected third-quarter loss prompting the Illinois-based truck maker to announce that it will cut 500 jobs before October draws to a close.
Navistar International Corp (NYSE:NAV) reported a third quarter loss of $247 million, or $3.06 per share, compared to a year-ago profit of $84 million, or $1.22 per share. Navistar said its revenues for the quarter ended July 31 were $2.9 billion. Analysts had anticipated a loss of $94.3 million, or $1.30 per share.
Navistar International Corp (NYSE:NAV), in its quest to return to profitability, has hit a number of bumps along the way including significantly weaker market conditions and a slower than expected transition to a new engine strategy.
“We still face a few significant challenges, but we have laid the groundwork to solve them, and obviously, we want to accelerate our rate of progress,” Troy Clarke, Navistar’s president and chief executive, said in a conference call.
While the company had hoped to return to profitability this year, that is now viewed as an insurmountable task though it believes that 2014 will see the company return to the black.
“We’re one year in, and we’ve made significant progress,” Clarke said.
Navistar’s glory days
In 2011, Navistar International Corp (NYSE:NAV) enjoyed a market share of 21 percent in the heavy-duty truck segment. That number has since fallen to 14 percent due largely in part to the company’s inability to meet 2010 federal emissions standards in a timely manner.
As a result of the new standards, Navistar began outfitting its heavy-duty trucks with 15-liter engines from Cummins Inc. (NYSE:CMI) last year. Finally in April, it began selling trucks with its own 13-liter engines that combine its technology with that of Cummins to reduce smog-causing nitrogen oxide.
Cumming and Navistar partnership
Cummins Inc. (NYSE:CMI) is a direct competitor to Navistar International Corp (NYSE:NAV) but nonetheless the two companies have found common ground. On Tuesday, Navistar announced that it would expand its partnership with Cummins by including their engines in its medium-duty trucks and school buses.
“Our medium-term situation, however, has become similar to what we experienced in (heavy-duty sales). As we are switching technologies, some folks are waiting on the sidelines,”Clarke said in the conference call.
Prior to the earnings call, Navistar had already begun its layoffs and will continue to until the end of its fiscal year on October 31. These layoffs include both salaried employees and long-term contractors. The result of these cuts should save Navistar up to $60 million in its next fiscal year.
New goal to reduce cost
Navistar International Corp (NYSE:NAV) also had set a goal of reducing costs by $175 million per year. On Wednesday, it said that it has accrued $236 million in savings to date but it needs further reductions to counter the drop in sales.
In addition to the layoffs, Navistar International Corp (NYSE:NAV) is considering consolidating its engine plants that are now split between Illinois and Alabama.
“We have a handful of different alternatives that we can act on fairly quickly to consolidate our engine manufacturing into a fewer manufacturing facilities than we have today. We fully expect to be able to act on that in 2014,” Clarke said in the conference call.