PACCAR Inc. ( “>PCAR )  delivered earnings per diluted share (EPS) of 33 cents surpassing the Zacks Consensus Estimate of 31 cents and increasing eight folds from the year-ago EPS of 4 cents. The factors driving EPS were increased sale of trucks and parts and globally improved profits of Financial Services.

Net sales as reported by the company were $2.54 billion, in line with the Zacks Consensus Estimate, but surpassing the year-earlier quarter sales of $2.01 billion by 26%.

Segmental Performance

Revenue in the Truck and Other segment spiked 31% to $2.3 billion, moving ahead of $1.8 billion in the year-ago quarter. The company’s DAF brand acquired 15.8% of market share for the first eight months of fiscal 2010, driving the sales in the positive direction.

Cost of Sales in the reported segment increased 22% to $2.02 billion from $1.65 billion in the prior-year quarter; while selling, general and administrative expenses accelerated to $94.3 million, increasing 8% year over year. The segment also incurred research and development expense amounting to approximately $59.9 million, surging 38% year over year.

The pre-tax profit in the segment improved significantly to $129.8 million from $6.2 million a year ago.

Though Financial Services revenues dropped 5.6% to $238.3 million from $252.5 million in the year ago quarter, the pre-tax profit increased more than double to $41.5 million from $18.1 million in the prior-year quarter. The increase in profits was due to better finance margins and improved portfolio performance.

Financial Position

PACCAR’s Cash and marketable debt securities amounted to $2.4 billion as of September 30, 2010, up from $2.1 billion as of December 31, 2009. Long-term debt dropped significantly to $150 million from $172 million as of December 31, 2009.

The company’s debt-to-capital ratio improved to 2.7% as of September 30, 2010, however, it was 3.3% in the first half of fiscal 2010.

Cash from operations surged significantly to $1.2 billion for nine months ended September 30, 2010 from $864 million as of December 31, 2009, due to improved sales and revenues, while capital expenditure for the same period increased to $115.8 million from $76.3 million as of December 31, 2009, due to the acquisition of property and plant and ongoing new product development.

Dividend

For the second quarter, the company increased its cash dividend by 33% to 12 cents from 9 cents. The increased dividend will be payable to stockholders of record at the close of business on November 19, 2010.

Outlook

The company’s premium nameplate DAF has become the industry leader in most of the European countries, with more than 20% market share. DAF’s eyes 20% market share in 15-tonne truck market in the near future. The estimated sales in this market, particularly in Europe, are 160,000–170,000 units. With the improvement in European economy, industry sales for fiscal 2011 will be in the range of 200,000–220,000 units.

Class 8 industry sales of vehicles are expected in the range of 120,000–130,000 in 2010, with year-over-year improvement of 10%–15%. Due to old age fleet and general economic growth, industry retail sales are expected in the range of 160,000–180,000 units.

The company is planning to introduce its DAF vehicles in South America, along with the construction of a manufacturing facility in Brazil.

Our Take

PACCAR continues to gain market share, especially with its DAF nameplate. In 2010, the DAF label achieved a market share of 15.8% in the above 15-ton market, the highest share in its 81-year history.

Further, PACCAR expects to benefit from its fastest-growing businesses, PACCAR Parts and PACCAR Financial Services. With the anticipated sale of units and proposed expansion of business across the globe, the company is preparing to achieve the leadership position. We are currently recommending a Hold rating on PACCAR, with a Zacks #3 Rank in the short term over the next one-to-three months.

 
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