Navistar Pares Loss in Fiscal First Qtr., Selects Clarke as Next Top Manager

This story appears in the March. 11 print edition of Transport Topics.

Navistar International Corp. announced last week it narrowed its loss during its first fiscal quarter and has chosen Troy Clarke, its current president and chief operating officer, to take over as CEO on April 15.

Navistar said it lost $123 million, or $1.53 a share, of revenue of $2.64 billion for the three months ended Jan. 31. In the same quarter a year ago, it lost $153 million, or $2.19 a share, of revenue of $3.01 billion.

The company also said Lewis Campbell, chairman and interim CEO since August, would step down from both posts and leave the board of directors.

In addition, Navistar named James Keyes as its new chairman, and said Clarke, 57, would take a seat on the board of the Lisle, Ill.-based company.

When longtime Navistar leader Daniel Ustian left suddenly last year, with the company’s operations roiled by the failure of its choice of diesel emissions technology, Campbell was called out of retirement from Textron Inc., a diversified manufacturer, to help turn around Navistar.

Campbell said in a March 7 conference call that the truck and engine maker is now squarely on the path to renewed financial and operational health and that the original equipment maker should be guided by a long-term leader rather than an interim boss.

“We can see the end of the runway now and it looks very good,” Campbell, 66, said on the call. “If you’re going to have tough decisions you need to make, you ought to put the long-term leader in place; it was just the right time,” he said, adding that the choice to elevate Clarke was approved unanimously by the Navistar board.

Investor Carl Icahn, who controls 14.8% of Navistar’s shares, said in a statement that he sees Clarke as “the right man to lead Navistar.”

Investors reacted favorably, sending the company’s share price up more than 20% to more than $31 in intra-day trading on March 7, from a March 6 closing price of $24.96. The March 7 closing price was $31.89.

Campbell will be departing “ahead of schedule,” stock analyst Stephen Volkmann told clients of Jefferies & Co.

“We view this as an indication that Navistar’s turnaround is well on track. Under Troy’s leadership, the company has begun to transform their operations, improving efficiencies and eliminating costs,” Volkmann said.

Clarke joined Navistar in January 2010 after 35 years at General Motors Corp. Recently, he has been in charge of implementing Campbell’s turnaround strategy. So far, that has included plans to sell off the Monaco Coach recreational vehicle and Workhorse Custom Chassis businesses.

Navistar also backed out of its Indian joint venture with Mahindra & Mahindra Ltd.

Campbell and Clarke have said they want to focus only on businesses that can demonstrate a strong return on invested capital for Navistar.

Keyes, 72, the new chairman, has been a Navistar board member since 2002. His main career was with Johnson Controls, which he joined in 1966 and rose to become chairman and chief executive officer before retiring at the end of 2003.

Among the company’s major divisions, the quarterly loss at the truck unit expanded to $58 million from $27 million in the year-ago quarter. The loss at the engine division narrowed to $27 million from $120 million over the comparable time.

Profitability at the parts division grew to $86 million from $50 million. Financial services remained profitable, but at a lower level, dropping to $22 million from $27 million.

The earnings report said the truck division was beset by a decline in volume and a $12 million charge related to the closing of the Garland, Texas, plant later this year. The company shipped 11,000 heavy- and medium-duty trucks to U.S. and Canadian buyers during the quarter ended Jan. 31, down 29.5% from the 15,600 units shipped in the year-ago quarter.

Navistar plans to demonstrate its new engine options at its exhibit at the Mid-America Trucking Show later this month, Jack Allen, president of North American trucks and parts, said during the call.

Navistar management has spent much of the past year dealing with the need to vacate the technology originally chosen to comply with the federal government’s January 2010 change in emissions standards. Navistar went with a total exhaust gas recirculation approach, whereas all of its competitors decided on EGR mixed with selective catalytic reduction.

Ustian left Navistar around the time it became clear that EGR-only would not meet the tougher federal standards. Since then, Navistar has relied upon Cummins Inc. to supply ISX 15-liter engines. In addition, Navistar is modifying its in-house MaxxForce 11- and 13-liter engines with Cummins SCR aftertreatment systems.

Campbell and Clarke said they filed for approval on the 13-liter from the Environmental Protection Agency in early January and are expecting EPA certification by the end of March. If that target is met, the company will start shipping ProStar International tractors with compliant 13-liter engines to customers in April. The company assembles those vehicles at its Escobedo, Mexico, plant.