Navistar reducing work force to cut costs

| September 07, 2012

Navistar International Corp. on Thursday, Sept. 6, announced it is increasing efforts to cut discretionary spending and further reduce its material costs as part of its overall cost-reduction program. The Lisle, Ill.-based company also announced it has launched a review of all of its noncore businesses with the goal of improving its return on invested capital and driving long-term profitability.

Navistar announced it is completing a voluntary separation program and a reduction in its salaried work force, which the company said should generate $70-$80 million in annual savings. That savings will contribute to the company’s overall goal to reduce costs by $150-$175 million year-over-year starting in fiscal year 2013.

Navistar said its third-quarter 2012 net income was $84 million, down from $1.4 billion during the same period a year ago. Results from the latest quarter included an income tax benefit of $196 million that primarily resulted from a third-quarter change in the company’s estimated annual effective tax rate, as well as the impact of $16 million in costs related to engineering integration and $10 million in nonconformance penalties. The third quarter of 2011 included a $1.48 billion benefit from the release of a portion of the company’s income tax valuation allowance.

The company reported a pretax loss of $100 million in the 2012 third quarter versus a $54 million loss in the 2011 third quarter. Revenues were $3.3 billion, down 6 percent from the third quarter of 2011, driven by lower net sales in the company’s U.S. and Canada truck and engine segments, primarily due to lower military sales and reduced engine volumes in South America, respectively.

For the third quarter of 2012, Navistar’s Truck business segment recorded a loss of $30 million compared with a year-ago loss of $75 million. The engine segment recorded a loss of $47 million compared with a year-ago third-quarter profit of $32 million, a reflection of lower sales volumes and $14 million in expenses related to noncompliance penalties and engineering integration. The parts segment recorded profit of $73 million compared with 2011 third quarter profit of $70 million.

“Clearly we are not pleased with these results,” said Lewis Campbell, Navistar chairman and chief executive officer. “However, I was satisfied to learn on day one that Troy Clarke and his team were already working on a plan to deal with many of the important issues we face, most importantly restoring our core North American Truck, Engine and Parts businesses to their market leader positions. I believe we have good line of sight and a keen sense of urgency for moving forward.”

The company also announced that it is on track to finalize its agreement with Cummins Inc. by the end of October whereby Navistar will offer the Cummins ISX15 engine in certain truck models, expanding Navistar’s vehicle offerings. Navistar expects to launch the ISX15 in its ProStar+ model starting with initial customer deliveries in December.

Additionally, the agreement with Cummins Emission Solutions is on track to provide its selective catalytic reduction aftertreatment system, which will be combined with Navistar’s MaxxForce 11- and 13-liter engines as part of the company’s clean engine solution. Navistar plans to begin production of its most popular 13-liter models with the SCR aftertreatment system in April 2013.

Last week, the U.S. Environmental Protection Agency issued its final rule for NCPs for on-highway heavy-duty diesel engines, clearing the way for Navistar to continue to build and ship vehicles during the transition to its clean engine technology products.

“With the EPA final rule set to take effect and our progress with Cummins, we now have greater clarity on the transition to our new clean engine solution in 2013, which is our top priority,” said Clarke, Navistar president and chief operating officer. “I am committed to ensuring that we remain diligent in achieving key milestones and delivering a smooth launch.”

“Navistar is a great company with great people and great brands,” added Campbell. “With a laser focus on getting our quality right and hitting our clean engine launch dates, combined with actions to maximize cash flow and improve our balance sheet, I believe we can accelerate the pace of progress to deliver significant improvements during the next 12 to 18 months.”

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