Navistar International (NYSE:NAV) will release its quarterly report on Friday, and investors have recently sent shares of the truck manufacturer to their highest levels in almost two years. But with strong competition from Ford (NYSE:F) and PACCAR (NASDAQ:PCAR), earnings projections for Navistar look fairly bleak, raising concerns about whether the company's fundamentals will back up its share-price gains.

Navistar has faced some major struggles over the past couple of years, as the company has had to deal with regulatory requirements that hurt its sales volumes and forced a painful transition in adapting its products to meet new standards. More generally, the truck industry has fought against high fuel prices that have made rail transportation increasingly cost-effective compared to trucking. The question investors have to ask themselves is whether Navistar's recent share-price rise makes sense in that context. Let's take an early look at what's been happening with Navistar International over the past quarter.

Stats on Navistar International

Analyst EPS Estimate

($1.67)

Year-Ago EPS

($7.89)

Revenue Estimate

$2.92 billion

Change From Year-Ago Revenue

(10.8%)

Earnings Beats in Past Four Quarters

1

Source: Yahoo! Finance.

Will Navistar earnings ever go positive again?
Analysts have gotten more downbeat about Navistar earnings in recent months, widening their October-quarter loss estimates by $0.20 per share and cutting their fiscal 2014 profit estimates by two-thirds. The stock has largely ignored those concerns, rising 5% since mid-September.

Navistar's July quarter earnings certainly didn't inspire much confidence in the equipment builder, with a 12% year-over-year drop in revenue sending losses soaring to $247 million. Even on an adjusted basis, per-share losses more than doubled from year-ago levels, with its truck division struggling from its having to use a new method to cut emissions by embracing technology from engine-making rival Cummins.

The big concern that investors have about Navistar is that its turnaround hasn't gone nearly as well as the company had hoped. PACCAR's Peterbilt and Kenilworth brands have performed far better than Navistar's offerings in the key heavy-duty truck segment, with volumes twice as high as Navistar's in the first half of 2013. In the medium-duty truck area, Navistar has seen its market share fall from above 40% three years ago to below 25% in the most recent quarter. In addition to PACCAR, Ford has become a formidable competitor in the medium-duty segment, with its F-450 and F-550 pickups competing well against Navistar.

Perhaps most importantly, Navistar hasn't yet embraced natural-gas-systems technologies in its trucks, giving both Ford and PACCAR a competitive advantage in that aspect as well. Navistar hopes to boost its natural-gas presence in the near future, but at its current pace, it might not be able to catch up with PACCAR and Ford if it doesn't act soon and take a more aggressive stance.

Navistar's strong stock performance is all the more surprising given that the company went to the capital markets for financing, issuing a $200 million convertible note issue in October. The good news for shareholders is that the initial conversion rate works out to $58.40 per share, well above current prices and therefore minimizing potential dilution between now and the 2018 maturity date. Moreover, Navistar was able to refinance $250 million of its wholesale funding during the quarter, supporting dealers' efforts to maintain inventory levels.

Navistar has also struggled in the defense sector. Although it has won some minor contracts, Navistar missed a chance to be part of a potential $22 billion contract to replace military Humvees for the Army and Marines. That prompted production shutdowns and could cause more problems for Navistar if defense spending doesn't ramp up.

In the Navistar earnings report, watch to see if the company starts accelerating its turnaround efforts. Despite the sense of security Navistar's recent stock gains might suggest, investors can't rely on lasting positive returns until Navistar demonstrates its ability to become profitable again.

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Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Cummins, Ford, and Paccar. The Motley Fool owns shares of Cummins, Ford, and Paccar. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.