Fitch Ratings Services has reaffirmed the long-term issuer default rating (:IDR) on Navistar International (NAV) and its subsidiary Navistar Financial Corporation (:NFC) at 'CCC'. Along with the rating affirmation, Fitch has done away with the negative outlook on the entity owing to lesser liquidity problems of the company.
Navistar had cash and cash equivalents of $ 1.1 billion as of Oct 31, 2012, up from $539 million as of Oct 31, 2011. Cash and marketable securities was $ 1.6 billion as of Oct 31, 2012, up from $1.3 billion as of Oct 31, 2011. The agency believes the cash balance is sufficient to offset the negative free cash flow resulting from higher capital expenditures due to the introduction of heavy-duty diesel SCR engines.
The rating agency is concerned about the company’s free cash flow, which may decrease further in the first half of fiscal 2013 due to delays in deliveries arising from the reduction of emission credits and increase in expenditures on warranties, non-conformance penalties and pension contributions. In addition, the situation may further worsen if the industry truck demand does not improve or the transition in SCR technology gets delayed.
In Oct 2012, Navistar had signed a long-term supply deal with Cummins Inc. (CMI) for SCR engines and emissions technology. The company will be using Cummins ISX15 engine in International ProStar+ and 9900 models. Though the transition is taking place effectively, the rating agency is concerned about certain execution risk related to integration of the technology.
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 trailers. The company now has a Zacks Rank #3 (Hold).
Navistar incurred a loss of $2.8 billion or $40.13 per share in the fourth quarter of fiscal 2012 ended Oct 31, 2012, in contrast to a profit of $255 million or $3.48 per share a year ago. The loss per share was wider than the Zacks Consensus Estimate of a loss of $1.08 per share.
Revenues declined 24.1% year over year to $3.3 billion in the quarter but surpassed the Zacks Consensus Estimate of $3.2 billion. The year-over-year decline in revenues was due to lower sales volume.
Commercial Vehicle Group Inc. (CVGI) and Allison Transmission Holdings, Inc. (ALSN) are performing well in the same industry where Navistar operates. Commercial Vehicle Group is a Zacks Rank #1 (Strong Buy) stock while Allison Transmission carries a Zacks Rank #2 (Buy).
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