The North American commercial truck market continues to improve and Commercial Vehicle Group (CVGI) had been having a great 2017 compared to other commercial truck suppliers like Cummins (CMI) and Allison (ALSN).
Unfortunately, the company's efforts to restructure its operations (and
reduce costs) and the recovery in off-road vehicle markets like
construction have combined in an unexpectedly bad way, leading to
meaningfully lower margins, a disappointing second quarter report, and a
sharp drop in the stock.
The company's issues with
its non-truck wire harness business aren't going to go away, and the
company's 2017 margins are going to suffer for it. The bad news is that
the company is going to miss out on some of the benefits of this
recovery, and they're not going to get that money back. The better news
is that the truck market is doing better than expected, the company is
doing well in construction on a revenue basis, and the company has made
good progress with operating cost reductions.
Commercial
Vehicle's margin trouble does reduce the short-term fair value and
likely will have the stock in the penalty box for a little while, but
the decline does make the valuation more interesting again for investors
with a longer-term orientation.
Read the full article here:
Commercial Vehicle Skids On Surprisingly Weak Margins
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