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Navistar International Corporation’s (NAV - Analyst Report) fiscal 2013-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 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.

Segment Details

Revenues from the Truck segment declined 34.5% to $1.5 billion. The segment recorded a loss of $109.0 million from continuing operations compared with a loss of $45.0 million in the second quarter of fiscal 2012. Loss widened owing to the decline in traditional truck volumes due to sluggish industry demand, adverse impact of engine systems transition and pre-existing warranty costs adjustments.

Revenues from the Engine segment fell 16.8% to $744.0 million in the quarter. The segment registered a loss of $138.0 million compared with a loss of $108.0 million in the corresponding quarter last year. The decrease was driven by charges for pre-existing warranties and non-conformance penalties. This was partially offset by higher profits from MWM engine business in Brazil and decline in engineering and product development expenditures.

Revenues from the Parts segment rose 6.9% to $530.0 million. Profits from the segment increased significantly to $91 million from $41 million in the second quarter of fiscal 2012. The year-over-year rise in profits was driven by better margins and lower SG&A expenses.

Revenues from the Financial Services segment slipped 13.4% to $58.0 million. Segment profits dropped 26.9% to $19.0 million from $26.0 million in the corresponding quarter last year. The decrease was due to lower net interest margin, reflecting the decline in average finance receivables balance.

Financial Position

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.

Net cash used in operations was $43.0 million in the first six months of fiscal 2013 versus cash flow of $49.0 million a year ago. Capital expenditure was $759.0 million in the first half of fiscal 2013, up from $563.0 million in the same period a year ago.

Our Take

Warrenville, Ill-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. Currently, the company retains a Zacks Rank #4 (Sell) on its stock.

Some stocks that are performing well in the industry in which Navistar operates include Visteon Corp. (VC - Snapshot Report), STRATTEC Security Corporation (STRT - Snapshot Report) and Magna International Inc. (MGA - Analyst Report). All these companies carry a Zacks Rank #1 (Strong Buy).

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