Navistar International Corp announced plans to cut jobs and reported a quarterly profit on Thursday after a $196 million tax benefit offset the high costs of its unsuccessful program to develop a new style of diesel engine.
The U.S. maker of International-brand heavy trucks and school buses also said it had begun looking to sell operations as part of a push by newly named interim Chief Executive Officer Lewis Campbell to cut operating costs by $150 million to $175 million next year.
Shares of Navistar rose 5.4 percent to $21.52 in premarket trading.
"At least from a bigger-picture perspective, it appears like the new CEO, Campbell, is saying the right things and going to be doing the right things" in restructuring the company, said Morningstar equity analyst Basili Alukos.
Navistar said net income had fallen to $84 million, or $1.22 per share, in the third quarter ended on July 31 from $1.4 billion, or $18.24 per share, a year earlier.
Without the tax benefit, Navistar would have lost $100 million, compared with a year-earlier loss of $54 million, also excluding special items.
The gain in the latest quarter stemmed from a drop in the company's estimate of its tax bill this year amid mounting losses.
Sales fell 6.1 percent to $3.28 billion from $3.49 billion.
"Clearly we are not pleased with these results," Campbell said in a statement.
Navistar last week ousted CEO Daniel Ustian, a 37-year veteran of the Lisle, Illinois-based company, and replaced him with Campbell. It also promoted Troy Clarke to the new role of president and chief operating officer.
LAYOFFS AHEAD
The company said a combination of staff buyouts completed during its third quarter and layoffs to come in the fourth quarter would reduce its annual expenses by $70 million to $80 million.
Navistar had struggled to win U.S. Environmental Protection Agency approval for its new diesel engine. Unlike rivals such as Paccar Inc and Volvo AB, the company was attempting to limit emissions of the greenhouse gas nitrogen oxide without using the additive urea.
Last month, Navistar abandoned that effort, saying it would instead begin selling trucks with engines from Cummins Inc early next year. In the meantime, it is paying fines of up to $3,755 per noncompliant engine it sells after the EPA last week nearly doubled the penalties it is imposing.
Preparing to manufacture trucks with those new engines while continuing to make trucks with its existing engines will be one of Navistar's major operational challenges in the next few months, Morningstar's Alukos said.
"That is the big wild card," he said.
At Wednesday's close, Navistar shares had lost about half their value over the past year, and the company has drawn the interest of activist investors including MHR Fund Management LLC and Icahn Associates Corp. Each of the two has a stake approaching 15 percent -- the point that would trigger a poison-pill defense the company adopted in June.
The company's four largest shareholders - a list that also includes Franklin Resources Inc and Gabelli Funds - collectively own more than 55 percent of Navistar.
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