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NAV to Bear Restructuring Charges

Zacks Equity Research

According to Reuters, Navistar International Corporation (NAV) will be incurring a charge of $40 million to $60 million in the fourth quarter of 2012 associated with its headcount reduction program. Earlier this month, the company offered an opportunity to most of the U.S. based non-represented salaried employees to apply for the voluntary separation program. The company also planned to undertake involuntary reduction of workforce in a bid to achieve its goal.

Separately, Navistar Financial Corporation (:NFC), the subsidiary of the company’s Financial Services segment, has announced the renewal and increase of its largest dealer inventory funding facility to $750 million. This will provide greater flexibility in funding wholesale assets.

The $750 million facility will be funded by the three major relationship banks of NFC. In addition, the deal will support the company’s long-term strategy to support the dealer network and improve the sale of Navistar products. In the second quarter of 2012, the company’s inventories increased 14% to $1.95 billion from $1.71 billion in the corresponding quarter last year.

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’s U.S. controlled domestic competitors include Ford Motor Co. (F) 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 U.S. regulatory approval for the new generation of its diesel engine. We have a long-term (more than 6 months) Underperform recommendation on the stock.

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