As the first major truck maker to report first-quarter earnings, PACCAR Inc. (NASDAQ: PCAR) recognized the toll the coronavirus pandemic took on revenue and profits but cast a generally upbeat view of its fortunes.
The parent of Kenworth Truck Co., Peterbilt Motors and DAF Trucks has been profitable for 81 consecutive years. It has every intention of making 2020 the 82nd.
PACCAR set a record for parts sales in the quarter while also claiming 38% of the industry's Class 8 truck orders in March. PACCAR's inventory backlog grew with about half of the units at bodybuilders who will deliver custom units to buyers this summer.
The Bellevue, Washington-based company delivered 38,400 trucks in the quarter, accounting for a 30.4% share in North America — compared to 30% for 2019 — and 16.7% share in Europe. DAF Brasil's market share increased to 8.7% compared to 6.1% market share in 2019.
"Our company is well built. We have a great position in terms of our liquidity, our cash position [and] product investments," PACCAR CEO Preston Feight told analysts on a conference call. "I feel pretty good."
Inventory levels are rising, Feight said, but PACCAR's 3.4 months of stock is lower than the North American industry average of 3.8 months. Both figures exceed the desired two to 2.5 months of inventory-to-sales ratio.
Even before the coronavirus was declared a global health crisis, PACCAR expected a difficult quarter because so many new trucks had been ordered and produced in 2018 and 2019.
"Our biggest focus right now is seeing our employees are well cared for, and once we take care of that, we'll ramp back up our production and align that to demand and see where that takes us in the second quarter," Feight said.
PACCAR suspended production at its plants globally on March 24. U.S. facilities in Chillicothe, Ohio; Denton, Texas; and Renton, Washington, remain shuttered. Plants in Europe and Australia will be the first to resume gradual production, Feight said.
"As we look at it, we need to have alignment with government agencies and also think about our supply base and stay aligned with them," he said.
Taking employees' temperatures as they arrive at work, issuing personal protective equipment and creating distance between workers accustomed to being in close contact will all be part of the new normal for the foreseeable future.
Like most publicly traded manufacturers, PACCAR suspended financial guidance for future quarters and the full year. Feight pushed away several questions asking for hints to the future, citing an uncertain global economy.
He also rejected a comparison of the COVID-19 crisis to the Great Recession of 2008-2009.
"I don't think it's a fair thing to think of it as an '08-'09 kind of a thing," Feight said. "Each situation is unique.
"We did succeed in '08 and '09 and we're an even stronger company than we were then," he said. "We have $4.3 billion in cash sitting on our balance sheet. We have great liquidity and great access to the [debt] market. That hasn't changed during this time frame."
PACCAR has no manufacturing debt. And it can borrow $3 billion from committed credit facilities. The company tapped about $1 billion in the first quarter to shore up its lending business.
PACCAR earned $359.4 million, or $1.03 per diluted share, in the first quarter of this year, down about 43% from the $629 million, or $1.81 per diluted share, earned in the same period last year.
Revenue was $5.16 billion, down 20% from $6.49 billion earned in the first quarter of 2019.
PACCAR Parts earned record quarterly pretax income of $214.7 million in the first quarter of 2020, up 3% from the $207.6 million earned in the same period last year. PACCAR Parts achieved first-quarter revenues of $998.6 million, compared to the $1 billion reported in the same period last year.
"The business we've built is really strong and is doing a good job of taking care of our customers, and freight continues to move in this environment," Feight said. "So we feel positive about our future and the product we have in the field and those that we're developing."
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