Navistar International Corporation has announced a fourth quarter 2014 net loss of $72 million, or $0.88 per diluted share, compared to a fourth quarter 2013 net loss of $154 million, or $1.91 per diluted share. Revenues in the quarter were $3.0 billion, up $257 million or 9.3%, versus the fourth quarter of 2013.
"Our fourth quarter results—and the results for the entire fiscal year—reflect our continued progress improving business operations across the enterprise and positive trends in the North American industry," says Troy A. Clarke, Navistar President and Chief Executive Officer. "In 2014, we increased our production, chargeouts and order backlog; continued to reduce warranty spend; and achieved structural cost savings that further lowered our breakeven point."
Fourth quarter 2014 EBITDA was $66 million versus an EBITDA loss of $227 million in the same period one year ago. This year's fourth quarter included $60 million of restructuring, impairments and other charges partially offset by a $10 million favorable adjustment in pre-existing warranty. As a result, adjusted fourth quarter 2014 EBITDA was $116 million, which was within the company's fourth quarter guidance.
Navistar finished the fourth quarter 2014 with $1 billion in manufacturing cash, cash equivalents and marketable securities, which included a $91 million increase in an intercompany loan from Navistar Financial Corporation (NFC), Navistar's captive finance company, to support used-truck activities.
The company reduced its year-over-year structural costs in the fourth quarter by an additional $66 million, including $48 million in savings from selling, general and administrative (SG&A) expense and $18 million in reduced engineering costs. Navistar reduced structural costs by $311 million for the year, which exceeded the company's full year target of $300 million.
Navistar's warranty spend improved in the fourth quarter, down 22% year-over-year. These results were driven by quality performance improvements, lower repair costs and a reduced population of legacy engines still in the warranty periods.
Other fourth quarter highlights included a 23% year-over-year increase in chargeouts for Class 6 to 8 trucks and buses in the United States and Canada. Chargeouts for Class 6 to 8 trucks were up 12% for fiscal year 2014, which included a 21% increase in Class 8 heavy trucks compared to 2013. In addition, end-of-year order backlog for Class 6 to 8 trucks was up 24% year-over-year.
The net loss for fiscal year 2014 was $619 million, or $7.60 per diluted share, versus a net loss of $898 million, or $11.17 per diluted share, for fiscal year 2013. Fiscal year 2014 adjusted EBITDA was $294 million versus $89 million adjusted EBITDA for 2013. Revenue for fiscal year 2014 was flat at $10.8 billion compared to fiscal year 2013.
"We continue to make the necessary changes to improve the company and we're entering 2015 in a much stronger position than we were one year ago," Clarke adds. "We've restructured our core North American business, have the right products in place, and established the right leadership team. We are well-positioned to meet our 8 to 10% EBITDA margin run rate target exiting 2015."
The company provided the following guidance:
- Forecasts retail deliveries of Class 6 to 8 trucks and buses in the United States and Canada will be in the range of 350,000 units to 380,000 units for fiscal year 2015.
- Q1-2015 adjusted EBITDA of $0 to $50 million, excluding pre-existing warranty and one-time items.
- Q1-2015 manufacturing cash, cash equivalents and marketable securities between $700 million to $800 million.
Navistar will host an Analyst Day February 4 at the company's headquarters in Lisle, IL, to share details and plans for fiscal year 2015 and beyond.
North America Truck — For the fourth quarter 2014, the North America Truck segment recorded a loss of $55 million, compared with a year-ago fourth quarter loss of $355 million. The year-over-year improvement was primarily driven by higher traditional truck volumes, declining warranty expense and structural costs, as well as the non-repeat of certain impairment charges. Chargeouts for traditional markets were up year-over year in the fourth quarter by 23%, reflecting a 14% increase of Class 8 trucks and a 41% increase in Class 6/7 trucks.
Navistar recently announced its plans to close its block and head foundry operations in Indianapolis, resulting in an $11 million charge in the quarter for employee separation benefits, pension and other postretirement contractual termination benefits, inventory reserves and other related costs. As a result, the company expects to reduce operating costs by about $13 million annually.
For the fiscal year 2014, the North America truck segment recorded a loss of $408 million, compared with a fiscal year 2013 loss of $902 million, primarily driven by lower charges for adjustments to pre-existing warranties of $52 million versus $404 million in fiscal year 2013.
North America Parts — For the fourth quarter 2014, the North America Parts segment recorded a profit of $143 million, compared to a year-ago fourth quarter profit of $147 million. The decrease was primarily due to a decline in military and Blue Diamond Parts sales, partially offset by improvements in our commercial markets.
For the fiscal year 2014, the North America Parts segment recorded a profit of $500 million, compared to a fiscal year 2013 profit of $476 million, primarily driven by record sales and lower operating costs in our North American commercial markets.
Global Operations — For the fourth quarter 2014, the Global Operations segment recorded a loss of $33 million compared to a year-ago fourth quarter loss of $6 million. The year-over-year decline was primarily driven by a decline in South American engine volumes as well as charges related to right-sizing actions for the Brazilian truck business.
For the fiscal year 2014, the Global Operations segment recorded a loss of $218 million compared to a year-ago fiscal year loss of $6 million, primarily driven by $178 million of asset impairment charges and the fourth quarter charges recognized by the Brazilian truck business. In addition, the continued economic downturn in the Brazil economy has contributed to lower engine volumes of 22% in 2014. Partially offsetting these factors were improvements in the export truck operations.
Financial Services — For the fourth quarter 2014, the Financial Services segment recorded a profit of $26 million compared to fourth quarter 2013 profit of $17 million. The increase was driven by the interest earned on an intercompany loan and an increase in the net financial margin from higher average finance receivables balances during the quarter.
For the fiscal year 2014, the Financial Services segment recorded a profit of $97 million, compared to a fiscal year 2013 profit of $81 million, primarily driven by higher interest income from intercompany loans and lower structural costs, which more than offset the effects of lower overall retail balances and an increase in the provision for loan losses in Mexico.