Summary:
PACCAR's third-quarter 2014 earnings of $1.04 per share surpassed the Zacks Consensus Estimate of $0.96 and surged 19.5% year over year. The increase was led by strong truck sales in the U.S. and Canada, and sturdy aftermarket parts and financial services results, globally. Revenues rose 15% to $4.93 billion, surpassing the Zacks Consensus Estimate of $4.55 billion. PACCAR has a strong market share in the U.S. and Canada. Moreover, it is expanding in key non-U.S. markets and deploying capital regularly to boost earnings. However, PACCAR's sales in Europe are declining. It also faces intense competition in the commercial trucks market and the Financial Services segment. Therefore, we are reiterating our Neutral recommendation on the stock.
Overview:
Headquartered in Bellevue, WA, PACCAR Inc. 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, and has substantial manufacturing exposure to light/medium trucks (with a capacity of 6 15 metric tons). Out of overall truck sales, roughly 61.9% were from the U.S. and Canada, 24.9% from Europe and 13.2% from Mexico, South America, Australia and others in the first nine months of 2014. The company also provides customer support for its products by supplying aftermarket parts as well as finance and leasing services. PACCAR has two principal business segments: 1) Truck, Parts and Other and 2) Financial Services.
In the Truck, Parts and Other segment (which generated 93.5% of total revenue in the first nine months of 2014), PACCAR designs, manufactures and distributes commercial vehicles and related aftermarket parts. The trucks are built in plants across the U.S., Europe, Australia, Canada and Mexico. These are used worldwide for over-the-road and off-highway hauling of freight such as, petroleum, wood products, construction and other materials. Commercial trucks and related aftermarket parts constitute the largest part of the company's business. PACCAR has a long-term agreement with Cummins to provide a continued supply of engines, not manufactured by it.
PACCAR Trucks distributes premium light, medium and heavy-duty trucks under the Kenworth and Peterbilt nameplates in the U.S. and Canada. The company operates in the European light/medium market under the DAF nameplate through its wholly owned subsidiary, Leyland, in the UK. PACCAR also exports the DAF vehicles to the Middle East, Australia and Africa. PACCAR International distributes the Kenworth, Peterbilt and DAF trucks outside their primary markets in more than 100 countries. PACCAR is expanding its dealer network across the world, especially in Asia. The Kenworth nameplate is also marketed and distributed by foreign subsidiaries in Mexico and Australia, known as PACCAR Mexico (KENMEX) and PACCAR Australia, respectively. The company also operates a parts distribution network under PACCAR Parts, offering aftermarket support to Kenworth, Peterbilt and DAF dealers, and customers around the world.