By Bob Tita
Truck and engine manufacturers Fiat Industrial SpA (FI.MI) and
Cummins Inc. (CMI) are counting on rebounding sales of commercial
trucks this year after seeing demand for trucks skid for most of
the past 12 months.
Italy's Fiat blamed a 15% decline in first-quarter profit on a
loss at its Iveco commercial truck and engine unit. Iveco swung to
9-million-euro ($11.7 million) loss in the quarter following a
EUR63 million profit a year ago. Fiat Industrial trimmed it
profit-margin forecast for 2013 to 7.5% to 8.3% from 8.3% to 8.5%,
but Fiat Chairman Sergio Marchionne said he expects Iveco's results
to improve as the year unfolds.
"We think the truck side has bottomed in the first quarter of
this year," Mr. Marchionne said in remarks to analysts. "We need to
see how the market develops for the rest of the year."
Iveco is viewed by analysts as the weakest link in Fiat
Industrial, which also is the holding company for farm and
construction machinery maker CNH Global NV (CNH). The companies are
being combined in an as-yet new entity that is expected to start
trading on a U.S. stock exchange in the third quarter, providing
Fiat executives with an added incentive to improve Iveco's
performance.
Cummins expects strengthening sales of its truck engines in
North America later this year, despite trimming its industrywide
forecast for North American heavy-duty truck production following
the first-quarter when Cummins's truck engine sales dropped 27%
from a year ago and its production volume plunged by 37%.
"We are seeing that increase in production rates has started
here in second-quarter," said Rich Freeland, vice president of
Cummins's engine business during a conference call Tuesday.
Cummins dominates the engine market for heavy-duty trucks in
North America, accounting for about 40% of the engine market. Its
engines are offered in trucks built by Paccar Inc. (PCAR), Navistar
International Inc.(NAV), Volvo AB and Daimler AG's Freightliner
unit.
After a promising start to 2012, demand for commercial trucks
slumped for most of the year, as truck buyers grew cautious over
the strength of the U.S. economy and the growth in the freight
market. The market improved late in 2012, but truck volumes came up
against tough year-ago comparisons in the first quarter.
Cummins Chief Executive Tom Linebarger played down the
likelihood of Cummins's outlook for the North America market
crashing again as it did in 2012.
"It's not [an] aggressive" forecast, he said. "We just don't
see, given our conservative forecast, that there's something that's
going to drop off a bunch more."
The truck market in Western Europe also has been weak. New
commercial vehicle registrations in the Europe Union fell 11%
during the first quarter, according to a Brussels-based trade
group. The market was particularly weak for sales of big trucks
more than 3.5 tonnes, which dropped 16.8% from a year ago. Iveco's
big exposure to Italy's weak economy provides a further headwind
for Fiat Industrial.
Iveco's first-quarter revenue fell 3.9% to EUR1.8 billion, as it
delivered 3.9% fewer vehicles than a year earlier. The lower volume
contributed to Iveco's first-quarter loss along with price
competition and expenses for increasing production capacity in
Brazil. Unfavorable currency exchange rates weighed on profit as
well. Nevertheless, Mr. Marchionne said he is optimistic that
Iveco's performance will improve.
"We will come out of this in relatively good shape by the end of
the year," he said.
--Gilles Castonguay in Milan contributed to this article
Write to Bob Tita at robert.tita@dowjones.com
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