The trucking industry has been in the news recently, especially after the market viewed some optimism in the last earnings season. Performance of this industry is important, as it is a leading indicator of the health of the economy. Recently, some numbers relevant to the trucking industry were released, which can help us understand the industry’s performance.
Positive numbers
ACT Research released NAFTA original equipment manufacturer (OEM) build and retail sales data for the month of May, with industry builds coming in at 23,300, up from 22,700 in April but still down from 27,400 in May 2012. May represents the fifth-consecutive month of sequential growth in Class 8 builds (+2.5% month-over-month on a sequential basis). The May data is supportive of the view of a relatively healthy, replacement-driven NAFTA Class 8 market.
Moreover, it suggests that the gradual improvements in monthly build rates thus far in 2013 reflect a NAFTA Class 8 market that seems to be on somewhat firmer footing following a period of choppy/declining builds. Class 8 backlog was flat at 85,800 (vs. 85,700 in April), reflecting order and build rates that have generally trended inline with one another over the past several months and supporting the point of view that orders will need to remain at least in the low 20,000/month range to maintain current backlog levels.
Which companies will benefit?
Positive numbers tell us that the industry is gradually improving but it doesn’t tell us which companies are performing well. Let’s have a look:
Navistar (NYSE:NAV)’s Class 8 retail sales share for May was 12.5% (down from 13.9% in April). Although it is important for Navistar to demonstrate some progress on driving market share improvements over time, it is not unusual for Navistar International Corp (NYSE:NAV) to have a decline in market share in the first month of its fiscal quarter (Navistar’s retail sales share has declined in May in seven out of the previous 10 years, with an average decline of 140 bps over that time period matching the decline in this month’s data).
Hence, Navistar International Corp (NYSE:NAV)’s share could remain subdued/choppy in the near term, but the market is cautiously optimistic that as FY 2013 progresses, and especially in FY 2014, Navistar International Corp (NYSE:NAV) could continue to gradually ramp-up production and retail share with its Cummins Inc. (NYSE:CMI)’s ISX15L-equipped ProStar as well as with its proprietary 13L-equipped ProStar.
Cummins – The savior
And who can forget Navistar’s disastrous engine strategy employed by former CEO Dan Ustian? It was in April that Navistar was finally able to solve its engine problems. The truck maker announced that the Environmental Protection Agency (EPA) had finally blessed the company’s 13-liter engine, which paved the way for customer delivery to begin by April’s end.
This wasn’t some trivial matter for Navistar International Corp (NYSE:NAV), which in the last year and a half ran dead smack into regulatory and legal issues that threatened the life of the company. For those not familiar with the story, Navistar made a big bet on an engine design that failed to win EPA approval and as it started running low on emission “credits,” there was a thought Navistar International Corp (NYSE:NAV) might have to shut down its engine line.
