PACCAR Inc. (PCAR) reported a 69% increase in profits to $327.3 million in the first quarter of 2012 from $193.3 million in the same quarter of 2011. On per share basis, the increase was 72% to 91 cents from 53 cents, exceeding the Zacks Consensus Estimate by 11 cents.
Net sales and Financial Services revenues surged 45% to $4.8 billion, which was higher than the Zacks Consensus Estimate of $4.1 billion. The rise in sales and profit was attributable to strong truck sales in North America and higher revenues from financial services assets and aftermarket.
The North American truck market benefited from increased freight tonnage and higher fleet utilization rates that drove the replacement of aging on-highway fleets. However, economic crisis in Eurozone resulted in lower industry truck orders during the quarter.
Segment Results
Revenues in the Truck and Other segment soared 48% to $4.5 billion. Pre-tax income jumped 75% to $398.8 million during the quarter.
Revenues in the Financial Services segment rose 8.5% to $261.4 million during the quarter. Pretax income increased 42% to $71.3 million from $50.3 million in the first quarter of 2011 driven by lower borrowing costs and growth in portfolio balances.
Financial Position
PACCAR’s cash and marketable debt securities amounted to $2.8 billion as of March 31, 2012, down from $2.9 billion as of December 31, 2011. Long-term debt remained unchanged at $150 million as of March 31, 2012 compared with 2011-end.
Cash from operations slashed to $126.3 billion in the quarter from $459.3 billion in the same quarter of 2011 due to substantial rise in wholesale receivables on new trucks. Meanwhile, capital expenditures increased to $70.7 million from $62.2 million in the first quarter of 2011.
Guidance
PACCAR believes industry sales in the above 16-ton truck market in Europe will go down to 210,000-230,000 units in 2012 from 241,000 last year, reflecting challenging market conditions in Eurozone. However, the company believes industry retail sales in the U.S. and Canada will increase to 210,000-240,000 vehicles in 2012 from 197,000 in 2011 due to the ongoing replacement of the aging truck population.
The company has targeted capital expenditures of $450-$550 million and research and development expenses of $275-$300 million in 2012 in order to boost product lineups and manufacturing operating efficiency.
PACCAR also aims to will expand its global network of 15 strategically located parts distribution centers (PDCs) in 2012. It plans to construct a 280,000-square-foot PDC in Eindhoven, the Netherlands by investing $40 million. The PDCs in Madrid, Spain and Lancaster, Pennsylvania will also enhance their capacity by adding a combined 100,000 square feet of warehouse.
Our Take
PACCAR is the third largest manufacturer of heavy-duty trucks (with a capacity of more than 15 metric tons) in the world after Volvo and Daimler (DDAIF), and has substantial manufacturing exposure to light/medium trucks (with a capacity of 6-15 metric tons). Overall sales are 41% in the U.S., 34% in Europe and 25% in Rest of the World.
The company also provides customer support for its products with the supply of aftermarket parts, finance and leasing services. Currently, it retains a Zacks #3 Rank on its stock, which translates to a short-term (1 to 3 months) rating of Hold.
