Transportation Company Earnings Summary 2Q 2021

Key Takeaways

• Truck demand remains extremely high due to strong economic growth and improved freight conditions. Many manufacturers are fully booked through the rest of 2021.
• New truck production has become more unpredictable because of ongoing supply chain disruptions.
• The semiconductor shortage is the main issue, with no clear timeline for resolution.
• Rising costs of raw materials like steel and copper are squeezing profit margins. Many companies have raised prices for 2022 models to offset these increases.

Most truck manufacturers are reporting very strong demand, driven by a rapid recovery from the global pandemic. However, supply chains are struggling with critical parts shortages, especially semiconductors, as component makers can't keep up with rising demand across multiple industries. Experts believe that semiconductor shortages could continue throughout 2021 and into 2022, which may affect truck production schedules.

Higher input costs—such as steel and copper—are putting pressure on profit margins. As a result, many manufacturers are increasing prices for new orders to cover these rising expenses.

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

Company Outlooks

Meritor

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

"Rapid cost increases in freight and steel have impacted our results this year, and a price correction doesn’t seem imminent. To address this, we're driving operational efficiencies and working with customers to recover some of these costs due to high inflationary pressures."

"Given the strong demand we see globally, we’re raising our production guidance. In North America, we now expect Class 8 production to be around 285,000 units, near the upper end of our previous range. Orders have been in line with expectations, and build slots are full through the remainder of 2021. In Europe, we’ve increased our outlook to about 415,000 units. Brazil is also showing strong demand, with production expected to reach 145,000 units—the highest 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, resulting in solid profitability," said Chairman and CEO Tom Linebarger.

"The strength of the order book reflects robust underlying demand in many of our markets, which is remarkable considering the challenges we faced last year. I want to thank our employees and those in our supply base for their unwavering support during these difficult times, especially given the significant supply chain constraints we continue to face."

"Demand remained strong in the second quarter as the global economy continues to improve. We are encouraged by economic trends in several key end markets, which point to strong demand for the rest of the year and into 2022."

"Underlying demand remains strong, outpacing supply and increasing backlogs in some of our largest markets. Global supply chains remain constrained due to elevated demand and complications from the pandemic, leading to higher freight costs and 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.

"PACCAR Parts achieved record results due to robust industry truck utilization, industry-leading supply chain management, 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."

"While it's very dynamic, we currently anticipate supplier constraints improving toward the end of this year," said CEO Preston Feight. "We 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."

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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 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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