This year, I introduced a weekly series called "CEO Gaffe of the Week." Having come across more than a handful of questionable executive decisions last year when compiling my list of the worst CEOs of 2011, I thought it could be a learning experience for all of us if I pointed out apparent gaffes as they occur. Trusting your investments begins with trusting the leadership at the top -- and with leaders like these on your side, sometimes you don't need enemies!
This week, I plan to highlight Navistar (NYSE: NAV ) CEO, Daniel Ustian, and show why the only thing his management team can be counted on for is excuses.
The dunce cap
Before reading any further, Navistar shareholders may want to consider getting something they can hit, squeeze, or bite into, so they don't hurt anyone around them.
Now that we have that disclaimer out of the way, let's jump right into why Navistar, a manufacturer of trucks and engines in the U.S., deserves this week's "honor."
Simply put, investors need to have faith in the management teams of the companies they buy if they hope to be successful. They need to feel that management acts in their best interests, can accurately guide the company in a positive direction, and can convey developments in a clear and accurate manner to shareholders when needed.
For Navistar, it appears the only thing its management team is capable of conveying to shareholders is excuses why its earnings weren't up to par. In fact, producing excuses might be the only leg up Navistar has on its competition. If you don't believe me, here are the various excuses taken directly from Navistar's 10-Q's describing the reasons for its poor earnings performance in two straight quarters:
- "The first quarter is the weakest period for Navistar due to seasonal downtime in its two largest markets."
- "Higher year-over-year health-care costs."
- "The start-up of a new foundry operation."
- "A brake supplier issue that interrupted truck shipments."
- "[The] temporary shutdown of a key OEM customer of its South America operations due to the Thailand floods."
- "Efforts to improve customers' vehicles during a traditionally slow period."
- "A warranty reserve to repair early 2010 and 2011 vehicles."
- "Speculation surrounding our engine certification for our Class 8 engine."
- "[In regard to its truck segment] Unfavorable shifts in military product mix reflective of lower military budgets, industrywide higher commodity and fuel costs, an asset impairment charge of $28 million."
I'm going to just cut it off right there because old "Debbie Downer", aka Navistar, is depressing me and I'm not even a shareholder! But, rest assured, I have more excuses I could have included. These excuses resulted in Navistar's second straight quarterly loss and a considerable drop in its full-year EPS expectations to just breakeven to $2 versus prior expectations of $4.25-$5.25 three months ago.
To the corner, Mr. Ustain
But wait -- there's more!
Don't act surprised... you knew there was more!
It's bad enough that Navistar's management isn't executing on its growth plan, but it's even worse that Mr. Ustain and his team couldn't predict trends three months down the road (or less) if their lives depended on it.
Case in point, Navistar cautioned shareholders in March that the warranty repairs it was making on engines it produced in 2010 and 2011 were at their peak. Well surprise, surprise... they rose again in the following months.
Another example was when the company used the submission of its nitrogen oxide, heavy-duty engine for approval to the Environmental Protection Agency as a bullish note to counteract all of its first-quarter excuses only to turn that bullishness into a second-quarter loss excuse. With no decision imminent from the EPA and a current probe under way that could net the company a fine of $2,000 per engine, Navistar's management can only sit on its hands.
What's more, Navistar's competitors are utilizing its miscues to grow their businesses by leaps and bounds. Westport Innovations (Nasdaq: WPRT ) , which modifies engines to run on natural gas, this week announced a natural gas venture with heavy-equipment manufacturer Caterpillar (NYSE: CAT ) . Westport also has a joint venture with Cummins (NYSE: CMI ) , a direct competitor to Navistar that reported a 33% rise in profits in the first quarter with a 20% rise in its engine segment. PACCAR (NYSE: PCAR ) , a maker of light-, medium-, and heavy-duty trucks, also joined the party by reporting a 69% rise in profits in April.
Navistar shareholders have every right to be miffed. Management has done a poor job of predicting near-term results and given shareholders little reason to believe their guidance even now. If Navistar doesn't find the right gear soon, the entire transmission just might blow.
Do you have a CEO you'd like to nominate for this dubious honor? Shoot me an email and a one- or two-sentence description of why your choice deserves next week's nomination, and you just may wind up seeing your nominee in the spotlight.
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