Navistar’s Q3 report: ‘We are not pleased with the results’

Lisle, Ill.-based Navistar International Corp.‘s net income has dropped significantly to $84 million in the third-quarter of 2012 compared to its third-quarter 2011 net income of $1.4 billion.

Current quarter results 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 non-conformance penalties (NCPs), according to Navistar’s third-quarter financial report it released today. 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 pre-tax loss of $100 million in the third quarter 2012 versus a $54 million loss in the third quarter 2011. Revenues in the quarter were $3.3 billion, down 6 percent from the third quarter of 2011. Navistar says the loss was driven by lower net sales in the company’s U.S. and Canada truck and engine segments, which it cites as being due to lower military sales and reduced engine volumes in South America, respectively.

“Clearly we are not pleased with these results,” Lewis B. Campbell, Navistar chairman and chief executive officer, said in written statement releasing the results. “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.”

Navistar is currently completing a voluntary separation program and a reduction in force of its salaried workforce. The company says its anticipates this will generate $70 million to $80 million in annual savings, which will contribute to Navistar’s overall goal to reduce costs by $150 million to $175 million year-over-year, starting in fiscal year 2013. Additionally, Navistar says it is increasing efforts to cut discretionary spending and further reduce its material costs as part of its overall cost reduction program.

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Navistar has also launched a review of all of its non-core businesses with the goal of improving its return on invested capital and driving long-term profitability. As a result of this, along with uncertain industry conditions, the company says it is not providing fourth-quarter earnings guidance until industry volumes solidify and these potential actions are defined.