Where Is the Trucking Industry Heading?
Zain is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
At a recent Mid-America Truck Show held in Louisville, Kent., different trucking companies presented their near-term outlooks. The following key takeaways originate from three companies presenting in the conference.
Allison Transmission (NYSE: ALSN)
Allison reported that 100 test-fleet customers achieved 5% stronger fuel economy with its new TC10 transmission for metro heavy duty truck applications (a 60,000 unit market). Navistar is a core OEM partner, and Allison's legacy relationship with Daimler suggests further platform releases are likely.
Management is focused on improving fuel economy and maintenance intervals for its core R&D allocation. Moreover, the company sees a continued shift from hybrid technology to Compressed Natural Gas (CNG) given the sharp decline in natural gas prices. It's interesting to note that the company holds a dominant position in both sets of platforms.
Commercial Vehicle Group (NASDAQ: CVGI)
Chief executive Merv Dunn, chief finance officer Chad Utrup, and head of International Relations John Hyre were all present at this important occasion.
CVG continues to expect moderate recovery in commercial-truck volumes in the back half of 2013. The company further indicated that it has maintained its capacity from prior cycle highs and expects to comfortably support an anticipated volume uptick.
On the other hand, CVG noted that construction-vehicle volumes remain depressed and that visibility into military spending is very limited. Over the longer term, CVG plans to continue to drive growth through acquisitions.
Cummins (NYSE: CMI)
Cummins sees potential for significant share gains in the $2 billion high horsepower gas-compression engine market, where its hedgehog engine is expected to enter production in 2014.
Management is confident in strong operating leverage on its new after-treatment product sales, particularly production for Navistar platforms. While Cummins is still in the early stages of supply chain optimization, its focus on 'Just In Time' daily/weekly production rates drives improved margins at low volume levels once orders normalize.
Management also sees a low break-even point for its Liugong engine JV driven by supplier and machining commonality. The JV facility has 50k units of capacity, and Liugong is targeting complete penetration of its loaders within three years. Moreover, the company is moving forward with its US light-duty diesel platform, citing several potential launch customers.
As far as the after-market segment is concerned, Cummins' management expects the company's after-treatment share in China to exceed its engine-market share based on prerequisite engineering collaboration, though uncertainty over enforcement timing is delaying orders.
The company is intensely working on improving the fuel efficiency of its engines, given that the final user has this factor on the top of its list amid recessionary times. Cummins' 2013 engines improve fuel economy by 2%, with another 3% improvement expected in 2017. Management also outlined a 6% improvement in fuel efficiency on its integrated power train with Eaton transmission.
The bottom line is that the near-term outlook for truck orders seems constructive. There seems to be some major headwinds in the pathway of margin execution, however, given the tepid pricing environment.
Zain Abbas has no position in any stocks mentioned. The Motley Fool recommends Cummins. The Motley Fool owns shares of Cummins. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!