Transportation Company Earnings Summary 2Q 2021

Key Takeaways

• Truck demand remains extremely high, supported by strong economic conditions and a booming freight sector. Many manufacturers have filled their order books through the rest of 2021.
• New truck production schedules are becoming more unpredictable due to ongoing supply chain disruptions, especially in critical components like semiconductors.
• The semiconductor shortage is the biggest obstacle, with no clear timeline for resolution. This has led to delays and reduced output across the industry.
• Rising costs of raw materials such as steel and copper are squeezing profit margins. To counter this, many manufacturers have raised prices for 2022 models.

Most truck manufacturers are reporting very strong demand driven by an accelerated recovery from the global pandemic. However, supply chains are under significant pressure, particularly with shortages of key parts like semiconductors. Component suppliers are struggling to keep up with rising demand from multiple industries, which is causing further delays in production.

Many experts believe that the semiconductor crisis could last well into 2022, which may affect production timelines and availability of new trucks. Additionally, increasing input costs—especially for steel and copper—are creating challenges for manufacturers. In response, companies are raising prices on new orders to offset these rising expenses.

Below are key insights from truck manufacturers’ second-quarter 2021 earnings reports.

Company Outlooks

Meritor

CEO Chris Villavarayan said, "The labor shortage in North America and global supply chain constraints have created a challenging environment."

He added, "Rapid cost increases in freight and steel have impacted our results throughout the year, and a price correction doesn’t seem imminent. As a result, we're focusing on improving operational efficiencies and working with customers to recover costs due to these inflationary pressures."

Meritor also announced an increase in production guidance. The company now expects Class 8 production in North America to reach approximately 285,000 units, near the top of its previous range. In Europe, production is expected to rise to around 415,000 units, reflecting stronger-than-expected demand.

Cummins

Chairman and CEO Tom Linebarger stated, "Strong demand across many of our key markets drove continued sales growth in the second quarter, particularly in North America, resulting in solid profitability." He emphasized that the strength of the order book reflects robust underlying demand despite ongoing supply chain challenges.

CFO Mark Smith noted, "Underlying demand remains strong, outpacing supply and increasing backlogs in some of our largest markets. Global supply chains remain constrained due to elevated levels of demand and complications from the pandemic."

Cummins also highlighted positive trends in freight activity, non-residential construction, and mining, all of which are contributing to strong demand for its products.

Paccar (Kenworth & Peterbilt)

Mike Dozier, SVP at Paccar, 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."

Paccar Parts reported record results, driven by strong industry truck utilization, efficient supply chain management, and improved e-commerce capabilities. E-commerce sales increased by 56% in Q2 compared to the same period last year.

Despite challenges with semiconductor shortages, Paccar remains optimistic about production improvements later in the year. However, uncertainty around component supply persists.

Daimler (Western Star and Freightliner)

Martin Daum, CEO of Daimler Trucks & Buses, said, "Order books are full, and the supply side will ultimately determine 2021 sales numbers. We are literally sold out for this year in North America, Europe, and haven't opened the order books for next year."

He also mentioned that the semiconductor shortage is expected to impact operations in the second half of 2021. Despite these challenges, demand remains strong, and the backlog continues to grow.

Volvo Trucks

Volvo reported strong service business and continued good order intake, despite supply chain disruptions. The company had to temporarily halt production for nearly a month due to component shortages.

However, the bus business has been significantly affected by the pandemic, though recent easing of restrictions has led to improved fleet utilization.

Navistar (International)

According to the Traton earnings report, truck markets recorded a strong recovery globally, while bus markets saw significant growth in the first half of 2021.

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