What happened? Nothing short of a complete disintegration in the heavy trucking sector. Wells Fargo explains:
November Class 5-8 orders decreased 40% yr/yr and 26% from October. The yr/yr decline was the eighth consecutive month of Class 5-8 contraction. The decline yr/yr was driven by weaker Class 8 order intake. Class 8 orders of 16,600 were below our channel check based 22,000-25,000 expectation, dropped 59% yr/yr and 36% from October (vs. the ten-year average 7% decrease in November from October), and was the weakest order month on a seasonally adjusted basis since August 2010. Clearly, November Class 8 orders slowed to weak levels and were beneath expectations. We estimate the Class 8 order intake translates into a Class 8 backlog decline of about 6-8% from October and 15-18% yr/yr. Further, we estimate that backlog to inventory fell to 1.6-1.7 from October’s 1.82 and remained beneath 2 for the third consecutive month.
Fundamentals appear to be progressively negative for future production trends, especially combining the sub-2 backlog to inventory ratio with a low likelihood for significant near-term order increase, given issues that tend to weigh on orders are becoming more prevalent according to our channel check (i.e., shorter order to delivery lead times and decreased used equipment pricing impact on trade-in values). We believe the Class 8 orders will be a negative surprise to investors and likely weigh on truck equipment related stocks.
And the punchline:
Class 8: Class 8 orders dropped 59% yr/yr to 16,600 and decreased 36% from October. The November orders were beneath our channel check based 22,000-25,000 unit forecast range and also below seasonal trends (below the ten-year average 7% decrease in November from October). This will likely disappoint some investors.