Preliminary April Truck Orders:April Class 8Orders 13,700Units,Down 39%YoY-ALERT

ACT Research released preliminary truck orders for April. In our currentcoverage, truck orders have the largest incremental impact on NAV, PCAR,CMI, ALSN (primarily Class 6-7 and Class 8 straight truck), and ETN. InApril, Class 8 net orders were 13,700 units, down 39% YoY and down 16%MoM. Orders were down again YoY in April following March’s weak ordertotal (16,354 units) and April was the lowest monthly order total since July2012. Class 5-7 April net orders were 20,100 units (up 12% YoY but down10% MoM). Overall, US macro indicators for truck purchases are mixed withthe ISM New Orders Index up 2.8% YoY in April, following March's 7.6%YoY growth, however, New Orders were down 4.3% MoM. The truck-relatedstocks have outperformed the market YTD (up 33% vs. S&P 500 up 2%) eventhough orders have now declined YoY for the last 14 consecutive months onan expectation that the market will recover in 2017, in our view. For 2016, weforecast a 28% YoY decline and we expect the stocks to underperform onApril’s order figure.

    Class 8 April net new orders were down 39% YoY, down 16%sequentially. For April, net orders were 13,700 units, down 39% YoY anddown 16% MoM. We expect 232,375 units of production for 2016 (down28% YoY). PCAR & CMI may underperform on the weak HD orders.

    Class 5-7 April net new orders were up 12% YoY, down 10%sequentially. April orders were 20,100 units, up 12% YoY but down 10%MoM. We expect 244,200 units of production for 2016 (up 3% YoY).NAV & ALSN may outperform on the solid MD orders.

    Leading indicators mixed. According to our analysis, the New Orderscomponent of the ISM Manufacturing Index tends to be the best leadingindicator of future freight trends and truck orders. Specifically, the yearover-year change in New Orders has historically led year-over-year changein the Cass Freight Index (our preferred broad-based indicator of freighttrends) by 6-9 months. The ISM New Orders Index declined MoM to 55.8in April, the fourth consecutive reading above 50, but it was up 2.8% YoY,the second straight YoY expansion implying a potential increase in freight6-9 months from now. The Cass Freight Index was down 1.5% YoY inMarch (latest month available); we note, though, that Cass includes railfreight and may be less of an indicator of overall freight, so we also look atthe ATA Truck Tonnage Index, which increased 2.2% YoY but declined4.4% MoM to 137.6 in March.