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S&P Downgrades Navistar's Credit Rating

Zacks Equity Research

Standard & Poor’s (S&P) Ratings Services has downgraded Navistar International Corporation’s (NAV) long-term credit rating to “B-” from “B” and maintained a negative outlook. Dismal second quarter performance primarily led to the decline.

S&P also changed Navistar’s business risk profile to “vulnerable” from “weak”. S&P is cautious about the liquidity of the company and expects that Navistar will generate wider losses in future. Shares of Navistar had dropped around 9.1% after the company announced its fiscal 2013 second quarter earnings on Jun 11, 2013.

Navistar’s second quarter (ended Apr 30, 2013) loss widened to $353 million or $4.39 per share compared with $137 million or $1.99 per share (excluding special items) in the year-ago quarter. Reported loss was also significantly wider than the Zacks Consensus Estimate of a loss of $1.09 per share.

Lower sales volumes and higher pre-existing warranty adjustments related to EPA 2010 emissions level engines primarily dragged down the profits. However, this was partially offset by lower SG&A expenses and decrease in engineering and product development costs.

Revenues declined 22.5% year over year to $2.5 billion in the quarter, missing the Zacks Consensus Estimate of $2.9 billion. The year-over-year decrease in revenues was due to a 14% decline in industry demand and lower market share of the company due to its transition to clean engine systems as per EPA regulation. This was partially offset by higher sales volumes in the South America engine business.

Navistar had cash and cash equivalents of $505.0 million as of Apr 30, 2013, compared with $1.1 billion as of Oct 31, 2012. Total debt was flat at $4.8 billion as of Apr 30, 2013 compared with the same as of Oct 31, 2012.

Warrenville, Ill-based truck manufacturer currently retains a Zacks Rank #4 (Sell). Some stocks that are performing well in the industry in which Navistar operates include Visteon Corp. (VC), STRATTEC Security Corporation (STRT) and Magna International Inc. (MGA). All these companies carry a Zacks Rank #1 (Strong Buy).

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