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Takeaway: NAV surprised to the upside, but lost 5 points of US and Canada class 8 share in its orders relative to the industry’s. Positive for PCAR.

NAV:  Share Loss Implied By Orders Positive for PCAR, Volvo, Daimler

  • Five Points of “Order Share” Loss YoY:  Navistar reported class 8 orders down 36% in the U.S. and Canada in their fiscal first quarter vs. an ~14% decline for the industry, by our estimates.  Relative to last year’s “order share”, Navistar was down about five percentage points to 14.1%.   
  • ISX Intro Saps 13L:  The small sequential improvement (~50 bps) may relate to the introduction of the Cummins 15L ISX Engine.  Roughly 40% of NAV's class 8 orders in the quarter used the newly introduced Cummins 15L engine, so MaxxForce 13L orders were weak.  That may benefit competitors’ 13L offerings.
  • Major Rally in NAV Shares:  Navistar’s management change, improved operating performance and better than expected liquidity position helped drive its share price higher today.  The stock is heavily shorted, a position we have not advocated because of numerous uncertainties (including a potential takeout). 
  • Long Paccar Easier Position:  Navistar’s emissions problems helped it to gain market share in early 2012, since many customers initially preferred the simpler, less clean EGR engine, in our view.  As Navistar introduces compliant products, pays non-conformance penalties and suffers from poor product perceptions, it may continue to lose significant market share.  NAV's loss in class 8 is PCAR, Daimler and Volvo's gain.  We see NAV’s expectation of improved market share through the year as unlikely, with further market share erosion during 2013 probable.
  • SCR + EGR 13L a Hard Sell:  We expect Navistar to struggle with the introduction of its new 13L engine.  While the 15L ISX is a well-established platform, the previous 13L MaxxForce has experienced serious perception issues. The new 13L, with two emissions technologies in the same engine, may be a non-starter with some customers, in our view.
  • Focus on PCAR:  Our discussion of NAV’s results focuses on the competitive dynamic with PCAR, one of our long ideas.  Please ping us if you have any questions on the specifics of NAV’s earnings report or 10-Q from today.

NAV:  Share Loss Implied By Orders Positive for PCAR, Volvo, Daimler - 1q