7 Losers From European Woes

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ACEA reported a 17% year-over-year decline in the European heavy truck registrations in November. The European truck production has the largest incremental impact on Paccar’s (NASDAQ: PCAR) DAF nameplate, Cummins (NYSE: CMI)Eaton Corp (NYSE: ETN)Allison Transmission (NYSE: ALSN)Modine Manufacturing (NYSE: MOD)Commercial Vehicle Group (NASDAQ: CVGI) and Actuant Corp’s Engineered Solutions segment. Total Europe truck registrations were down 17% YoY in November and down 15% sequentially.

It is interesting to note that the list of affected companies includes only one truck manufacturer. The rest are all suppliers of heavy-duty vehicles. The following chart shows the exposure of these companies to Europe. By exposure, I mean the percentage of total revenues contributed by the European operations:

<img src="/media/images/user_15211/capture1_4_large.PNG" />

Future Forecasts

The sell-side has currently forecasted a flat year in 2013 after declines in truck demand in 2012. Volvo expects a flattish year in 2013 as well. However, Paccar expects a modest increase of 5% in this year. The Flash Eurozone PMI index, which typically leads freight, increased slightly in December to 46.3, from 46.2 in November. Most notably, the new orders have declined for 17 consecutive months.

Eastern vs. Western Europe

Western European truck registrations were down 19% YoY in November. For November, Western European truck registrations declined 19% YoY, vs. down 5% in October. On a sequential basis, registrations were down 14%. In November, within the major Western European markets, Germany was down 24% YoY (vs. down 4% in October), France was down 17% YoY (vs. down 5% in October), the UK was down 10% YoY (vs. down 10% in October), Italy was down 31% (vs. down 20% in October), and Spain was down 24% (vs. down 3% in October).

Eastern Europe truck registrations were down 5% YoY in November. For November, registrations were down 5% YoY in Eastern Europe. On a sequential basis, November registrations were down 17%. In November, within Eastern Europe’s two largest markets, Poland was up 9% YoY (vs. down 10% in October) and Czech Republic was down 20% YoY (vs. down 3% in October).

The Only Truck Manufacturer on the List - Paccar

DAF’s share has held steady thus far in 2012. According to ACEA, DAF’s European market share YTD was 15.6% through June (latest month available), which is 20bps above the full-year 2011. DAF’s Western European market share YTD was 14.7% through June vs. 15.1% for full-year 2011, while its Eastern European share increased to 20.6% through June vs. 17.3% last year. PCAR’s management stated in its October earnings conference call that the company’s share in Europe was 16% in Q3’12.


I expect a flat 2013 for European heavy truck demand. For 2011, truck registrations were 239k units, up 34% YoY, with Germany up 23%, France up 42%, the UK up 42%, and Poland up 69%. In 2012, truck registrations are down 8% YTD, in line with OEM guidance: Volvo expects a 5% decline YoY in registrations in 2012, MAN expects a 5% - 10% decline, and PCAR’s European forecast is for a 9% decline. For 2013, Volvo expects a flattish year, with PCAR’s guidance up 5% at the midpoint (assuming a pre-buy related to Euro 6, for which there is no historical precedent). I believe it is too early to determine whether a pre-buy will take place in 2013; while truck prices are expected to increase €10,000-€15,000, according to the JPM European Capital Goods team as well as PCAR management, past emissions changes have led to incentive programs which had the effect of lessening pre-buy activity. In any case, early purchase of units in 2013 likely will be offset by lower volumes in 2014. 

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