Navistar International Corp. Shares Make a U-Turn: More Speed Bumps Ahead?

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis. 

What: Shares of Navistar International  (NYSE: NAV  ) tumbled 6% in trade today after the truck maker missed Street estimates on its first-quarter top and bottom lines, yet again.

So what: Navistar's Q1 revenue slipped 15% year over year, but its losses doubled to $248 million. The company blamed "significantly lower demand" for its military vehicles and ongoing transition to a new engine emission technology in its medium-duty truck segment for the lower revenue.

On a positive note, Navistar's backlog, a key indicator of future potential revenue, jumped 56% year over year. The company also extended Cummins engines to its fleet of school buses during the last quarter after successfully adopting it into its heavy-duty trucks last year. Failure of its own emission technology in 2012 cost Navistar heavily, compelling it to turn to rival Cummins' engines to win back customers until it can roll out its own engines. Unfortunately, it's turning out to be a tougher game than Navistar thought it would be.

Now what: "Clearly, we have more hard work to do to rebuild our market share and further reduce our costs," said Navistar's president and CEO, Troy A. Clarke, during the company's earnings release. This isn't the first time Navistar has pointed out its ongoing struggle in gaining market share. I had sounded the warning bell during the company's last earnings release when it blamed weak industry conditions for its low market share despite the truck industry reporting higher orders.

Navistar is undoubtedly working overtime to reverse the damages caused by its failed technology, and opting for Cummins' engines was the smartest option available. The truck maker is also consolidating operations to cut costs and reportedly saved $67 million in costs during the last quarter, thanks to its restructuring efforts.

But once lost, gaining back a customer's trust is never easy. And as long as Navistar's sales don't pick up, no amount of cost reduction can help. While the sharp jump in its Q1 backlog value is an encouraging sign, there's no guarantee that all of that will convert into revenue. Worse yet, warranty issues pertaining to Navistar's 2010 engines, which shot up in 2012, continue to trouble the company. It added another $52 million to warranty reserves this past quarter after piling on an additional $152 million during the fourth quarter. Those extra expenses can weigh heavily when profits are hard to come by.

Navistar stock climbed nearly 75% last year on hopes that the company will soon jump back to profitability, but it still has a long way to go. And why would you want to bet on a company that has admitted to missing its own targets, especially on market share, for several quarters? Until I see an improvement in that critical metric, I'm going to remain on the sidelines on Navistar.

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