If you've followed the trucking industry for a while, you probably already know that upcoming changes to European and American emissions standards should put the brakes on sales of new trucks before too long. But the geopolitical concerns that are affecting other sectors are having an effect on truck builders, too. Just listen to what Volvo
"I worry about what is happening in the Middle East. Partly because of the direct effect it is having on our sales, partly because it can drive oil prices up. It can create worldwide unrest that depresses world trade. War doesn't benefit anybody," said CEO Leif Johansson in last Friday's earnings call (lovingly translated from the original Swedish by Yours Truly.)
Turning a conference call into an admonition about the pointlessness of war is a truly Swedish move. But Leif is right, at least regarding his own industry. When international conflicts drive up oil prices, as they have done recently, few sectors suffer the way truckers do.
And when trucking companies like Old Dominion
I'm not sure that Volvo will feel the pain immediately. This quarter saw a solid 19% net income increase year over year and a doubling of operating income, and both measures beat analyst estimates on either side of the Atlantic. The company has a backlog of North American truck orders stretching into 2007, even with the factories running at full capacity. Revenue is recognized when the finished truck ships out, not at the time of placing the order, so there is plenty of revenue left to haul in before the downhill slide begins.
There are 21 analysts following the company on the American side, and their opinions on Volvo currently balance out at a "hold." The hometown analyst community is equally unsettled, with some trading houses upgrading Volvo after the earnings report, and others going the other way. Volvo does have plans far into the future, including heavy trucks with diesel-electric hybrid engines and diesel engines far exceeding the new, more stringent European and American emissions standards. But it looks like the downturn is coming. The question is when, and how hard.
Further Foolish reading:
- Are we prepared for the next big disaster?
- Volvo was doing good last quarter, too.
- One Fool gives Volvo a humble bronze medal.
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Fool contributor Anders Bylund owns shares in Volvo but holds no other position in the companies discussed. Foolish disclosure is as steady as an 18-wheeler rolling down I-75. You can check outAnders' holdingsfor yourself.