Volvo truck deliveries: North America cracks

by SR on September 18, 2012

Volvo North America truck deliveries by year and month (units)

Where’s the catalyst?

Conclusion: truck stocks have performed well in 2012, have more downside than upside and should be avoided for now. While Volvo is only one company, it is the world’s second largest truck supplier and gives us an indication of what’s happening around the globe. The August figures contained a couple of surprises (Europe was relatively good, for example) but nothing that would make me really want to go out and buy truck stocks. In native currency terms, many truck stocks have posted solid increases so far in 2012 and one has to wonder whether they will be able to keep these levels going forward. Why not look at bombed-out machinery stocks like Komatsu instead?

There has been a bit of a relief rally in truck share over the past week, yet I can’t think of any obvious reason to forecast an imminent and sustainable recovery in truck sales in Europe. Meanwhile, North America is just coming off a stellar 24-month run of strong truck sales and buyers probably need to digest their purchases for 6-12 months. Japan – see Hino’s share price below – is seeing the benefits of reconstruction work after the Tohoku earthquake, but that’s of uncertain duration. And if you think China is turning around you can choose from hundreds of stocks exposed to China, not just Sinotruk and Weichai (though the latter’s dire performance makes it a tempting candidate).

Global truck stocks share price performance since the beginning of 2012 (%)

North American weakness reflects poor book-to-bill ratio

The Volvo group’s truck deliveries in August 2012 were 14,999 units, contracting by 3.6% year-on-year and falling 15.1% month-on-month. For the period January to August 2012 total deliveries have reached 147,551 units, up just 0.1% over the same 8 months in 2011.

North America deliveries came to 3,287 units (+6.2% year-on-year, but -25.9% month-on-month). Year-to-date North American deliveries have risen 38.9% compared to the same period in 2011, but the chart at the top of this page shows how sharp the dip was in August. The median change in North America deliveries for the month of August since 2001 is +13.8%, yet in August 2012 deliveries fell 25.9% MoM, very close to the worst figure of 26.2% MoM posted in August 2006 and way below trend for this time of year. Having said that, this was not really a surprise, because when Volvo announced its June quarter results on 24 July 2012 it disclosed a disconcertingly low book-to-bill ratio for the North American business of 0.58x (see chart immediately below). So we knew this was coming.

Volvo trucks, unit-based book-to-bill ratio by region

Europe actually a bit better

What was a bit of a surprise was Europe. Eastern Europe had a great month, rising 53.8% YoY and falling 15.9% MoM to 1,484 units but then again that is only 9.8% of total deliveries. Deliveries in Western Europe fell 2.1% YoY and fell 28.8% MoM to 3,133 units. If that doesn’t sound particularly strong to you, consider that the median change for the month of August relative to July has been -41.1%. This -28.8% MoM was actually the smallest change for the month of August for Volvo for more than a decade. It’s just one figure, but it’s intriguing.

Eastern Europe also posted an unusually small month-on-month decline for August. Note in the chart below how in June to August 2011 (the blue line) deliveries in Eastern Europe slowed sharply and only stabilised at a much lower rate of growth. In 2012 (the red line) there has been no such sudden step down.

Volvo Eastern European deliveries, cumulative year-to-date (units)

South America good, for now

Deliveries in South America in August 2012 were very robust, rising by 37.1% compared to July 2012 when the usual sequential increase for August would be half that or less. Deliveries came to 2,326 units, down 21.5% year-on-year. This is not a surprise as the book-to-bill ratio was high levels going into this quarter (see chart above) and there might also be some impact from the attempts being made by the Brazilian government to stimulate the auto and truck markets. I still think that unless the commodities markets pick up spending in Brazil will remain subdued and that truck demand will slump once again.

Volvo truck deliveries in South America by year and month (units)

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