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article imageNavistar releases earnings report

By Shane Blanchard     Dec 21, 2013 in Business
On Friday, Navistar announced that it had lost $154 million in its fourth quarter and $898 million for the year, mostly due to problems with its engines.
Navistar (NAV) manufactures commercial and military grade trucks, buses, and diesel engines, and also provides service parts for trucks and trailers. It currently employs 18,500 full-time employees.
. According to Bloomberg, part of the problem arises from its engines not meeting EPA emissions standards that took effect in 2010. In 2012, the company stopped building the engines and began buying engines from Cummins (CMI) to use in its trucks. However, Navistar is still paying warranty costs on the previously-built engines, and is expected to continue doing so through 2015. As Navistar also supplies vehicles for the military, Department of Defense spending cuts have also negatively impacted its revenue.
There is one thing that could help Navistar's financial situation: oil. According to a report from the U.S. Energy Information Administration, due to increased oil production in the U.S. and Canada, 57 percent more oil was transported to American refineries in 2012 than in 2011.
Syncrude s Mildred Lake plant in the Athabasca Oil Sands of Alberta  Canada
Syncrude's Mildred Lake plant in the Athabasca Oil Sands of Alberta, Canada
The Interior
While the majority of it is transported by pipeline and rail, there is also a significant increase in the amount of oil being transported by truck to U.S. refineries. As the Obama administration has yet to approve the Keystone XL pipeline from Canada, Canadian oil will have to be transported to U.S. refineries by rail or by truck. Even if the pipeline was approved today, it would still take two years to build it. Therefore, oil from Canada will continue to move to American refineries by rail and truck for at least two years.
If Navistar can solve its engine emissions problem within the next couple of years it may very well return to profitable status. The U.S. is expected to become the world's largest oil producer by 2016, which will coincide with the end of warranty payments on Navistar's previously-built engines. At its current share price of $37.16, it may still be a decent long-term investment.
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