PACCAR: A Decent Pick In The Automotive Sector

The United States has one of the largest automotive markets in the world and provides a unique and significant contribution to the U.S. economy. Despite several hiccups, the auto sector is performing well due to increased gasoline sales, changes in consumer demand, and due to a good economy. One of the players in this industry with positive momentum is PACCAR Inc. (PCAR, Financial).

PACCAR is one of the world's largest designers and manufacturers of big rig diesel trucks. It makes light, medium, and heavy trucks for the North American and European markets under the Kenworth, Peterbilt, Foden, DAF, and Leyland Trucks brands. The company operates in three principal industry segments: the Truck segment, includes the design, manufacture and distribution of light-, medium- and heavy-duty commercial trucks; the Parts segment, includes the distribution of aftermarket parts for trucks and related commercial vehicles, and the Financial Services segment, includes finance and leasing products and services provided to customers and dealers in the United States, Canada, Mexico, Europe, and Australia.

Impressive figures posted

On April 21, 2015, PACCAR reported the results for the first quarter of 2015. In the reported quarter, the company’s EPS rose 37.66% ($1.06 per diluted share) from $.77 recorded in Q1 2014. Net income increased 38% to $378.4 million from $273.9 million in the first quarter last year. Consolidated net sales and revenues increased 10% to $4.83 billion from $4.38 billion in the year-ago quarter.

PACCAR’s revenue from Truck, Parts and Other segment increased to $4.54 billion, compared to $4.08 billion a year ago. Pre-tax income in the segment increased to 48.35% to $467.6 million from $315.2 million in the first quarter last year.

PACCAR Financial Services (PFS) has a portfolio of 168,000 trucks and trailers, with total assets of $11.8 billion. Revenues from PFS decreased to $284.7 million compared to $293.7 million in 2014. But, PFS’ first quarter 2015 pretax income increased to $89.0 million compared to $85.5 million earned in the first quarter of 2014.

As of Mar 31, 2015, the company’s manufacturing cash and marketable securities amounted to $2.71 billion, compared to $2.94 billion as of Dec 31, 2014. PACCAR’s net cash provided by operating activities amounted to $476.2 million in the first quarter of 2015 from $285.7 million in the first quarter of 2014. In the reported quarter, PACCAR’s research and development expenses amounted to $56.2 million.

Positive outlook

For enhanced powertrain development and increased operating efficiency of its assembly and distribution facilities, PACCAR has targeted capital investments of $325–$375 million and R&D expenses of $225–$250 million in 2015.

PACCAR increased the leadership for Class 8 industry retail sales in the U.S. and Canada to 260,000–290,000 compared to the 250,000 vehicles sold in 2014. The company expects industry sales in the above 16-ton truck market in Europe in the range of 220,000-250,000 vehicles compared to 227,000 units last year. The company has reduced the industry demand for heavy-duty trucks in South America in the range of 90,000-110,000 units in 2015.

Head to head

After Daimler AG (DDAIF, Financial), PACCAR is ranked second in the North American Class 8 truck market. Other peers in this industry are Navistar International Corp (NAV, Financial) and Volvo AB (VOLVY, Financial). Recently, Navistar reported a second quarter 2015 net loss of $64 million, or $0.78 per diluted share, compared to a second quarter 2014 net loss of $297 million, or $3.65 per diluted share.

Why PACCAR?

Since 2010, PACCAR has started manufacturing its own engines and the MX-13 engine (a 12.9-liter engine expanded with the addition of a 500 horsepower rating with 1,850 lb-ft of torque) restructured in 2013 has created a benchmark in the heavy-duty truck industry. The Kenworth T880 truck with the PACCAR MX-13 engine was honored as the 2015 Commercial Truck of the Year by the American Truck Dealers.

PACCAR is well positioned than its peers because of its rigorous cost control, experienced management team, extensive capital investment, highest quality products, balanced global diversification, and excellent supplier partnerships.

On a concluding note

During the past decade, PACCAR has invested $5.8 billion in world-class facilities, innovative products and new technologies due to its excellent long-term profits, strong balance sheet, and intense focus on quality, technology and productivity. The company is earning net profits for 76 consecutive years and is paying dividends every year since 1941. Further, PACCAR has increased its manufacturing capacity over 15% in the last five years. I am therefore pretty bullish that PACCAR won’t let its valued investors as well as customers down in the long run.

(Source: Company’s Website)