Navistar International Corp. swung to a second quarter loss, hurt by a large write down of its used truck inventory and sluggish new vehicle sales.
The Lisle, Ill. truck manufacturer said Wednesday that it lost $80 million in its second fiscal quarter. That compared with a profit of $4 million in the same period a year earlier.
Revenue dipped 5 percent to $2.1 billion, a result of fewer sales of trucks in the Class 6 through 8 weight segments and buses.
“We are on track to improve on last year’s results, but still have quite a bit of work to do in the second half,” said Troy Clarke, Navistar’s chairman and chief executive officer. “However, the work we’ve done in the first six months growing share, building our backlog, and managing costs, combined with improving industry conditions, positions us to deliver a stronger second half.”
The big hit to earnings came from Navistar’s move to add $60 million to its used truck reserve as it works to liquidate its MaxxForce 13 used truck inventory. Navistar is changing its sales strategy by looking for ways to move more of the vehicles into export markets.
The surplus of trucks is a byproduct of Navistar’s wrong bet on diesel-exhaust technology to meet federal standards for nitrogen oxide emissions. The company attempted to introduce trucks that relied solely on a pollution-cutting technology known as gas exhaust recirculation. But the sole reliance on gas exhaust recirculation also created reliability and fuel economy issues for its trucks and tarnished the manufacturer’s reputation. Sales plunged, warranty costs soared and losses climbed. Now Navistar is trying to liquidate the inventory of trucks it had to take back.
Navistar is changing its sales strategy for MaxxForce to take advantage of opportunities outside of the U.S., Clarke said.
“We are taking an important set to put legacy issue behind us, which have been masking underlying improvements in our financial results,” he said.
The company needs to liquidate about 7,000 remaining trucks. “This time next year we will not be talking about this issue,” Clarke said.
“Changes in used truck market conditions prompted that change, as the spread narrowed between the value of the used MaxxForce equipment in the domestic and international markets, many of which are less concerned with emissions,” Michael Baudendistel, a Stifel Financial Corp. analyst, wrote in a report to investors.
Overall, Navistar’s truck business experienced a 6 percent sales decline from the same period a year earlier to $1.4 million. Losses in the truck segment more than doubled, rising to $56 million from $23 million in the second quarter of 2016. The results were hurt by the end of sales of CAT-branded units sold to Caterpillar. But there was a bright spot. Sales in Mexico improved.
Navistar continues to make money from its parts business. Although sales in the segment fell 6 percent to $610 million, the parts business still generated an operating profit of $153 million, helped by rising sales of Navistar’s Fleetrite brand of replacement components and remanufactured parts sales.
The parts segment recorded a quarterly profit of $153 million in second quarter 2017, down 13 percent versus the same period a year earlier.
Navistar ended second quarter 2017 with $949 million in consolidated cash. It expects that to rise slightly by the end of the year.
“We believe that the company is on more solid footing currently than it has been since we have been following the name given the strong recent industrywide truck orders, the company’s expanded partnership with Volkswagen — which may ultimately acquire a larger share of Navistar or the entire company — the company’s refreshed product line, and our view that the company’s market share in the U.S. Class 8 market has likely already bottomed,” Baudendistel said.
Volkswagen purchased a 17 percent stake in Navistar for $256 million, taking two seats on the company’s board of directors. The companies will share technology, research and procurement. The deal closed during the second quarter.
The company is projecting industrywide sales of Class 6 through 8 trucks and buses in the U.S. and Canada to be in the range of 305,000 units to 335,000 units for its fiscal year 2017.
Editor’s Note: Carly Schaffner contributed to this report.