(Adds CEO comments from interview, closing stock price)
By Susan Kelly
CHICAGO, Aug 16 (Reuters) - Truck maker Navistar International Corp. reported its third straight quarterly loss on Friday, citing soft demand and a labor strike, and predicted a loss for the fourth quarter.
Navistar shares fell $2.14, or 8.5 percent, to close at $22.94 on the New York Stock Exchange.
The company also predicted a profit for the full year 2003.
Navistar surprised investors by warning it would post a fourth-quarter loss because demand for medium-duty trucks, dampened by the sluggish economy, had failed to bounce back in the second half of the year as the company had hoped.
"We're facing very difficult market conditions," said Navistar Chairman and Chief Executive John Horne. But he said the business cycle could be nearing rock-bottom.
"It is about as low as it gets," he said in an interview.
The company reported a net loss in the fiscal third quarter ended July 31 of $16 million, or 27 cents a share, compared with a profit of $2 million, or 3 cents, in the year-ago period. Sales and revenue were little changed at about $1.6 billion.
It also said it could show a loss of 20 to 25 cents a share from continuing operations in the fourth quarter.
Analysts had expected a 28-cent loss in the third quarter but a profit of 36 cents in the fourth quarter, according to Thomson First Call.
"The fourth-quarter continuing-operations loss of 20 to 25 cents is a surprise for the Street," said Eli Lustgarten, analyst with H.C. Wainwright & Co.
Navistar said lower income from its financing operations, higher pension expenses, and start-up costs of more than $20 million to produce a new engine for Ford Motor Co.'s heavy-duty pickup trucks would dent fourth-quarter results.
It also said it may post a fourth-quarter restructuring charge as it looks for further cost reductions and closes a body plant in Springfield, Ohio, and an assembly line at a second plant there.
Analysts said more uncertainty looms. Navistar is in negotiations for a new U.S. labor contract, and the truck industry expects a slump in heavy-truck demand following a surge from buyers rushing to beat an Oct. 1 federal deadline for lower-emission diesel engines.
But Navistar said it expects to be profitable for full-year 2003, even if truck orders do not rebound next year, because of several years of restructuring to reduce costs.
"If the economy comes back, we start looking good very quickly," Horne said.
When a six-week strike at its main heavy-duty truck plant in Chatham, Ontario, ended in mid-July, Navistar predicted a third-quarter loss of between 25 and 30 cents a share.
The Warrenville, Illinois-based company said unusual items in the third quarter totaled $30 million pretax, or 31 cents per share after taxes. Further cutting into profits were costs from a school bus brake recall last year and an engine shortage at a supplier.
The shortage was due to the surge in demand for engines that predate the U.S. government's Oct. 1 deadline for diesel engines to meet tougher pollution standards.
Truck makers including Navistar have enjoyed strong demand for heavy trucks this year as fleet operators accelerated buying plans to beat the deadline for the new engine, which are more costly and are feared to be less fuel-efficient.
Navistar warned that up to 500 workers at the Chatham facility could face layoffs after Nov. 1 because of an expected slowdown in orders after the emissions deadline.
"Orders are not coming on strong for the new engines," said Horne, adding the impact from a fall off in demand for heavy trucks would be felt in the first quarter of 2003.
Navistar lowered its industry forecast for medium trucks to 97,500 from 101,500 for the year ending Oct. 31 and said weak demand was due to a reluctance by leasing companies to commit to new orders without clearer signs of an economic recovery.
The company, the nation's largest school bus manufacturer, left its forecasts for bus demand unchanged at 26,000 units and Class 8 heavy-duty trucks at 156,000 units.
Navistar is now negotiating a new labor contract to cover about 7,400 members of the United Auto Workers union at plants in Springfield, Ohio; Indianapolis; Fort Wayne, Indiana; and Melrose Park, Illinois, and various in parts distribution centers. The current three-year pact expires Oct. 1.
Horne said the company wants a cost structure that includes production flexibility and manageable health care costs.