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PACCAR Beats by a Penny

Zacks Equity Research

PACCAR Inc. (PCAR) reported a profit of 83 cents per share in the second quarter of the year, beating the Zacks Consensus Estimate by a penny and increasing 28% from 65 cents in the prior-year quarter. In absolute terms, profits increased 24% to $297.2 million from $239.7 million a year ago.

The improvement in profits reflected strong truck sales in North and South America as well as sound financial services results. However, sluggish growth in the U.S. and the ongoing uncertainty in the Eurozone negatively affected results.

Revenues in the quarter appreciated 13% to $4.46 billion, up from the Zacks Consensus Estimate of $4.27 billion. Pre-tax income grew 26% to $446.3 million from $353.2 million.

Segment Results

Revenues in the Truck and Other segment rose 13% to $4.19 billion. Pre-tax profit in the segment improved 26% to $360.7 million from $286.4 million a year ago.

The company’s DAF nameplate achieved a market share of 16% in the above 15-ton market in Europe in the first five months of 2012. However, the company expects lower industry registrations of 210,000–230,000 units in the above 16-ton truck market in Europe compared with 241,000 units in 2011.

Meanwhile, the company raised its Class 8 retail market share in the U.S. and Canada to 29.9% in the first half of 2012. The company expects higher Class 8 industry retail sales of 210,000–230,000 vehicles in 2012 compared with 197,000 units in 2011 as its customers benefit from higher freight tonnage, improved fleet utilization rates and lower fuel prices.

Revenues from PACCAR Financial Services (PFS) rose 3% to $266.1 million. Pretax profit improved 36% to $77.4 million from $56.9 million in the second quarter of 2011 led by growth in portfolio balances and a lower provision for credit losses. Currently, PFS has a portfolio of 148,000 trucks and trailers, with total assets of $10.21 billion.

Share Repurchase

During the quarter, PACCAR repurchased 3.2 million of its common shares for $123.9 million. In the past 12 months, the company has purchased 12.8 million shares for $477.1 million.

Financial Position
PACCAR’s cash and marketable debt securities was $2.59 billion as of June 30, 2012 compared with $2.90 billion as of December 31, 2011. Long-term remained unchanged at $150 million considering the same period for comparison. Consequently, the long-term debt-to-capitalization ratio remained steady at 2.6% compared with 2.7% as of December 31, 2011.
In the first half of the year, cash flow from operations decreased 44% to $444.0 million from $792.0 million in the same period of 2011, as the improvement in profits was more than offset by unfavorable changes in wholesale receivables on new trucks, sales-type finance leases and dealer direct loans on new truck and all other operating activities.

Meanwhile, capital expenditures rose to $208.7 million from $117.5 million in the first half of 2011 due to new product development. The company has targeted capital investments of $450–$550 million and R&D expenses of $275–$300 million in 2012 for developing new products and enhancing manufacturing operating efficiency.

Our Call

PACCAR is the third largest manufacturer of heavy-duty trucks (with a capacity of more than 15 metric tons) in the world after Volvo (VOLVY) and Daimler (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.

Due to the sluggish growth in the U.S. and economic weakness in Europe, the company currently retains a Zacks #4 Rank on its stock, which translates to a short-term (1 to 3 months) rating of Sell.

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