Truck market could normalise in the run up to 2024 – supply threats remain

Truck market could normalise in the run up to 2024 – supply threats remain

If transport demand continues to stagnate and order intake slows, the market could turn from exceptional to normal again in the run up to 2024. Looming new frictions in fragile global supply chains remains a threat. As the truck industry is indirectly connected to supplies from Asia, Covid-19 policies may also lead to increased uncertainty. In operations, high sick leave rates combined with a tight labour market and risks of strikes also lead to risks for ambitious production schedules.

How are Volvo Trucks, Daimler Truck and Paccar performing and what is their outlook?

Volvo Trucks, Daimler Truck, and Paccar are three of the six companies dominating the European heavy truck market. We take a look at their financial performance and their outlook:

In short:

  • Truck manufacturers showed broad year-on-year operational improvements in 1Q22.
  • Orderbooks remain healthy with no cancellations seen so far.
  • Supply chain issues receding but still feature this year.

A confident start to the year for Daimler Truck

Daimler Truck had a strong start to 2022, with an increase in unit sales, revenues, and adjusted operating profit in the first quarter of the year. During this period, the company had unit sales of 109,300 for trucks and buses (up 8%YoY), revenues of €10.6bn (up 17%YoY), and adjusted earnings before interest and taxes (EBIT) of

€651mn (up 11% YoY). Encouragingly, during Daimler Truck’s annual general meeting (AGM) held on 22 June, the company’s management indicated that the first quarter might be the weakest of this year due to delivery bottlenecks, which also affected the prior year and were felt more acutely between January and March.

Daimler Truck feels that overall macroeconomic conditions continue to be relatively favourable for the global demand for commercial vehicles for 2022. The company anticipates an increase in the unit sales of the industrial business in the range of 500,000-520,000 in 2022 (from 455,400 units in FY2021). The truck manufacturer continues to target a significant increase at group level in FY2022 and has upgraded its full-year sales target to €48.0bn to €50.0bn following the 1Q results from €45.5bn to €47.5bn previously (and compared to €39.8bn in FY2021). Furthermore, Daimler Truck expects a “significant increase” in the adjusted EBIT in FY2022. The updated outlook reflects the currently-anticipated effects of the Russian invasion of Ukraine and the ongoing semiconductor shortages, while the additional uncertainty of a further potential Covid-19 pandemic still remains. On 27 February 2022, Daimler Truck suspended all business activities in Russia until further notice and took a charge of €170mn, with an anticipated further charge of €200mn to potentially be taken at a later point.

The company's management also commented during its AGM that, as a result of the supply chain bottlenecks, there was a significant number of unfinished truck inventory at the end of 1Q22, with some critical parts still missing. Daimler Truck expects that such inventories will remain elevated for the coming quarters, but will reduce gradually by the end of this year. Against this backdrop, the order backlog is very strong according to the company. Management believes that customers are so far behind in their fleet renewals that they are not in a good position to defer new purchases until later, in spite of the deteriorating overall macroeconomic outlook. On balance thus far, Daimler Truck is not observing order cancellations and therefore remains optimistic about the remainder of the year.

Paccar – still anticipating market growth this year

Paccar reported a good set of numbers for the first quarter of 2022, with worldwide net sales and revenues of $6.5bn (up 11%YoY), including net sales and revenues in the Truck, Parts and other segment of $6.1bn (up 13%YoY). Paccar had deliveries of 43,000 trucks during the quarter. According to the company, truck unit sales reflected higher deliveries in Europe, partially offset by lower unit deliveries in the US and Canada due to industry-wide shortages of semiconductor chips and component products. Paccar anticipates that the shortages will continue to affect deliveries in 2022.

The company’s truck revenues were $4.7bn in 1Q22, up 11%YoY, primarily due to higher realised truck prices. In the US and Canada, Europe and Mexico, South America, Australia and Other, truck sales increased by 1%, 29%, and 18%YoY respectively for the reported quarter.

With regards to profitability, the Truck, Parts & Other segment’s income before income taxes was $627m, up 19%YoY for the reported quarter. The Truck income (before income taxes) was $277m, up 2%YoY.

At the time of the 1Q announcement, the company’s outlook for FY2022 expected that the truck industry heavy-duty retail sales in the US and Canada will be between

260,000 and 290,000 units compared to 250,000 in 2021. In Europe, Paccar expects the

2022 truck industry registrations for vehicles over 16 tonnes to reach 270,000 to 300,000 units compared to 278,000 in 2021. In South America, Paccar expects heavyduty truck industry registrations in 2022 to reach 125,000 to 135,000 compared to

127,000 in 2021. In 2022, the company expects its Parts sales to increase by 1215%YoY, reflecting a robust freight demand.

Volvo Group also sees demand ahead of its available supply

In 1Q22, Volvo Group had sales of SEK105.3bn, up 12%YoY and up 11%YoY when adjusted for currency changes and a divestment of UD Trucks. Volvo Group's Trucks division contributed SEK69.6bn during the reported quarter, up 31% YoY on a comparable basis when excluding the effect of the UD Trucks divestment, and up 23%YoY when additionally excluding the currency effects. In 1Q22, the company had an adjusted operating income of SEK12.7bn, up 7%YoY, with the respective margin declining to 12.0% from 12.6% in the comparable prior-year quarter. The higher adjusted operating income reflected the effect of higher prices and sales volumes, partially offset by higher material and freight costs as well as lower earnings in joint ventures.

The Trucks division’s adjusted operating income was SEK8.7bn, up 16%YoY, with the respective divisional margin of 12.5% (compared to 12.8% in 1Q21). Volvo Group's unadjusted operating income was SEK8.6bn, down 29%YoY, driven by the Russiarelated charges taken during the reported quarter. The company had total assets of SEK9bn related to Russia and took SEK4.1bn related provisions. The operating income in 1Q22 also reflected a positive effect of SEK1.3bn from currency movements.

Volvo Group noted that transport activity across most regions was quite good and that demand for trucks was high. The company said it had large order books and that current delivery times are long, making the group more restrictive with its order slotting. This had an adverse effect on order intake during the reported quarter (with truck order intake down 43%YoY in 1Q22, excluding UD Trucks) relative to the particularly elevated 1Q21 levels.

The supply chain continued to be strained, primarily due to shortages of semiconductors and other component parts combined with a lack of freight capacity. This caused production stoppages throughout 1Q22 which are expected to recur in the future. However, in 1Q22 truck deliveries increased by 6%YoY, to 55,600 vehicles (a record level for a first-quarter). Volvo Group also highlighted cost inflation and anticipates that inflationary pressures will continue. On a more positive note, Volvo Group received an order in March from Maersk for 110 Volvo Electric trucks, the single largest commercial order of the company's electric trucks.

Source: It’s all about capacity in the truck market | Article | ING Think

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