The transportation business is cyclical, and PACCAR (NASDAQ: PCAR) has gone through what most consider to be a normal cyclical downturn over the past year or so. In particular, weakness in North America has weighed on PACCAR's results in recent quarters, and coming into Tuesday's fourth-quarter financial report, PACCAR investors were prepared to see more declines in revenue and net income. PACCAR wasn't able to make its top and bottom lines grow, but it did continue to see important market share gains in key areas. Let's look more closely at PACCAR to see what its latest report says about the truck maker's future.
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Image source: PACCAR.
PACCAR sales, earnings fall
PACCAR's fourth-quarter results showed the continuing cyclical headwinds that the truck and parts manufacturer faces. Revenue from areas outside the financial services unit fell more than 7% to $3.77 billion, and that was even worse than the 5% drop that most investors were looking to see. All told, net income was down 17% to $288.8 million, and that produced earnings of $0.82 per share. That figure was below the $0.86 consensus forecast among those following the stock.
Looking more closely at PACCAR's results, the company blamed the earnings shortfall on lower truck deliveries within the North American market. That definitely showed up in the company's segment numbers, which showed much bigger revenue declines in the U.S. and Canada, compared to smaller drops in Europe and small gains in PACCAR's rest-of-world region. New truck deliveries saw the same trends, with a decline of 1,500 units to 14,400 in the U.S. and Canada. European deliveries fell just 200 to 14,800, and deliveries elsewhere were up 200 to 4,700.
From a business-unit perspective, the truck segment suffered 9% lower sales that cost it nearly 30% in pre-tax profit declines. By contrast, parts revenue was up almost 2% and sent pre-tax profit for the segment up almost 10% from year-ago levels. The financial services unit has mixed performance, with gains in revenue but a double-digit percentage drop in pre-tax income.
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Yet despite tepid financial performance, PACCAR still managed to gain market share. The company's Kenworth and Peterbilt divisions boosted their share of the Class 8 retail truck market by more than a full percentage point to 28.5%, and the DAF unit saw almost as much improvement in the above 16-tonne market in Europe, boosting share to 15.5%.
CEO Ron Armstrong was concise in his praise for the company. "PACCAR's financial results reflect the company's premium-quality products and services, increased European truck deliveries, higher truck market share, and good aftermarket parts and PACCAR Financial Services results," Armstrong said.
What's coming down the road for PACCAR?
Looking forward, PACCAR has a lot of enthusiasm about its immediate future. In the words of its CEO, the company is "well-positioned for long-term growth with investments in new state-of-the-art DAF, Kenworth, and Peterbilt vehicles; durable PACCAR engines; innovative aftermarket parts and service capabilities; factory enhancements; and truck technologies that increase vehicle fuel-efficiency and reliability." In particular, the company pointed to several accomplishments over the past year, including the new Kenworth T610 truck's introduction in Australia, a new parts distribution center in Washington state, and the planned construction of a new paint facility in Belgium with environmentally friendly features.
One thing to keep in mind is that PACCAR's financial services unit is an integral part of its overall business. The division has a portfolio of 178,000 trucks and trailers, the value of which exceeds $12 billion. Offering lease options to customers is essential to maximize their financial flexibility in making use of PACCAR-built equipment, and even though pre-tax profit for the unit was down from 2015 levels, the company's strong balance sheet nevertheless puts it in a good position to keep customers coming in the door.
PACCAR investors weren't entirely satisfied with the truck maker's results, sending the company's stock down about 2.5% at the beginning of regular trading following the announcement. Nevertheless, despite normal cyclical oscillations, PACCAR appears to have everything in place to keep moving forward with innovative products, efficient operations, and smart strategic vision that can tap into global growth in the years to come.
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