This year, I introduced a weekly series called "CEO Gaffe of the Week." Having come across more than a handful of questionable executive decisions last year when compiling my list of the worst CEOs of 2011, I thought it could be a learning experience for all of us if I pointed out apparent gaffes as they occur. Trusting your investments begins with trusting the leadership at the top -- and with leaders like these on your side, sometimes you don't need enemies!

This week, I plan to highlight Navistar (NYS: NAV) CEO, Daniel Ustian, and show why the only thing his management team can be counted on for is excuses.

The dunce cap
Before reading any further, Navistar shareholders may want to consider getting something they can hit, squeeze, or bite into, so they don't hurt anyone around them.


Now that we have that disclaimer out of the way, let's jump right into why Navistar, a manufacturer of trucks and engines in the U.S., deserves this week's "honor."

Simply put, investors need to have faith in the management teams of the companies they buy if they hope to be successful. They need to feel that management acts in their best interests, can accurately guide the company in a positive direction, and can convey developments in a clear and accurate manner to shareholders when needed.

For Navistar, it appears the only thing its management team is capable of conveying to shareholders is excuses why its earnings weren't up to par. In fact, producing excuses might be the only leg up Navistar has on its competition. If you don't believe me, here are the various excuses taken directly from Navistar's 10-Q's describing the reasons for its poor earnings performance in two straight quarters:

  • "The first quarter is the weakest period for Navistar due to seasonal downtime in its two largest markets."
  • "Higher year-over-year health-care costs."
  • "The start-up of a new foundry operation."
  • "A brake supplier issue that interrupted truck shipments."
  • "[The] temporary shutdown of a key OEM customer of its South America operations due to the Thailand floods."
  • "Efforts to improve customers' vehicles during a traditionally slow period."
  • "A warranty reserve to repair early 2010 and 2011 vehicles."
  • "Speculation surrounding our engine certification for our Class 8 engine."
  • "[In regard to its truck segment] Unfavorable shifts in military product mix reflective of lower military budgets, industrywide higher commodity and fuel costs, an asset impairment charge of $28 million."

I'm going to just cut it off right there because old "Debbie Downer", aka Navistar, is depressing me and I'm not even a shareholder! But, rest assured, I have more excuses I could have included. These excuses resulted in Navistar's second straight quarterly loss and a considerable drop in its full-year EPS expectations to just breakeven to $2 versus prior expectations of $4.25-$5.25 three months ago.

To the corner, Mr. Ustain
But wait -- there's more!

Don't act surprised... you knew there was more!

It's bad enough that Navistar's management isn't executing on its growth plan, but it's even worse that Mr. Ustain and his team couldn't predict trends three months down the road (or less) if their lives depended on it.

Case in point, Navistar cautioned shareholders in March that the warranty repairs it was making on engines it produced in 2010 and 2011 were at their peak. Well surprise, surprise... they rose again in the following months.

Another example was when the company used the submission of its nitrogen oxide, heavy-duty engine for approval to the Environmental Protection Agency as a bullish note to counteract all of its first-quarter excuses only to turn that bullishness into a second-quarter loss excuse. With no decision imminent from the EPA and a current probe under way that could net the company a fine of $2,000 per engine, Navistar's management can only sit on its hands.

What's more, Navistar's competitors are utilizing its miscues to grow their businesses by leaps and bounds. Westport Innovations (NAS: WPRT) , which modifies engines to run on natural gas, this week announced a natural gas venture with heavy-equipment manufacturer Caterpillar (NYS: CAT) . Westport also has a joint venture with Cummins (NYS: CMI) , a direct competitor to Navistar that reported a 33% rise in profits in the first quarter with a 20% rise in its engine segment. PACCAR (NYS: PCAR) , a maker of light-, medium-, and heavy-duty trucks, also joined the party by reporting a 69% rise in profits in April.

Navistar shareholders have every right to be miffed. Management has done a poor job of predicting near-term results and given shareholders little reason to believe their guidance even now. If Navistar doesn't find the right gear soon, the entire transmission just might blow.

Do you have a CEO you'd like to nominate for this dubious honor? Shoot me an email and a one- or two-sentence description of why your choice deserves next week's nomination, and you just may wind up seeing your nominee in the spotlight.

If you'd like a surefire way to avoid investing in companies with questionable leadership practices, I invite you to download a copy of our latest special report: "Secure Your Future With 9 Rock-Solid Dividend Stocks." This report contains a wide array of companies and sectors that are likely to keep your best interests in mind, regardless of whether the market is up or down. Best of all, it's completely free for a limited time, so don't miss out!

At the time this article was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. He is merciless when it comes to poking fun at CEO antics. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of Westport Innovations. Motley Fool newsletter services have recommended buying shares of PACCAR, Cummins, and Westport Innovations. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that never wears a dunce cap.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.


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Comrodder

@rburnikel - I have to agree with you. As a former employee of Navistar, over the years, I have seen the arrogance of the management, as they try to tell truckers what they are going to want to buy, instead of building what the truckers want. But like the article says, they are good at making excuses. I figure they took a chance on the EGR technology, and lost, but nobody is willing to take responsibility for the failed path. By now, somebody in management should have taken the hit for such a costly mistake to the company, and they should have done an about face, and went with SCR, like the rest of the truck manufacturers. That would also enable them to put a Cummins engine in their trucks also. Hopefully this management move around is just so a different manager can change the direction of the engine technology without the previous manager having to take responsibility for a bad decision. That is just how they operate.

June 10 2012 at 10:10 AM Report abuse rate up rate down Reply
rburnikel

No way I'm going to nominate anyone else. Ustian's going to be the winner by a landslide.

I have over 30 years in the heavy truck business, as a dealer principal and salesperson, including, recently, a few years as an International salesperson, and have experience with many heavy truck OEM's.

Never I have witnessed a truckmaker so out of touch with the market, with such disdain for the needs of its dealers, and such hubris on a grand scale.

To be more specific, any experienced truck salesperson could have told you that their customers have more brand loyalty to the engine (Cummins, for example) than the truck chassis that it's in. When International de-cided to drop Cummins- their primary supplier - to push their own non-SCR engines, that was going to be an immediate drop in market share, not to mention that they did have not have ready the 15 liter version demanded in many markets. And, oh yeah, the 13 liter is still not EPA certified! With all the garbage Navistar has thrown at the EPA in the past several years, how quickly would one think the EPA is going to jump to get this engine certified? And then the 15 liter?

One final note: Any analyst worth his salary should have recognized that the exhorbitant profits coming from the production of military vehicles was going to slow to a trickle.

So now after the disastrous quarterly earnings, they're shuffling people around. Why? To show the Board or investors that they are doing something? What is that going to accomplish? The fundamental problem is that they chose to take an EPA engine emission solution rejected by Cummins, Detroit Diesel, Volvo, Mack,
and Paccar, and they are proving that it has not worked.

June 08 2012 at 7:35 PM Report abuse rate up rate down Reply