Cash burn, lower sales drag Navistar to loss

Wed Dec 19, 2012 1:23pm EST

Exterior of Navistar office is seen in Lisle, Illinois, October 4, 2012. REUTERS/Jim Young

Exterior of Navistar office is seen in Lisle, Illinois, October 4, 2012.

Credit: Reuters/Jim Young

(Reuters) - Truck and engine maker Navistar International Corp (NAV.N) reported a quarterly loss of $2.77 billion as warranty expenses rose and a failed engine project, which cost former Chief Executive Daniel Ustian his job, hit sales.

Navistar's shares fell as much as 11 percent to $20.23 on the New York Stock Exchange on Wednesday. They were down 5.6 percent at $21.55 in afternoon trading.

The fourth quarter was "messy even by Navistar standards," Jefferies & Co analysts wrote in a client note. "The charges were expected but the quantities (were) larger."

Lisle, Illinois-based Navistar began cutting costs in September as its North American business faltered on the company's failure to win U.S. regulatory approval for a new diesel-engine technology.

The company eventually ditched the project and now expects to launch a new model in April.

Warranty costs for engines Navistar built in 2010 and 2011 rose by $149 million in August-October. The company also recorded non-cash tax expenses of $2 billion, or $28.59 per share, and about $90 million in cost reduction and restructuring charges.

Investors probably underestimated the rate of cash burn in the quarter, said Wolfe Trahan & Co analyst Timothy Denoyer, adding that Navistar's warranty problems are likely to continue.

"They may need to raise capital again in the second or third quarter."

The company said in October it would sell 10 million shares to the public to raise about $190 million to fund capital expenditure and other initiatives.

ENGINE TROUBLE

Navistar's loss attributable to shareholders was $2.77 billion, or $40.13 per share, for the fourth quarter, compared with a profit of $255 million, or $3.48 per share, a year earlier.

"The losses are likely to continue well into 2013, probably into 2014," analyst Denoyer said.

The engine business posted a loss of $287 million for the fourth quarter, compared with a profit of $58 million as sales fell in Brazil and Argentina.

The company's truck business also lost $160 million, compared with a profit of $287 million a year earlier, on lower sales to the military.

Navistar, which makes the International brand heavy trucks and school buses, said revenue fell 24 percent to $3.28 billion.

As part of its ongoing restructuring, Navistar has closed a truck plant in Garland, Texas and sold its stakes in two joint ventures in India to Mahindra & Mahindra (MAHM.NS) for $33 million.

"By closing our Garland manufacturing plant and the completion of workforce reductions in North America and South America, we are positioned to exceed our goal of reducing structural costs by $175 million," said Chief Executive Lewis Campbell, who replaced Ustian in August.

Activist investor Carl Icahn, who has a 14.9 percent stake in Navistar, according to the latest regulatory filing, proposed merging the company with rival Oshkosh Corp (OSK.N) last year.

Ustian had supported Icahn's proposal, which was rejected by Oshkosh.

(Reporting by Sagarika Jaisinghani in Bangalore; Editing by Don Sebastian)

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