Truck market recovering? Mack's 1Q deliveries decline but orders surge

[kscarbel2]

The Morning Call  /  April 25, 2017

Mack Trucks delivered a mixed load of numbers in its first quarter, dragged down by lower output totals but propelled forward by a surge in orders logged during the first three months of 2017.

First, the bad: Mack delivered 3,925 trucks worldwide during the first quarter, a 24 percent decrease from 5,176 in the year-earlier period, according to a report released Tuesday by Mack's parent company, Sweden's Volvo Group.

While deliveries declined as expected, both the Mack and Volvo truck brands experienced a sizable increase in net order intake in North America, driven by "higher activity within the construction segment and a somewhat improved freight environment combined with low dealer inventories," Volvo wrote in the report.

Mack received 5,703 orders in North America during the first quarter, up 39 percent from 4,117 a year earlier. Meanwhile, Volvo received 5,596 orders in the quarter, up 19 percent from 4,687 in the year-earlier period.

In addition, Volvo wrote in the report, Mack and Volvo both gained market share in North America during the quarter. The Volvo Trucks brand now has 9.4 percent of the North American market, while Mack reached 8.9 percent.

Mack employs about 1,480 people at its Lehigh Valley Operations, which includes its 1-million-square-foot Lower Macungie Township facility, where all Mack trucks built for the North American market and export are assembled.

While heavy-duty truck orders ticked up in North America, Volvo noted that dealer inventories for used long-haulage trucks remain elevated, which "continues to dampen demand for new trucks in this segment despite indications of an improving freight environment."

Improving freight fundamentals and continued strength in orders were two factors analysts from Stifel considered when they, in March, increased the firm's heavy-duty truck production outlook for 2017 and 2018.

Stifel now expects North American heavy-duty truck production to total 215,000 units in 2017, up from its previous estimate of 200,000. Similarly, Stifel also boosted its 2018 outlook by 15,000 to 245,000 units.

But despite the better-than-expected order data, Stifel in a March 22 note said a "certain amount of caution is warranted as retail sales, freight rates, and truckers' profitability levels point to a scenario where orders slow during the coming months."

Stifel cited data from Americas Commercial Transportation Research that showed the industry is still oversupplied and has 6 to 7 percent too many trucks, primarily because of the strong production volumes seen in 2014 and 2015.

In addition, Stifel wrote, freight rates have remained "flattish" and spot rates, or what shippers pay for individually booked freight loads rather than those under a long-term contract, are still below contract rates.

"Therefore," the analysts wrote, "the recent uptick in orders have come more in anticipation of a recovery in the freight markets rather than reacting to an improvement in the freight markets.

"That gives us concern regarding whether the recent order pattern is sustainable."

[james j neiweem]

No wonder Volvo keeps Mack around. What will Volvo do if Mack overtakes them?

Edited April 26, 2017 by james j neiweem