Global truck and parts giant PACCAR (NASDAQ: PCAR) capitalized on continued healthy demand from its customers during the fourth quarter of 2018. In earnings released on Jan. 29, the Fortune 500 manufacturer -- based in Bellevue, Washington -- notched double-digit revenue growth due to momentum in both its heavy truck and parts businesses. Note that in the discussion that follows, all comparative numbers are presented against the prior-year quarter (the fourth quarter of 2017):
The raw numbers
|Metric||Q4 2018||Q4 2017||YOY Change (Decline)|
|Revenue||$6.28 billion||$5.45 billion||15.2%|
|Net income||$578.1 million||$589.2 million||(1.9%)|
|Diluted earnings per share||$1.65||$1.67||(1.2%)|
Data source: PACCAR. YOY = year over year.
What happened with PACCAR this quarter?
The company set a quarterly record for net sales on the back of a record delivery of 50,400 trucks worldwide.
- Its DAF nameplate trucks achieved market share of 16.6% in Europe (versus 15.3% in the prior-year quarter) in the 16-ton-plus truck market.
Truck, parts, and other revenue increased 15.8% to $5.9 billion. Management was particularly pleased with parts performance, with revenue improving 10.6% to $970.9 million. The parts business recorded pre-tax net income of $193.8 million, a 24% improvement over the prior year.
- Gross margin in the truck and parts segment of 14.2% improved by 0.5 percentage points, even as PACCAR registered record truck shipments.
The company's financing and leasing segment, PACCAR Financial Services, earned $87.2 million on $347 million in revenue, representing a 21% jump in operating income.
While PACCAR's total income before taxes rose nearly 25% to $752.4 million, net income dipped roughly 2% as shown in the table above. This is a result of a one-time tax benefit of $173.4 million recorded in the fourth quarter of 2017, from year-end 2017 U.S. tax legislation.
PACCAR celebrated its 80th consecutive year of profitability in 2018, a streak management wants investors to recognize, given the cyclicality of truck manufacturing.
The company participated in the CES electronics show in Las Vegas in January 2019, and was the only vehicle manufacturer to exhibit trucks. The company featured three zero-emissions vehicles: the battery-powered Peterbilt models 579EV and 220EV, and the Kenworth T680 -- powered by a hydrogen fuel cell -- which is being developed in partnership with Toyota.
Continuing a trend in recent years, PACCAR issued a special dividend of $2 per share in January 2019. The company also raised its quarterly dividend by 14% to $0.32 per share, effective the first quarter of 2019.
The organization repurchased $201.2 million of its own shares in the fourth quarter, bringing full-year 2018 repurchases to $354.4 million, against zero repurchases in 2017.
Image source: PACCAR.
During PACCAR's earnings conference call, CEO Ron Armstrong observed that heavy truck demand remains elevated. Armstrong indicated that despite recent supplier issues, PACCAR is again poised for record manufacturing and delivery in the current period:
During the quarter, we incurred some additional material labor cost due to supplier constraints, but conditions improved compared to the third quarter. By the end of the fourth quarter, supplier deliveries to the factories were in good shape. Our Peterbilt, Kenworth, and DAF factories and purchasing and supplier management teams again did a fantastic job of managing production, delivering a record number of trucks, and achieving the highest operating margins in the industry. In the first quarter, we're expecting slightly higher deliveries compared to the fourth quarter.
While PACCAR doesn't provide its shareholders with earnings guidance, the company does share its outlook on economic conditions and selected operational and financial metrics.
Management expects U.S. gross domestic product to adhere to forecasts calling for 2% to 3% growth in 2019 -- which should be positive for the truck manufacturing industry. In addition, high fleet utilization by freight shippers (a consequence of tight capacity in the truck transportation market) bodes well for both truck and parts sales.
Management expects that truck and parts gross margin will increase to roughly 14.5% in the first quarter of 2019. Executives also anticipate truck deliveries to improve by 15% in the first quarter against the first three months of 2018. Finally, parts sales are projected to continue expanding at a healthy clip: Management has penciled in 5% to 8% year-over-year growth for this high-margin revenue stream in 2019.
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