Transportation Company Earnings Summary 2Q 2021

Aug. 20, 2021

Robust truck demand is constrained by supply chain shortages. Truck manufacturers have reduced visibility of near-term production schedules

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Key Takeaways

  • Truck demand is very strong given current robust economic and freight fundamentals, many order books are filled for the remainder of 2021
  • New truck production schedules have reduced visibility given supply chain shortages
  • Semiconductor supply chain is the main bottleneck, and there is no certainty of when the issue will be resolved
  • Higher raw material cost inflation from steel and copper are adding pressure to operating margins. Many manufacturers have increased prices for model year 2022 to cover higher costs

Most truck manufacturers cite very strong demand, driven by a rapid recovery following the global pandemic. Supply chains are experiencing critical parts shortages (particularly for semiconductors), as component manufacturers struggle to keep up with higher demand from many industries. Many experts believe the semiconductor shortages could persist for most of 2021 and into 2022, which could impact truck production schedules.

Higher input costs (steel, copper, etc) were cited as a margin headwind, and manufacturers are increasing prices for new orders to cover higher costs.

Below are key takeaways from truck manufacturers' second quarter 2021 earnings reports.

Company Outlooks

Company Outlook Date
Meritor Positive 8/4/2021
Cummins Positive 8/3/2021
Paccar Neutral 7/27/2021
Daimler Neutral 7/21/2021
Volvo Trucks Neutral 7/20/2021
Navistar Neutral 6/8/2021

Meritor

"The labor shortage in North America as well as the global supply chain constraints have created a demanding environment," said CEO Chris Villavarayan.

"Overall, rapid cost increases in freight and steel have impacted our results throughout the year, and a price correction does not seem imminent. As a result, we're driving additional efficiencies in our operational performance, and we're working with our customers to recover costs due to these high inflationary pressures."

"Given the strong demand we see across our global markets, we are raising our production guidance. In North America, we now expect Class 8 production to be approximately 285,000 units, near the upper end of our previous range of 270,000 to 290,000 units. Orders have been in line with our expectations as build slots are full for the remainder of 2021 and 2022 order books are not fully open. In Europe, we are raising our production outlook to approximately 415,000 units, an increase of 35,000 to 55,000 units from our prior view. We had expected European production to sequentially step down in the third quarter. However, production came in stronger at 101,000 units, which was closer to what we experienced in the second quarter. As a result, this consistent production level is providing us confidence to increase our full-year estimates. In Brazil, strong demand continues, and we now expect production of approximately 145,000 units, which would be the highest truck production in this region since 2014," said SVP & CFO Carl Anderson.

Cummins

"Strong demand across many of our key markets drove continued sales growth in the second quarter, particularly in North America, and resulted in solid profitability," said Chairman and CEO Tom Linebarger. "The strength of the order board reflects robust underlying demand in many of our markets which is remarkable considering the challenges and uncertainty we faced during this same period last year. I cannot thank our employees and the employees of our supply base enough for their unwavering contributions during these challenging times given the significant supply chain constraints we continue to experience in our industry."

"Demand remained strong in the second quarter as the global economy continued to improve. Driving strong sales growth across most businesses and regions and resulting in solid profitability. We are encouraged by economic trends across a number of our key end markets which point to strong demand for the remainder of this year and extending into 2022."

"In North America freight activity continues to grow, leading to elevated spot and contract rates and driving fleet profitability and a rising backlog of truck orders. Leading indicators for non-residential construction continue to improve and fiscal support for investment in capital projects is robust, led by North America and Europe. Iron ore, copper and thermal coal prices also remain high supporting a positive outlook for mining. Cummins is well positioned to benefit as these markets gain momentum due to our leading global position across a number of end markets and we continue to see demand for our products outpace our competition."

"Underlying demand remains strong outpacing supply and increasing backlogs in some of our largest markets. Global supply chains remained constrained due to the elevated levels of demand and complications arising from COVID resulting in higher premium freight costs and other associated inefficiencies than we anticipated three months ago," said Mark Smith, CFO.

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Paccar (Kenworth & Peterbilt)

Mike Dozier, Paccar SVP, said, "Freight tonnage, industry truck utilization and customer demand for new trucks are strong. Customers appreciate the enhanced fuel efficiency and advanced technology in Kenworth and Peterbilt’s new heavy- and medium-duty trucks launched this year."

"Customer demand is strong for the new range of DAF trucks due to the vehicles’ innovative design, increased fuel efficiency and enhanced driver comfort,” noted Harry Wolters, DAF president. European truck industry registrations in the above 16-tonne segment are estimated to be in a range of 270,000-290,000 vehicles this year. DAF European above 16-tonne registrations market share is 16% year-to-date.

"PACCAR Parts achieved record results due to robust industry truck utilization, industry-leading supply chain management and parts availability, and ongoing investments in e- commerce," noted David Danforth, PACCAR vice president and PACCAR Parts general manager. “PACCAR Parts has made many enhancements to its e-commerce platform, such as superb parts cross-referencing and integration with customers’ parts procurement systems. PACCAR Parts’ e-commerce sales increased 56% in the second quarter compared to the same quarter last year."

"So as has been discussed in recent months, industry truck production has been tempered by the under-supply of semiconductor chips. Kenworth, Peterbilt and DAF had a good quarter and delivered 40,100 trucks with an additional 6,500 awaiting key components. While it's very dynamic, we currently anticipate supplier constraints improving toward the end of this year," said CEO Preston Feight. "Wish we could give you more clarity on how that semiconductor supply is going to proceed through the third and fourth quarter, but we just don't have any more than that right now."

"There was a lot of uncertainty around the supply base and the deliveries in the third quarter and beyond, a lot of that will depend on the ability of the supply base to deliver, especially in the semiconductor area," said Harrie Schippers, President and CFO.

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Daimler (Western Star and Freightliner)

"The order books are full and the supply side will ultimately determine the 2021 sales numbers, while we continue to ramp up our production further. We are literally sold out for this year in North America, as well as in Europe and haven't opened the order books for next year. Therefore, incoming orders are lower than in the last two quarters. This situation will significantly increase as soon as orders for calendar year 2022 will be accepted. Demand is still very strong, and our backlog is stable on an exceptional high level," said Martin Daum, CEO, Trucks & Buses.

"Demand is solid and strong. It's all about limited production capacities and pressures on the supply chain."

"This year, higher cost for raw materials, especially for steel and especially headwinds caused by the supply constraints had a significantly negative impact."

"We assume that the worldwide shortage of supply of semiconductor components will affect our business also in the second half of the year. We also recognized that the visibility how the supply situation will actually develop further is currently low."

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Volvo Trucks

"Overall, freight markets have continued to be strong and our customers’ utilization of their trucks high, which were reflected in a strong service business and continued good order intake. Colleagues in the Group are doing their utmost trying to keep up with demand. We managed to deliver close to 46,000 trucks despite the disturbances in the supply chain, which forced us to temporarily halt truck production corresponding to close to a month."

"Our bus business has been severely impacted since the outbreak of the Covid 19 pandemic when many tourist bus operators were forced to stand still. However, with the easing of restrictions in many markets, fleet utilization has started to improve from low levels.

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Navistar (International)

"Around the world, truck markets recorded a very strong recovery, while bus markets recorded significant growth in the first half of 2021," stated in Traton earnings report.

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