According to Reuters, Fitch Ratings has lowered the long-term
debt rating and senior unsecured notes rating of
Navistar International Corporation
(
NAV
) and Navistar Financial Corporation ("NFC") to "BB-" from "BB".
Fitch has also downgraded the rating on Navistar International's
senior subordinated notes to "B" from "B+."
The rating revisions were attributed to escalated warranty costs on
engines, lower margins, slow growth of Navistar International's
market share of medium and heavy duty trucks in the U.S. and Canada
and risks associated with emission standard of its engines.
The rating agency even predicts future reduction in ratings, if the
company's engine fails to meet the current emission standards
according to the U.S. Environmental Protection Agency. Any delay or
denial in certification will affect the competitive position of the
company along with weakening of its financial position.
With the new engine and EGR engine technology, Navistar
International plans to reduce the emissions of nitrogen oxide by
not using urea. Nitrogen oxide is the pollutant responsible for
asthma.
Navistar's ratings will be under pressure if the warranty cost does
not stabilize and improve. Decline in cash flows, further execution
of its integration strategy and expansions in overseas markets are
other challenges faced by the company. It has also adopted a poison
pill strategy in order to prevent outsiders from obtaining 15% or
more of its market shares.
Navistar, in the second quarter of 2012 (ended on April 30, 2012),
reported a loss of $137 million or $1.99 per share (excluding
special items) in sharp contrast to a profit of $102 million or
$1.30 per share recorded a year ago. The results missed the Zacks
Consensus Estimate of earnings of 67 cents.
Revenues went down 2.9% year over year to $3.3 billion, missing the
Zacks Consensus Estimate of $3.6 billion. The decline was
attributable to a decrease in sales in engine and part segments,
which were partially offset by higher sales in the truck segment.
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 trailer. The company
is one of the largest truck producers along with
Daimler AG
(
DDAIF
) and
PACCAR Inc.
(
PCAR
).
Currently, Navistar retains a Zacks #5 Rank, which translates into
a short-term (1 to 3 months) Strong Sell rating. We have a
long-term (more than 6 months) Underperform recommendation on the
stock.
DAIMLER AG (DDAIF): Free Stock Analysis Report
NAVISTAR INTL (NAV): Free Stock Analysis Report
PACCAR INC (PCAR): Free Stock Analysis Report
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