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Navistar Falls After Surprising Loss, Mangement Shakeup

Navistar International Corp. (NAV) fell the most in almost 10 months after reporting a surprise loss, lowering its forecast for a second time this year and shifting top managers as it struggles to meet 2010 federal emission standards for one of its truck engines.

Navistar dropped 14 percent, the most since Aug. 8, to $24.11 at the close in New York, and had plunged as much as 28 percent earlier in the day. The shares have declined 36 percent this year after tumbling 35 percent in 2011.

Navistar, based in Lisle, Illinois, lowered its annual profit forecast to a range of break-even to $2 a share as it copes with the repercussions of pursuing a emission-reduction technology that has prevented it from winning U.S. Environmental Protection Agency certification for its 13-liter engine.

“It goes without saying that the start of the year has been a disappointment for us,” Dan Ustian, Navistar’s chief executive officer, said on a conference call with analysts and investors.

Ustian, who said in March he wanted the engine to be in production this month, declined today to estimate when the EPA would rule. Engine production can begin within 30 days of certification, Ustian said on the call today.

Navistar had an adjusted loss of $137 million, or $1.99 a share, in the three months ended April 30. Analysts had estimated profit of 67 cents, the average of 15 estimates. Warranty costs for the noncompliant engines reduced profit by $104 million.

Forecast Reductions

In March, the company forecast profit of as much as $5.25 a share, down from a February projection of as much as $5.75. The average of 17 analysts’ estimates was for an annual profit of $3.79 before today.

The net loss was $172 million, or $2.50 a share, compared with a profit of $74 million, or 93 cents, a year earlier.

Navistar said its share of the heavy truck market in the U.S. and Canada have dropped to 16 percent so far this year from 24 percent in the year ended Oct. 31, 2010, as “aura” and “speculation” in the market and by investors has hurt sales, Ustian said.

The company’s truck business recorded a loss of $89 million for the quarter from a $92 million profit a year earlier. The engine business had a $108 million deficit compared with a $2 million profit.

Standard & Poor’s Ratings Services lowered Navistar’s corporate credit rating to B+, or four levels below investment grade, from BB-. S&P also is reviewing Navistar’s ratings for possible future downgrades, the ratings company said in a statement.

EPA Certification

Navistar has struggled to develop a 13-liter engine that meets EPA certification at 0.2 gram of nitrogen oxides.

The company said today it is “working tirelessly with the U.S. EPA to get resolution.” A lack of certification cost the company $10 million in penalties in the quarter and may cost as much as $40 million if the engine isn’t certified this year, Ustian said.

Navistar also said today that Troy Clarke, president of the company’s Asia Pacific region, will oversee its truck and engine operations, including parts, product development and purchasing. Clarke joined Navistar in 2010 after a 35-year career at General Motors Co. (GM) and its predecessor.

Jack Allen will run truck and parts in North America. He’s currently president of the North American truck group for Navistar. Eric Tech, head of the engine group, was named president of global truck and engine, Navistar said in the statement. All changes take effect July 1, the company said.

Dee Kapur, president of Navistar’s truck group, was named vice chairman and chief product officer, Karen Denning, a spokeswoman for Navistar, said in an e-mail. Phyllis Cochran, president of Navistar parts, will join Navistar Financial Corp., Denning said.

To contact the reporter on this story: Mark Clothier in Southfield, Michigan at mclothier@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net

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