Note: A PowerPoint presentation of Navistar’s webcast today is available on the company’s website, www.navistar.com.
Navistar International Corp., struggling to win U.S. regulatory approval for a new generation of diesel engine, changed course today (July 6), saying it was developing a new model expected to be ready early next year.
The move failed to impress investors, who sent shares of the U.S. truck and engine maker down 8% as analysts questioned the costs for the transition to the new engine, Reuters reported.
Navistar, which makes the International brand heavy trucks and school buses and owns Monaco RV LLC, said the new engine would use liquid urea to help cut emissions of nitrogen oxide, a pollutant linked to asthma. Liquid urea is use as a catalyst in diesel engines to reduce emissions of nitrogen oxides.The move amounts to taking the same road as rivals, including engine maker Cummins Inc. and truck maker Paccar Corp.
“It fell short of my expectations,” said Morningstar analyst Basili Alukos of the move. “I was expecting or hoping for them to abandon their engine business completely and start buying from a third-party supplier.”
A key concern for investors is whether the uncertainty around Navistar’s engine strategy will make trucking companies less willing to buy its vehicles.In addition to its trouble winning regulatory approval for the new engines, Navistar last month surprised Wall Street with a quarterly loss after taking a $104 million charge for warranty claims on engines sold in 2010 and 2011.
Navistar said its new technology, called In-Cylinder Technology Plus, will also help meet greenhouse gas emission rules in advance of 2014 and 2017 requirements.”
Today’s decision (is) a step in the right direction, but more answers (are) needed before becoming aggressive on the stock,” R.W. Baird & Co analyst David Leiker wrote in a note to clients. Key questions include the costs of launching the new engine and how profitable the engine will be, Leiker said.
NO FINANCIAL FORECAST
Navistar Chief Financial Officer Andrew Cederoth told investors in a brief conference call the company would not update its earnings and revenue forecasts until after it receives approval for the new engine from the Environmental Protection Agency (EPA) and California regulators.
Executives took no questions during the call.
Analysts, on average, expect a full-year loss of $2.18 per share, including one-time items, or a profit of 22 cents, excluding items, on $14.22 billion in revenue, according to Thomson Reuters I/B/E/S.
The company said it has already shared its new engine approach with the EPA, which it described as “supportive.”
“We have a high degree of confidence in the certainty of certification,” said Troy Clarke, who was named president of its truck and engine business last month.
An EPA spokeswoman did not immediately respond to a request for comment.
Navistar shares were down $2.31 to $26.48 on the New York Stock Exchange. They have lost one-half of their value over the past year and have been volatile over the past month, following the quarterly loss and the emergence of a new, big activist shareholder.
Activist fund company MHR Fund Management LLC, founded and run by Mark Rachesky, has taken a 13.6% stake in Navistar, becoming the largest shareholder ahead of billionaire investor Carl Icahn, who owns 11.9%.
Faced with the two activist stakeholders, Navistar last month adopted a “poison pill” plan to fend off hostile suitors.
Icahn last year sought to merge Navistar with rival Oshkosh Truck Co, of which he owns 9.5%. Navistar CEO Daniel Ustian had been open to the idea but Oshkosh management and shareholders rejected it.