(Reuters) - Truck and engine maker Navistar International Corp appointed Chief Operating Officer Troy Clarke as its chief executive, replacing interim CEO Lewis Campbell who came out of retirement to lead the company through a rough patch.

Campbell, a former Textron Inc chief, took over as Navistar's CEO in August after the company fired Daniel Ustian over the failure of its new generation diesel engines.

Under Campbell, Navistar cut jobs, sold interests in non-core joint ventures, raised money by selling shares and avoided a proxy fight with Carl Icahn by agreeing to appoint new board members.

"When I assumed the interim CEO role last August, I was prepared to stay as long as necessary to oversee the company through a transition period, and today I am pleased to announce our turnaround is firmly underway and our return to profitability is clearly in sight," Campbell said in a statement.

Shares of Navistar, which reported a narrower quarterly loss and an improved cash balance on Thursday, rose 8 percent to $26.98 before the bell on hopes that the worst is over for the company.

Navistar had struggled with profitability after the U.S. Environmental Protection Agency denied approval for its new diesel engine. Unlike rivals Paccar Inc and Volvo AB , the company was attempting to limit emissions of the greenhouse gas nitrogen oxide without using additive urea.

Navistar later abandoned that effort, saying it would develop a new model that uses emission controls more in line with industry standards. It is paying fines for every noncompliant engine it had installed.

RESULTS IMPROVE

First-quarter loss narrowed to $123 million, or $1.53 per share, from $153 million, or $2.19 per share, a year earlier. Excluding some items, it reported a loss of $1.42 per share.

Manufacturing revenue fell 12 percent to $2.6 billion.

Analysts expected a loss of $1.76 per share on revenue of $2.81 billion, according to Thomson Reuters I/B/E/S.

Navistar expects its market share to start improving in the second half of 2013 and said cash balance at the end of the first quarter was $1.19 billion, above its forecast range of $950 million to $1.05 billion.

Lisle, Illinois-based Navistar said it was on track to exceed its goal of reducing structural costs by $175 million this year.

The company said it has also identified additional cost savings to further lower its breakeven point in 2013.

Activist investor Icahn, who owns a near 15 percent stake in Navistar, proposed merging the company with rival Oshkosh Corp in 2011. Former CEO Ustian had supported Icahn's proposal, but Oshkosh was against it.

Icahn tried to take full control of Oshkosh last year but failed to win shareholder support.

(Reporting by A. Ananthalakshmi in Bangalore; Editing by Rodney Joyce, Supriya Kurane)