Truck manufacturer Paccar said weak demand for big rigs caused a decline in revenues and profits during the third quarter.
The Bellevue, Wash., company said net income fell almost 20 percent to $346.2 million in the quarter from $431.2 million in same period a year earlier. Pre-tax profit from truck sales totaled $284.9 million, below last year’s $388.3 million, and parts sales declined 5 percent to $138.3 million. Financial services profit plunged to $71 million from $92.9 million, Paccar said.
Total revenues in its trucks and parts businesses dropped to $3.95 billion, down from $4.55 billion a year earlier. Revenues in Paccar’s financial services segment declined to $296.2 million from $301 million. Truck sales came in at $3.17 million in the quarter, down from $3.74 million and parts revenues were reported at $764.8 million versus $778 million last year.
Paccar cited the general negative environment for the trucking industry for the declines.
Overall industry sales of the largest Class 8 trucks in the U.S. and Canada will range from 215,000 to 225,000 this year, according to Paccar’s estimate. That is down from a prior outlook for 220,000 to 240,000. Dealers will sell between 200,000 to 230,000 Class 8 trucks in 2017, the company forecasts. The company’s Peterbilt and Kenworth trucks account for about 31 percent of the Class 8 market share in the U.S. and Canada.
“This happened in the economy around the world, so sometimes (the company’s forecasts) are on the right side and sometimes they’re not,” Ron Armstrong, the chief executive of Paccar, said during a conference call after the earnings report was released. “Next year, based on economic growth expectations, plus some industrial projection improvements and continued strength in the housing and automobile markets, we’re comfortable with the range of 200,000 to 230,000.”
But analysts weren’t convinced.
“That outlook proved to be controversial since many industry forecasters, such as ACT Research and ourselves, expect retail sales to decline in the coming year. Some truck suppliers like Wabco are expecting the North American production outlook to decline as much as high single digits in 2017,” Michael Baudendistel, analyst at Stifel Transportation & Logistics Research Group said in a report to investors.
Geographically, revenues in the U.S. and Canada during the quarter totaled $2.6 billion, down from $3.25 billion a year earlier, while sales in Europe climbed modestly to $1.1 billion from $1.07 billion, the company said.
Truck deliveries in the quarter dropped to 18,800 in North America from 24,200 last year as slack demand for new trucks led to lower production levels. Production in Europe, however, increased slightly to 11,600 trucks from 11,100 during the same quarter a year ago.
“Our approach has always been to build based on demand of our customers and our dealers and our actions with respect to production will reflect that,” Armstrong said. “We achieved record market share in the U.S. and Canada of 31 percent. We’ll continue to build based on what that market demand looks like. Inventories are in great shape so I would think retail would be closely tied to production levels as we move forward.”
Armstrong said he’s optimistic about the upcoming year, especially in the U.S. and Canada, as economic indicators are pointing toward a stronger market.
The labor market continues to improve as unemployment sits at about 5 percent, a level most economists say is nearing so-called full employment. The housing market continues to be strong, as do auto sales in North America. That will improve freight demand, which in turn will lead to increased need for trucks.
Truck and parts sales in the fourth quarter will fall about 5 percent due to more holidays and a slower build rates, Paccar said. The company increased its outlook for capital spending from a range of $375 million to $400 million to $375 million to $425 million, with research and development at $270 million to $300 million, including developing driver connectivity and updating its parts distribution facilities.
Paccar also plans to open a new facility in the Chicago area and will add additional capacity at its facility in Salt Lake City, Armstrong said. The company said it will continue to invest in becoming more efficient and use more technology in its business processes and factories to cut costs.
The company also launched its proprietary tandem axle in North America, which is designed to reduce vehicle weight by up to 150 pounds and improve fuel economy. Paccar also said it will improve its MX-11 and MX-13 engines for 2017, increasing horsepower to 430 and 510, respectively. Fuel economy will increase by 4 percent for the engines, the company said.