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Navistar International Corporation (NAV - Analyst Report) recorded a loss of $2.8 billion or $40.13 per share in the fourth quarter of fiscal 2012 (ended October 31, 2012), in contrast to a profit of $255 million or $3.48 million reported a year ago. The bottom line was hit by adjustments associated with pre-existing warranties and the charges related to the company’s cost-reduction actions.

Excluding one-time charges, net loss was $517 million or $7.89 per share in the quarter compared with an adjusted profit of $247 million or $3.37 per share in the corresponding quarter of 2011. The loss per share was wider than the Zacks Consensus Estimate of a loss of $1.08 per share.

Revenues declined 24.1% year over year to $3.3 billion in the quarter, yet surpassed the Zacks Consensus Estimate of $3.2 billion. The year-over-year decline in revenues was due to lower sales volume.
 
Segment Details

Revenues from the Truck segment declined 31.1% to $2.2 billion. The segment recorded a loss of $160 million compared with a profit of $287 million in the fourth quarter of fiscal 2011.

Revenues from the Truck segment declined 6.9% to $9.1 billion in fiscal 2012. The segment recorded a loss of $320 million compared with a profit of $336 million in fiscal 2011. The year-over-year decline was due to a decrease in military sales and product mix, together with higher commodity costs and warranty expense related to extended warranty contracts on 2010 emission engines. This was partly offset by the benefits from manufacturing cost efficiencies.

Revenues from the Engine segment fell 26.2% to $801 million in the quarter. The segment registered a loss of $287 million compared with a profit of $58 million in the corresponding quarter last year.

Revenues from the Engine segment declined 10.5% to $3.4 billion in fiscal 2012. The segment incurred a loss of $562 million compared with a profit of $84 million in fiscal 2011. The year-over-year decline was due to a hike in warranty expense for 2010 emission engines and lower sales volume in South American operations.

Revenues from the Parts segment rose 5.2% to $612 million. Profits from the segment decreased 12.6% to $76 million from $87 million in the fourth quarter of 2011.

Revenues from the Parts segment fell 1.7% to $2.1 billion in fiscal 2012. The segment’s profit declined 16.4% to $240 million from $287 million in fiscal 2011. The drop was due to lower military volume, which was partly offset by an increase in commercial sales and lower SG&A expense.

Revenues from the Financial Services segment slipped 3.2% to $60 million. Segment’s profit plummeted 40.7% to $16 million from $27 million in the corresponding quarter last year.

Revenues from the Financial Service segment decreased 11% to $259 million in fiscal 2012. The segment’s profit declined 29.5% to $91 million from $129 million in fiscal 2011.

Fiscal 2012 Results

Navistar reported a loss of $3 billion or $43.56 per share in fiscal 2012, in sharp contrast to a profit of $1.7 billion or $22.64 per share in fiscal 2011. Revenues declined 7.2% to $12.9 billion from $13.9 billion in fiscal 2011.

Financial Position

Navistar had cash and cash equivalents of $ 1.1 billion as of October 31, 2012, up from $539 million as of October 31, 2011. Total debt was $4.77 billion as of October 31, 2012, compared with $4.86 billion as of October 31, 2011.

Net cash flow from operations decreased to $610 million in fiscal 2012 from $880 million a year ago. Capital expenditure declined to $309 million in fiscal 2012 from $429 million in fiscal 2011.

Our Take

Warrenville, Illinois-based Navistar International manufactures and sells commercial trucks, mid-range diesel engines, buses, military vehicles and chassis for motor homes and step-vans. It also provides service parts for various trucks and trailers.

Navistar benefits from leading market position in the global truck market besides Daimler AG (DDAIF) and PACCAR Inc. (PCAR - Analyst Report). The company also enjoys a steady stream of revenues from government contracts. However, we are concerned about the significant supplier risk, owing to higher dependence on few suppliers of components together with its mounting research and development expenses on the back of stricter government regulations.

Currently, Navistar retains a Zacks #3 Rank, which translates into a short-term (1 to 3 months) Hold rating. We have a long-term (more than 6 months) Neutral recommendation on the stock.
 

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