Navistar International Corp. is disappointed by large shareholder Carl Icahn’s campaign of “threats, attacks and disruption” and is committed to its plan to cut costs and review possible asset sales, the U.S. truck and engine maker said on Monday (Sept. 10).
“Navistar maintains an ongoing dialogue with its shareholders, and appreciates their input and views,” the company said in a statement. “As such, after a year of dialogue, we are extremely disappointed that Mr. Icahn has chosen to pursue his unproductive tactics of threats, attacks, and disruption.”
Reuters reported that billionaire investor Icahn slammed Navistar on Sunday for naming a new CEO without consulting large shareholders and urged the company to offer four board seats to shareholders immediately. The Navistar board’s recent decision to appoint Lewis Campbell as chairman and interim CEO was “worse than ill-advised,” Icahn said in an open letter to the directors.
The embattled U.S. truck and engine maker last month replaced CEO Daniel Ustian with Campbell, a former head of Textron Inc. after its bet on a new generation of diesel engines failed to live up to its promise.
“It is … outrageous that you have not reached out to obtain our opinion on issues such as choosing a new management team to lead this company,” said Icahn, who holds a roughly 15% stake in the U.S. truck and engine maker. “This is a board at war with its own shareholders. I urge you to reconsider the path the board has chosen, which harms our company and puts you at serious risk of personal liability.”
The investor said he would prefer to resolve the matter amicably rather than through protracted litigation and a proxy fight, but at the same time is seeking access to corporate documents and board proceedings at Navistar in order to protect his investment.
Navistar International Corp. reported a quarterly profit on Thursday (Sept. 6) after a $196 million tax benefit offset the high costs of its unsuccessful program to develop a new style of diesel engine.
Reuters reported that the U.S. maker of International-brand heavy trucks motorhomes and school buses also said it had begun looking to sell operations and was planning layoffs this quarter as it aims to cut operating costs by $150 million to $175 million next year as part of a push by newly named interim CEO Lewis Campbell. Navistar is also parent to RV builder Navistar RV, formerly Monaco RV LLC.
Navistar said net income had dropped to $84 million, or $1.22 per share, in the third quarter ended on July 31 from $1.4 billion, or $18.24 per share, a year earlier.
Without the tax benefit, the company would have lost $100 million, compared with a year-earlier loss of $54 million, also excluding special items.
Sales fell 6.1% to $3.28 billion from $3.49 billion.
“Clearly we are not pleased with these results,” Campbell said in a statement.
CEO Daniel Ustian, a 37-year veteran of the Lisle, Illinois-based company, retired last week and was replaced with Campbell. It also promoted Troy Clarke to the new role of president and chief operating officer.
The company said a combination of staff buyouts completed during its third quarter and layoffs to come in the fourth quarter would reduce its annual expenses by $70 million to $80 million.
Navistar had struggled to win U.S. Environmental Protection Agency (EPA) approval for its new diesel engine. Unlike rivals such as Paccar Inc. and Volvo AB, the company was attempting to limit emissions of the greenhouse gas nitrogen oxide without using the additive urea.
Last month, Navistar abandoned that effort, saying it would instead begin selling trucks with engines from Cummins Inc (CMI.N) early next year. In the meantime, it is paying fines of up to $3,755 per noncompliant engine it sells after the EPA last week nearly doubled the penalties it is imposing.
Navistar shares have lost about half their value over the past year, and the company has drawn the interest of activist investors including MHR Fund Management LLC and Icahn Associates Corp. Each of the two has a stake approaching 15% — the point that would trigger a poison-pill defense the company adopted in June.
The company’s four largest shareholders – a list that also includes Franklin Resources Inc and Gabelli Funds – collectively own more than 55% of Navistar.
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Editor’s Note: The following story appeared in the Wall Street Journal:
Navistar International Corp. will unveil its latest earnings on Thursday, Sept. 6. Navistar International produces International brand commercial and military trucks, MaxxForce brand diesel engines, IC Bus brand school and commercial buses, Navistar (formerly Monaco) RV brands of recreational vehicles and Workhorse brand chassis.
Navistar International Corporation Earnings Preview Cheat Sheet
Wall St. Earnings Expectations: The average estimate of analysts is for a loss of $1.21 per share, a swing from net income of 79 cents in the year-earlier quarter. During the past three months, the average estimate has moved down from $1.81. Between one and three months ago, the average estimate moved down. It also has dropped from 20 cents during the last month. For the year, analysts are projecting net loss of $3.04 per share, a swing from profit of $5.28 last year.
Past Earnings Performance: The company is hoping to beat estimates after missing the mark for two straight quarters. Last quarter, it reported a loss of $1.99 per share against an estimate of net income of 65 cents per share. The quarter before that, it missed forecasts by $1.83.
Investing Insights: Will New Apple Products Continue to PUMP UP Shares?
A Look Back: In the second quarter, the company swung to a loss of $172 million ($2.50 a share) from a profit of $74 million (93 cents) a year earlier, missing analyst expectations. Revenue remained stable at $3.3 billion.
Wall St. Revenue Expectations: Analysts are projecting a decline of 16.1% in revenue from the year-earlier quarter to $2.97 billion.
Stock Price Performance: Between July 6, 2012, and Aug. 31, 2012, the stock price had fallen $2.44 (-10%), from $24.42 to $21.98. The stock price saw one of its best stretches over the last year between July 24, 2012, and Aug. 1, 2012, when shares rose for seven straight days, increasing 7.6% (+$1.75) over that span. It saw one of its worst periods between Nov. 11, 2011 and Nov. 25, 2011, when shares fell for 10 straight days, dropping 18.5% (-$7.65) over that span.
Balance Sheet Analysis: The company’s current ratio of assets to liabilities came in at 1.35 last quarter. The current ratio is an indication of a firm’s liquidity and ability to meet creditor demands and generally, for every dollar the company owes in the short term, it has that figure available in assets that can be converted to cash in the short term. The company regressed in this liquidity measure from 1.53 in the first quarter to the last quarter driven in part by an increase in liabilities. Current liabilities increased 11.8% to $4.72 billion while assets decreased 1.3% to $6.38 billion.
Analyst Ratings: There are mostly holds on the stock with 10 of 15 analysts surveyed giving that rating.
The U.S. Environmental Protection Agency (EPA) said Thursday (Aug. 30) that it will allow manufacturers to sell diesel engines that don’t meet federal emission standards.
As reported by the Chicago Tribune, the ruling will allow Navistar International Corp. to sell its non-compliant engines by paying a maximum fine of $3,800 each — double what it has been paying.
“We can now provide our dealers and customers with clarity and certainty as we transition to our clean engine technology and look forward to utilizing the Final Rule as needed,” Troy Clarke, Navistar president and chief operating officer, said in a statement.
The fines will not be retroactive, so Navistar will not have to pay extra for the non-compliant engines it has already sold.
The company’s heavy-duty engines are used in school buses, commercial trucks and other vehicles over 33,000 pounds. The company is also parent to RV manufacturer Navistar RV.
Navistar has non-compliant engines because technology it developed failed to meet 2010 emission standards to reduce smog-causing nitrogen oxide.
That technology cost it approximately $700 million since 2001. Navistar changed its course after reporting a second-quarter loss of $172 million. This month, the Lisle-based company said it would combine its technology with the approach used by its competitors to further lower emissions and get its engines certified. Navistar is also buying a competitor’s engines to meet the standards.
The EPA issued an interim rule in January that allowed manufacturers to sell non-compliant engines as long as they paid a fine of $1,919 per engine. Navistar competitors, including Mack Trucks Inc. and units of Daimler AG and Cummins Inc., successfully sued federal regulators, claiming that the agency was giving Navistar preferential treatment.
So, the EPA increased the fine Thursday.
In a statement about its final rule, the EPA said: “This flexibility allows manufacturers to continue producing and selling engines that come close to air pollution standards as they work toward full compliance.”
The first shoe dropped Monday (Aug. 28) at Navistar International Corp., landing heavily and putting investors and employees on alert for deep structural changes at one of the oldest companies with a Chicago pedigree.
As reported by the Naperville Sun-Times, under pressure from activist shareholders and with a cash burn rate one analyst called “atrocious,” Lisle-based Navistar installed an outsider as its chairman and “interim” chief executive and announced the abrupt retirement of its top officer, Daniel Ustian. Ustian, 62, had been with the company for 37 years, becoming CEO in 2003 and chairman in 2004.
Lewis Campbell, named to succeed Ustian, comes to the engine and truck manufacturer from Textron Inc., where he was chairman and CEO. Campbell, 66, also spent 24 years in product design and engineering at General Motors Co.
Navistar also said it was promoting Troy Clarke, 57, another former GM executive who joined Navistar in 2010, to president and chief operating officer, the company’s top day-to-day role.
Analysts said the appointments indicate the board’s willingness to entertain bold steps in righting the company. They also repudiate an engine-emissions technology that Ustian championed but that never got clearance from federal regulators.
As a result, Navistar has been forced to buy high-cost engines from a competitor, Cummins Inc., that meet standards for the emissions of nitrous oxide.
Also part of Ustian’s departure were a $172 million loss the company reported for its second quarter and its Aug. 2 revelation that the Securities and Exchange Commission is investigating its accounting. For investors, it was an unpleasant reminder of an accounting probe from 2007 that got the company’s stock pulled from the New York Stock Exchange for 16 months.
Likely next steps for Navistar, analysts said, are layoffs as the company turns its attention to its high costs. Sales of certain operations or a deal for the entire company also are possible.
“Near-term, the next six to nine months are critical as Navistar brings new products and technology to market,” said David Leiker, who follows the company for Robert W. Baird & Co. Inc. He has a neutral rating and a $25 price target on the stock.
In Monday’s trading, Navistar shares rose 34 cents, or 1.5%, to $23.32. The shares are down 42% over the last 12 months.
“The business will shrink. I think they will get rid of a lot of tangential things they have been manufacturing,” said Basili Alukos, analyst at Morningstar Inc. He said the management changes are important to the company’s turnaround and noted that while it exhibits an “atrocious” cash burn rate, it has secured $1 billion in financing from a group of banks.
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Navistar International Corp. executives revealed their new strategy for introducing an updated product line with new emissions equipment, in a bid to recapture market share and counter competitors who have capitalized on stalled regulatory approval of Navistar’s own technology.
According to a report by Transport Topics, Navistar said it will introduce a ProStar tractor with a Cummins Inc. 15-liter ISX engine in January, and roll out a 13-liter MaxxForce engine in May, both with selective catalytic reduction, or SCR, technology, using what Navistar calls In Cylinder Technology Plus, or ICT.
“We want to focus on going forward,” Jack Allen, president of Navistar’s North American truck group. “We want to get back into the position of having Navistar tell the Navistar story rather than the competition.”
Allen and colleagues outlined the new approach for Transport Topics in an interview, saying competitors were trying to hurt sales by citing delays in Environmental Protection Agency approval for Navistar’s 13-liter engine using exhaust gas recirculation.
Navistar, which is still selling trucks with its EGR technology using emissions credits and payment of penalties, said last month it was changing its emissions reduction approach to include SCR.
The shift to SCR brought Navistar in line with other truck makers, after years of criticizing that technology approach. Navistar is parent to RV builder Monaco RV LLC.
With designs on reviving a work force still staggered by the economic downturn, an Oregon developer is actively marketing the former manufacturing campus and headquarters for Monaco Coach Corp. that encompasses nine stand-alone facilities situated on 69 acres in Coburg.
Steve Lee and his wife, Sally, finalized the purchase in late June from a division of Navistar International Corp., which acquired Monaco after an industrywide plummet in sales that forced the venerable manufacturer into foreclosure three years ago and left around 2,000 people unemployed. While acknowledging the property’s potential to be parceled out to different buyers – each building is self-sufficient – Lee’s long-time ties to Monaco and the industry have him hoping that “Coburg North Industrial Park” will once again house an RV manufacturer looking to establish a West Coast presence.
“Sally and I developed the Coburg site and also Monaco’s Holiday Rambler facilities in Wakarusa, Ind.,” Lee said. “The quality of construction was far above what you see in the RV industry. Both sites are the Cadillac of industrial complexes with not only top quality construction materials but also an emphasis on energy efficiency and overall aesthetics.”
But, according to Lee, one of the most attractive selling points is the area’s veteran work force.
“We have people that are primed and ready to go to work with no training required,” said Lee. “And unlike Elkhart County, you don’t have the competition for skilled laborers from all the other RV companies. Sally and I truly have a passion for bringing work back to the area.”
He added, “My son, Ryan, who was director of marketing for Monaco, has given a lot of tours to potential buyers. I asked him what it was like to see all those empty buildings. He told me that wasn’t the problem, it was not seeing the faces of all the people that are missing.”
The centerpiece for the property is a 336,849-square-foot production facility, which over the years produced towables and gas motorhomes, and later Monaco’s high-end diesel coaches. Ryan Lee says it’s “absolutely ideal for an RV manufacturer,” adding, “It’s basically in move-in shape. A company could be up and running in 72 hours.”
The plant boasts 8,600 square feet of office area and 340,988 square feet of production space along with an expansive covered storage area, covered loading dock and multiple loading docks and cranes. “It’s first class,” said Ryan Lee. “There are even copper air lines, which are great for tools.”
Lee noted that Navistar is still leasing a facility for its customer service department, but said the company recently moved all towable production to Harrisburg, Ore.
Other features of the property include:
• Nearly 1 million square feet under roof.
• Buildings constructed by Butler Manufacturing.
• Mature landscaping around buildings.
• 200 electric roll-up doors.
• Facilities include a former Monaco medical building and wellness center, and a 12,000-square-foot office building.
• Several manufacturing buildings previously used for chassis production, paint and final finish and component production.
• Close proximity to shipping docks in Portland and also Interstate 5, the main north-west connector on West Coast.
• Wood products all produced in Oregon.
Steve Lee said that he had already shown the property to several commercial developers and was currently conducting two or three major tours a week. “We will probably start off leasing the buildings,” he said. “But if someone wanted to buy it outright we could work them. The local and state governments are also motivated to put people back to work so there should be some incentives available.”
For additional information on Coburg North, visit www.coburgnorth.com or contact Jeff Elder with Evans, Elder & Brown at Jeff@eebcre.com or (541) 345-4860.
Shares of embattled U.S. truck and engine maker Navistar International Corp. rose as much as 10% on Monday (Aug. 6) after U.S. regulators submitted a final rule on whether to allow the company to continue to pay fines to allow it to sell engines that do not meet U.S. emissions standards.
Reuters reported that the U.S. Environmental Protection Agency (EPA) on Saturday filed its final ruling on a legal mechanism that allows the company to continue to sell heavy-duty diesel engines that do not meet current U.S. emissions standards by paying fines. In a filing on a U.S. General Services Administration website, the EPA declared that it had filed its rule for review but did not disclose details of the final ruling.
“Navistar is encouraged by the submittal of the final rule to (the Office of Management and Budget) and we hope that it generally mirrors what was in the interim rule,” said Navistar spokeswoman Karen Denning.
The interim rule had allowed the company to pay “non-conformance penalties” when it sold engines that did not meet regulatory standards, a move that hurt its profit margins but kept its sales up.
According to Reuters, Navistar shares rose $1.92 to $24.31 on the New York Stock Exchange, after earlier climbing as high as $24.77.
Robert Wertheimer, an analyst at Vertical Research Partners who covers the company, said investors had been concerned about the ruling.
“That’s one of the big risks overhanging the stock,” Wertheimer said, adding that until the EPA discloses what the final ruling is “I can’t see that it’s a positive or a negative.”
An EPA spokeswoman did not immediately respond to a request for comment.
The Lisle, Illinois-based company last week told some 3,400 salaried workers that it would consider layoffs as a way of lowering its expenses, Denning also said.
Navistar shares have lost about 41% of their value this year as the company has failed to win EPA approval for a new generation of diesel engines before this month changing course and saying it would work with Cummins Inc. to adopt a more mainstream technology.
Navistar International Corp. told employees last week that voluntary departures and involuntary layoffs are among the options it’s considering as the company looks to cut costs.
“There is a series of things the company is going to look at quickly, and job reductions will be the last lever,” company spokeswoman Karen Denning told Crain’s Chicago Business. “As a final action there could be layoffs.”
In the past, Navistar has received millions in tax credits tied to jobs and keeping its headquarters in Illinois. Navistar is parent to Monaco RV LLC.
“We believe we still will be meeting and exceeding our commitments for those state and local incentives,” Denning said.
Navistar announced a voluntary-separation program that any salaried full-time employee is eligible to take, she said. She declined to provide details.
Navistar has 3,400 such employees in Lisle, Joliet and Melrose Park, according to the most recent figure the company provided to the state. Hourly and production workers are not eligible for the program.
The struggling Lisle-based truck and engine maker announced the possibility of job reductions in an internal memo last week, Denning confirmed.
The following is an analysis by Forbe’s columnist Joann Muller detailing Navistar International Corp.’s efforts to recover financial footing following several setbacks. Navistar is parent to Monaco RV LLC.
Truckmaker Navistar International Corp., in jeopardy because of a risky technology bet that didn’t pan out, said Thursday (Aug. 2) it had secured a $1 billion loan commitment from a group of banks that will help keep it afloat while it races to comply with clean air rules for diesel engines.
But Navistar’s troubles are far from over. The company also disclosed that the Securities & Exchange Commission has launched a formal investigation of various accounting and disclosure matters dating back to November 2010. Navistar said it is fully cooperating with the inquiry.
But the maker of International brand heavy trucks and buses did make an important strategic move Thursday by announcing it will purchase diesel engines and after-treatment components from its rival Cummins, which is already producing engines that comply with emissions rules set by the U.S. Environmental Protection Agency.
While Cummins and every other manufacturer, including Paccar, Volvo Trucks and Daimler‘s Freightliner, met the EPA requirement by outfitting their trucks with diesel after-treatment systems, Navistar thought it could gain a competitive advantage by recycling diesel exhaust back through the engine, eliminating the need for costly, extra equipment. It spent $700 million on developing its advanced engine gas recirculation system. But two and a half years past the deadline for compliance, its engines have yet to receive EPA certification.
Acknowledging the dead end, Navistar relented on July 6 and said it would adopt the same after-treatment technology as the rest of the industry, labeling it ICT+. Its engineering research is not lost, however, the company insists. By combining Cummins’ aftertreatment system with its existing MaxxForce engines, Navistar will not only be able to meet current regulations but will be positioned to meet greenhouse gas rules in advance of 2014 and 2017 requirements. “With this clean engine solution, we are taking the best of both technology paths to provide our customers with the cleanest and most fuel efficient engines and trucks on the market and to meet stringent U.S. emission regulations,” said Daniel C. Ustian, Navistar chairman, president and CEO.
Navistar’s first 13-liter engine using Cummins technology won’t be ready until early 2013, so starting in January, it will offer Cummins’ 15-liter engine in certain truck models. Until then, Navistar will continue to build and ship its current trucks, using a combination of earned emissions credits and fines to offset its polluting engines.
Clearly the company is not yet out of the woods. The company withdrew its forecast for improved earnings in the second half of 2012 and said it will update the year-end outlook in September. Meanwhile, Navistar said it expects a pre-tax loss in the third quarter of $145 million to $105 million. Revenues are expected to be $2.8 billion to $3 billion.
“We expect to sustain our current market share through the balance of the year, and with the addition of ICT+ and an expanded model lineup, improve our market share in 2013,” Ustian said. “We expect to return to profitability in the fourth quarter and believe the company will be in a position to improve margins in 2013 as we realize the benefits of our integration and ongoing cost reduction initiatives.”
Gimme Credit analyst Vicki Bryan, isn’t convinced. “Navistar’s track record on execution is grim and ICT development will take months and potentially millions to complete.” she wrote in a note to bond investors. “In the meantime we see increased pressure on operations, with falling sales, spiking costs and spending, and severely negative cash flow of more than $1 billion in 2012 alone. The company is frantically arranging $1 billion in life saving cash–albeit at near loan shark terms which reflect its substantial and rapid deterioration. Navistar has little choice. The alternative is that its dramatically weakened liquidity could prompt the company to file bankruptcy in the coming months to preserve cash while it attempts to engineer its recovery.”