According to Reuters, Standard & Poor's (S&P) Ratings
Services has downgraded the corporate credit rating of
Navistar International Corporation
(
NAV
) to "B" from "B+". The cut in ratings can be ascribed to the
operational and financial challenges faced by the company due to
the refusal of Environmental Protection Agency (EPA) to certify its
engines with respect to emission standards.
Navistar has invested in research, development and tooling
equipment to design engine products which will meet the EPA
standard. However, without the certification of the engines the
company will incorporate both its current emissions control and the
competing urea-based technology.
The changeover would be increasing the costs along with production
changes. Although modified engines will be marketable in 2013,
their market acceptance may be somewhat challenging. Downfall in
business along with escalating cost would create pressure for the
company.
S&P has a negative outlook on the rating due to the expectation
of operating loss for the full year. The company will also register
a decline in sales of military vehicles and parts together with the
deterioration in demand for medium-duty truck.
The company witnessed a loss of $137 million or $1.99 per share
(excluding special items) in the second quarter of fiscal 2012. The
results also missed the Zacks Consensus Estimate.
Revenues dipped 2.9% year over year to $3.3 billion, missing the
Zacks Consensus Estimate. The decline was attributable to a
decrease in sales in Engine and Part segments, which was partially
offset by higher sales in the Truck segment.
Warrenville, Illinois-based Navistar 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 trailers. 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. The company faces
difficulty in obtaining smooth supply of materials due to its over
dependence on a few suppliers.
In addition, strict regulation by the government also creates
pressure on the company as it generates most of its revenues from
services rendered to the government. 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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