Earnings Preview: PACCAR

Zacks

PACCAR Inc. (PCAR) would release its results for the second quarter of 2012 before the market opens on July 24. The heavy-duty trucks manufacturer posted a profit of 91 cents per share in the first quarter of the year, surpassing the Zacks Consensus Estimate by 11 cents.

In the upcoming quarter, the Zacks Consensus Estimate for the company is a profit of 82 cents per share, reflecting annualized estimated growth of 26.70%.

With respect to earnings surprise, the company has outperformed the Zacks Consensus Estimate in three of the trailing four quarters and missed in one, delivering an average earnings surprise of 8.63%.

The Zacks Consensus Estimates for full-year 2012 is $3.33. The downside risk of the second quarter and full year estimates, essentially a proxy for future earnings surprises, would be about 3.66% and 2.70%, respectively.

First Quarter Review

PACCAR witnessed a 69% increase in profits to $327.3 million in the quarter from $193.3 million in the corresponding quarter of 2011. Net sales and Financial Services revenues went up 45% to $4.8 billion, beating the Zacks Consensus Estimate of $4.1 billion.

The year-over-year growth in revenues and profit was driven by strong truck sales in North America and higher revenues from financial services assets and aftermarket. The North American truck market had a favorable impact from increased freight tonnage and higher fleet utilization rates that led to the replacement of aging on-highway fleet. However, economic crisis in Eurozone resulted in lower industry truck orders during the quarter.

The company expects that industry sales in the above 16-ton truck market in Europe will decline to 210,000-230,000 units in 2012 from 241,000 last year, due to challenging market conditions in Eurozone. However, it 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, driven by the ongoing replacement of the aging truck population.                                            

Estimate Revisions Trend

Estimates for the second quarter were fluctuating over the past 90 days. Over the last 30 days, the number of downward revisions exceeded upward revisions.
 
Agreement of Estimate Revisions

Over the last 30 days, one out of 14 analysts covering the stock has revised the estimates upward while five of them moved it downward. The downward pressure in estimates can be attributable to lower industry sales guidance. Over the last seven days, one of the analysts made an upward estimate revision and another revised it downward.  

For 2012, none of the analysts out of the fifteen covering the stock has revised the estimates upward while six moved it downward over the last 30 days. Over the last week, none revised the estimates upwards while two analysts moved it downward.

Magnitude of Estimate Revisions

Following the first quarter earnings release, estimates for the second quarter and full year 2012 have been raised by 4 cents to 85 cents and 16 cents to $3.52, respectively. This can be attributed to PACCAR’s higher profit during the quarter and better performance of the segments.

Estimates for the quarter increased by 4 cents to 85 cents over the last 60 days from 81 cents over the past 90 days. However, the estimates declined by 2 cents to 83 cents over the past 30 days. Further, it declined by a penny to 82 cents.

Our Take

Headquartered in Bellevue, Washington, 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 AG (DDAIF) and has substantial manufacturing exposure to light/medium trucks (with a capacity of 6–15 metric tons). The company also provides customer support for its products with the supply of aftermarket parts, finance and leasing services.

The company faces tough competition in the truck segment in commercial truck markets in the U.S. Canada and Europe. In the Financial Services segment, PACCAR competes with banks, other commercial finance companies and financial services firms, which may have lower costs of borrowing and higher leverage.

Currently, the company retains a Zacks #4 Rank, which translates into a short-term (1 to 3 months) Sell rating and we have a long-term (more than 6 months) Neutral recommendation on the stock.

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