Navistar investors got a double dose of bad news as the truck and engine maker reported its 12th consecutive quarterly loss and disclosed that regulators may be close to filing an enforcement action against it.
The U.S. Securities and Exchange Commission has been investigating Navistar since July 2012 in connection with statements the company made about its efforts to obtain a document from the Environmental Protection Agency certifying its engines complied with certain provisions of the Clean Air Act.
In an earnings conference call Wednesday, Navistar said it had received notice from the SEC indicating its staff had recommended an “enforcement action.”
As a manufacturer of heavy-duty diesel engines, Navistar must obtain a certificate of conformity from the EPA each year for each type of engine that it sells. The SEC has been focusing on whether management deliberately downplayed compliance problems in disclosures to the public.
On the earnings front, the company reported a net loss of $28 million, or 34 cents per share, for the third quarter, compared with a loss of $2 million, or 2 cents per share, a year earlier. Revenue fell nearly 11% to $2.54 billion, below analysts’ average estimate of $2.75 billion.
“We are encouraged that overall, our core truck business continues to improve year-over-year, driven by steady and improving performance in medium, school bus and severe service, where we are on track to achieve our full-year market share goals,” Navistar CEO Troy A. Clarke said. “We’re not standing still and we continue to take actions to improve both the revenue and cost sides of the business.”
Wall Street was not particularly encouraged, though, as Navistar stock closed down more than 4% on Wednesday, at $16.61. The shares have fallen about 48% so far this year.
“Navistar is working through a lengthy corporate restructuring, as it faces a dismal truck market in Brazil and engine reliability issues that caused it to shed market share in North America to competitors,” The Wall Street Journal said.
In a note, Vicki Bryan, a bond analyst at Gimme Credit, said that “Navistar is, now three years later, a company virtually reborn with credible and capable management, finally, and it must address and resolve the legal consequences of the previous 10 years of hubris and failure.” Bryan said the company “can, over the next year or so, potentially absorb penalties and settlements of potentially $300 million to 500 million, mostly with cash on hand and newly reemerging free cash flow generating capability.”