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Navistar International Corporation (NAV - Analyst Report) witnessed a loss of $86 million or $1.48 per share (excluding an income tax benefit and costs related to non-conformance penalties) in the third quarter of fiscal 2012 ended on July 31, 2012.

This was in sharp contrast to a profit of $46 million or 60 cents in the corresponding quarter of 2011 (excluding the benefit from income tax valuation allowance and costs related to restructuring of North American operations). The loss was wider than the Zacks Consensus Estimate of a loss of $1.39 per share.

Revenues declined 6% to $3.3 billion in the quarter, surpassing the Zacks Consensus Estimate of $3.0 billion. The year-over-year decline in revenues was due to a fall in revenues from the company's Truck and Engine segments in the U.S. and Canada.

Segment Details

Revenues from the Truck segment went down 5% to $2.3 billion. The decline in revenues was attributable to a fall in military sales and traditional volumes. Traditional volumes went down 7% due to a 22% decrease in the company’s Class 6 and 7 medium trucks sales, which was partially offset by a 32% hike in school bus volumes.

The segment recorded a loss of $30 million (which included $11 million charges for engineering integration) compared to $75 million (including $129 million charges for engineering integration and restructuring) in the third quarter of fiscal 2011. The loss reflected poor performance of the segment coupled with deteriorating industry volumes, which was partially offset by manufacturing efficiencies.

Revenues from the Engine segment fell 13% to $840 million. The decrease in revenues was driven by lower sales volumes in South America due to pre-purchase of pre-Euro V emissions engines in the prior-year quarter, which was partially offset by lower selling, general and administrative and engineering expenses. The segment recorded a loss of $47 million compared to a profit of $32 million in the corresponding quarter last year.

Revenues from the Parts segment inched up 5% to $542 million. Profits in the segment increased 4% to $73 million from $70 million in the last fiscal year. The increase in profit was due to improved commercial markets and reduced SG&A expenses, which was partially offset by a fall in military sales.

Revenues from the Financial Services segment slipped 12% to $64 million. Profits in the segments went down 27% to $22 million compared to $30 million in the corresponding quarter of last year.

Financial Position

Navistar had cash and cash equivalents of $547 million as of July 31, 2012, an increase from $539 million as of October 31, 2011. Total debt was $4.41 billion as of July 31, 2012, compared with $4.86 billion as of October 31, 2011.

In the first nine months of the fiscal year ended July 31, 2012, net cash flow from operations decreased to $346 million from $539 million in the corresponding period a year-ago. Capital expenditure declined to $250 million from $291 million in the first nine months of fiscal 2011.

The company announced that its ISX15 engine supplying agreement with Cummins Inc. (CMI - Analyst Report) will be finalized by the end of October. The agreement will be combined with Navistar's MaxxForce 11- and 13-liter engines as part of its clean engine strategy. The company also plans to launch ISX15, the ProStar+ model in December and produce 13-liter models with selective catalytic reduction system in April next 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.

Currently, Navistar retains a Zacks #5 Rank, which translates into a short-term (1 to 3 months) Strong Sell rating. This is also reflected in our long-term (more than 6 months) Underperform recommendation on the stock.

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