Downside of commercial vehicle purchasing cycle snares Meritor

As excess truck capacity flooded the market and demand cooled, spot rates declined materially, requiring most truckload (TL) fleets to reassess their truck needs. The result has been a precipitous decline in new truck orders. As the industry continues to work through the current overbought position, new Class 8 truck orders are running well below standard replacement levels. FreightWaves estimates replacement demand to be 250,000 to 300,000 units on an annual basis. Currently, the industry is only placing new orders at a seasonally adjusted annual rate (SAAR) of 150,000 units.

“New truck orders have been negative on a year-over-year basis for 10 straight months dating back to November 2018 and in recent months have been tracking down more than 80 percent year-over-year,” according to FreightWaves senior research analyst Seth Holm.

The combination of well-below replacement level truck capacity being scheduled for production, carriers exiting the market through bankruptcy/failure and new industry regulations around electronic logging devices (ELDs) and hiring (a driver drug and alcohol clearinghouse), the downside of this heavy truck production cycle appears to be well underway.

In its fiscal third quarter 2019, Meritor reported earnings per share of $1.20, well ahead of the consensus estimate of $0.98 as gross margin increased 5.3 percent year-over-year to $179 million and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) increased 8.1 percent to $146 million.  

Meritor has 9,300 employees across its network of manufacturing and engineering facilities, distribution centers and global offices in 19 countries.

Shares of MTOR were off 3.5 percent on the day.