Navistar International Corp. said third-quarter revenues and earnings both declined year-over-year amid soft truck demand and the continued expense of warranty work from a problem with the company’s diesel engines.
The Lisle, Ill. truck maker reported a net-loss of $34 million, up 21 percent from $28 million in the same period a year earlier.
Revenues in the quarter fell 18 percent to $2.1 billion, reflecting lower year-over-year sales of trucks in the heaviest Class 8 weight segment, the company said Thursday. Sales of such trucks, which make up the largest portion of the market, plunged 42 percent in the quarter.
Navistar and rival manufacturers are suffering through weak demand for large trucks as the industry works through a backlog of new and used vehicles, said Bill Kozek, who directs Navistar’s North American Trucks and Parts business.
Soft freight demand is contributing to the slow sales. Shippers don’t need as many trucks.
“We’ve got a lot of capacity out there, in Class 8 specifically,” that has to be sold, Kozek said during a conference call. “So on the heavy, over-the-road piece, everybody is getting aggressive in their pricing. It’s nothing out of the ordinary, and we’re not seeing competitors do anything that hurts the entire industry.”
Navistar’s financial report comes just two days after Volkswagen’s truck division said it will invest $256 million in Navistar and appoint two directors to Navistar’s board. The deal gives Volkswagen a 16.6 percent stake in Navistar. The companies will share technology, components and research.
Both Fitch Ratings and S&P Global Ratings on Wednesday placed Navistar on their “positive” rating watch following the announcement of the Volkswagen investment.
The credit rating services said the partnership will increase Navistar’s financial position, create cost savings and foster product development and component synergies.
Navistar ended the quarter with $687 million in cash reserves but that will grow with the Volkswagen investment.
“Navistar would have over $1 billion manufacturing cash as of fiscal year-end October 2016, which should provide some additional liquidity cushion for Navistar, as overall truck demand declines in 2016 versus 2015,” S&P Global Ratings said in its report.
The loss in the most recent quarter marks a reversal for Navistar, which in the second quarter earned $4 million, a swing from last year’s second-quarter loss of $64 million and its first quarterly profit in more than three years.
In the third quarter, however, the company recorded a net-loss of $54 million in its truck segment due to warranty costs and lower used-truck profit margins.
The company is still suffering from making the wrong bet on diesel-exhaust technology to meet new federal standards for nitrogen oxide emissions. Navistar attempted to introduce trucks that relied solely on a pollution-cutting technology known as gas exhaust recirculation. But that created reliability and fuel economy issues for its trucks. While Navistar has since moved on to new emissions technology, it is still haunted by its prior gambit. The company had $19 million in warranty charges during the quarter.
But Navistar is making progress working down its expenses. The company reported $32 million in structural cost savings during the quarter, increasing its total year-to-date cost reductions to more than $300 million and easily topping its goal of reducing expenses by $200 million.
“This quarter’s results show that we continue to make progress in the face of tougher market conditions, particularly in the heavy segment,” said Troy A. Clarke, Navistar’s chief executive.
Navistar said it expected revenue for the full year to fall in the $8.2 billion to $8.6 billion range.
Demand for large trucks in 2017 is expected to be worse than this year, though smaller Class 6 and 7 truck sales are expected to “remain solid,” said Walter Borst, Navistar’s chief financial officer.