North / South America
Kenworth, Peterbilt, Cummins, Mack and Volvo to reduce production in the US
Jul, 30 2012
-- Paccar says third-quarter truck builds will be down 10% from second quarter
-- Volvo says it will idle assembly lines to reduce production
-- Truck operators delaying purchases of new trucks
Commercial truck makers Paccar Inc. (PCAR) and Volvo AB (VOVLY, VOLV-B.SK) disclosed Tuesday they intend to reduce production in response to weakening demand for trucks in the U.S.
Paccar, the builder of Kenworth- and Peterbilt-branded trucks, said it plans to lower third-quarter truck volume by 10% compared with its second-quarter volume. Paccar said trucking companies have pulled back on their orders and appear content to maintain their existing fleets of trucks until the outlook for U.S. economy becomes clearer.
"As we talk to customers, they say: 'We'll just run these [trucks] a little bit longer and see what happens for the next six months'," said Paccar Chairman and Chief Executive Mark Pigott during a conference call. "I think the industry is in a pause. Everybody is facing the same demand."
Sweden's Volvo, the manufacturer of Mack-branded trucks, said its production rates have been too high, as its North American truck orders plunged 47% during the second quarter compared with a year earlier. Volvo said it will idle assembly lines for two to three weeks during the third quarter in an attempt to balance production volumes with truck sales.
Earlier this month, truck-engine maker Cummins Inc. (CMI) lowered its 2012 revenue estimate and warned that second-quarter revenue would be lower than analysts' expectations, citing softening demand for commercial trucks in the U.S.
Nevertheless, Volvo CEO Olof Persson said the trucking industry is in good shape overall, with truck lines reporting high utilization rates for trucks already in service.
"The secondhand values on trucks that we see in U.S. right now, together with the fact that our spare-parts sales are up double digits [on a percentage basis], means that fleets are running," Mr. Persson said. "That creates an underlying demand and that has to be weighed [against] the uncertainty you have on the macroeconomics."
Even after Paccar scaled down its industry-wide sales forecast for the U.S. and Canada this year, the company said it predicted industry-wide sales of heavy-duty trucks would increase about 12% this year from 2011.
Industry analysts say trucking companies have been able to hold down mileage on their trucks because of more efficient operations and greater reliance on railroads for cross-country freight hauling. Moreover, choppy freight volumes and the prolonged slump in the U.S. construction industry eliminated incentives for truck operators to expand their fleets or replace older trucks.
"They're making money. They're just sitting on their hands and preserving as much cash as they can," said J.B. Groh, an analyst for D.A. Davidson & Co. "It's all highly dependent on the economy."
Paccar reported second-quarter revenue in the U.S. and Canada rose 26.2% to $2.62 billion. Truck revenue overall, which includes Europe, increased 12.5% to $4.19 billion. Paccar reported a overall profit from the quarter of $297.2 million, or 83 cents a share, up from a year-earlier profit of $239.7 million, or 65 cents a share. Analysts expected per-share earnings of 82 cents on revenue $4.22 billion.
Volvo said its second-quarter profit fell to 4.94 billion kronor ($708 million), from SEK5.24 billion a year earlier. Volvo also builds construction machinery, which accounts about 20% of its sales.
Paccar's stock closed up 0.56% at $37.98 a share.
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