Navistar International Corporation has reported a loss of $153 million, or $2.19 per diluted share, for the first quarter ended January 31, 2012, which included a charge for pre-existing warranty expense of $112 million related to legacy and initial-built 2010 engines. After adjustments to exclude engineering integration costs, Navistar's loss for the first quarter 2012 was $145 million, or $2.08 per diluted share.
Traditionally, the first quarter is the weakest period for Navistar due to seasonal downtime in its two largest markets. Additionally, at its analyst day February 1, the company said it expected a first quarter 2012 loss due to a series of factors, including higher year-over-year healthcare costs; the start up of a new foundry operation; a brake supplier issue that interrupted truck shipments; the temporary shutdown of a key OEM customer of its South America operations due to the Thailand floods; and efforts to improve customers' vehicles during a traditionally slow period.
"We proactively addressed these product issues in a low usage period during the first quarter, which we believe will improve long-term customer satisfaction and reduce warranty costs," says Daniel C. Ustian, Navistar chairman, president and chief executive officer. "Strategically, we achieved a number of key milestones in the first quarter, including our submission of a 0.2 NOx engine for EPA certification and the announcement of our development of a full range of natural gas truck offerings."
Based on its first quarter 2012 results, the company updated its guidance for adjusted net income attributable to Navistar International Corporation for fiscal year ending October 31, 2012, to be between $295 and $365 million, or $4.25 to $5.25 adjusted diluted earnings per share. As stated in the company's analyst day news release, this expectation also includes the absorption of approximately $90 million in higher post retirement health care costs compared to last year and an effective tax rate of 25 to 30% with cash taxes expected to be below 10%. Navistar anticipates that North America truck demand will increase 5 to 18% in the fiscal year ending October 31, 2012, to a range of 275,000 to 310,000.
"We remain confident in our ability to deliver strong 2012 profit performance and make continued progress toward our long-term growth goals," Ustian says. "We are already seeing accelerated synergies from our recent move into our new integrated product development center beyond the $60 million we originally estimated. We now believe this integration of our people will unlock up to $100 million in savings toward our bottom line in 2012."
Consolidated net sales and revenues rose 11% in the first quarter of 2012, versus the year-ago first quarter, which is driven by increased truck volumes in traditional and worldwide markets. In the year-ago first quarter, Navistar reported sales and revenues of $2.7 billion and a loss of $6 million, or $0.08 per diluted share. Adjusted to exclude engineering integration costs, the company reported income of $12 million, or $0.16 diluted earnings per share.
Truck -- For the first quarter 2012, the truck segment recorded a loss of $41 million, compared with a year-ago first quarter profit of $32 million. Results included $30 million in higher commodity and fuel costs, higher product development, as well as the non-repeat of a 2011 commodity hedging gain.
The segment sales increase of 20% year-over-year was supported by continued industry recovery in North America and strong volume in Latin America. Traditional and Worldwide chargeouts were up on generally stronger industry volumes.
Engine -- For the first quarter 2012, the engine segment recorded a loss of $120 million, compared with a year-ago first quarter loss of $8 million. The segment sales increase of 10% year-over-year was due to improved intercompany big-bore engine sales. The segment results include $112 million in warranty costs for 2007 inline and initial-built 2010 engines. Also included in the segment results were startup costs for compacted graphite iron production at the company's Pure Power Technologies subsidiary, partially offset by decreased engineering and product development expenses.
Parts -- For the first quarter 2012, the parts segment recorded $50 million in profit, compared with a year-ago first quarter profit of $56 million. The decrease in profitability year-over-year is driven by a decrease in segment sales and reflects a shift in product mix.
Financial Services -- For the first quarter 2012, the financial services segment recorded $27 million in profit, compared with a year-ago first quarter profit of $32 million. Earnings from the company's financial services segment will slowly decline as the company transitions its U.S. retail portfolio to its strategic alliance with GE Capital. Liquidity remains strong and on better terms than previously available.