It was the best of truck makers, it was the worst of truck makers. Excuse me for appropriating Charles Dickens' A Tale of Two Cities, but that's how I feel after reading today about the hideous quarter of Navistar (NAV) and comparing it to the blowout quarter its principal competitor Cummins (CMI) reported a month ago.
You can't talk enough about execution in this business, particularly if you are a global manufacturer, because some companies have it and others don't. Cummins has it. The company has a golden touch, taking advantage of the latest technology and building foolproof engines that are the envy of the world.
But Navistar? A lot of the huge miss this morning, a staggering $153 million loss, or $2.19 per share, was from warranties and recalls. Without one-time charges, the company reported a still-horrendous loss of $2.08 per share, when Wall Street was looking for a $0.27 loss. The company had to recall 19,000 buses and trucks because of faulty brakes made by a supplier. Of course, that loss is on Navistar, as it should be. The warranty losses of $112 million stemmed from engines manufactured between 2006 and 2008.
As pathetic as those charges were, analysts were astounded that the company cut its guidance, set just last month from $5.75 to a range of $4.75 to $5.25. Talk about not being in control of the situation.
Contrast that with Cummins, which recorded a remarkable quarter last month with sales up 19% and earnings coming in at $2.56 when the street was looking for just $2.24. Cummins is taking share and riding high on the huge increase in trucks being ordered worldwide, particularly in China.
I have been saying all year that 2012 has become the year of the stock-picker. Nothing drums home that point more than the disparity between these two companies. It's difficult for all of us to be qualitative in this market. We tend to look at earnings per share and growth rates when we compare companies. Sometimes, though, it all comes down to management. In this case, Navistar just doesn't have it together while Cummins is raking it in.
I think Cummins stock may be up too much for the moment to buy it off this disparity. The stock wrongly trades off Chinese growth, and when China lowered the growth boom Sunday, the stock shed seven points before bouncing back.
It's important to remember that in this tape, when you want to play a theme like the global growth of trucking, you must play it with the best of breed, even if it is the most expensive. Sure, Navistar's a lot cheaper than Cummins. But then again, it deserves to be.
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