Paccar Rides Strong Truck Sales to Record Revenue

January 30, 2018 by Emma Hurt, @Emma_Hurt

Paccar Inc., the maker of Peterbilt and Kenworth trucks, reported record revenue and its second highest second-highest annual profit in company history in 2017.

The results come from improved North American market share coupled with a strong European truck market and solid numbers from Paccar’s parts business, said Ron Armstrong, the company’s chief executive said in a call with investors Tuesday addressing fourth quarter and year-end earnings.

The the sheer growth of Paccar trucks on the roads as well as investments in technology and distribution also bolstered its annual profits, said Armstrong.

The Bellvue, Wash. company earned $415.8 million in the fourth quarter of 2017, more than doubling $288.8 million profit it reported the same period a year earlier.

When taking into account $173.4 million in tax benefits from recent changes in federal tax law, the fourth quarter profit was the equivalent of $589.2 million.

The company’s quarterly revenue of $5.45 billion was about 35 percent more than last year’s $4.07 billion.

For the full year, profits of $1.5 billion nearly quadrupled over 2016 results. This is the company’s 79th consecutive profitable year.

The 2016 results were depressed by $833 million the company paid in a European Commission price fixing settlement. Revenues for 2017 were a record $19.46 billion, a 14 percent increase.

While the earnings beat analysts’ expectations, some expressed concern about lower-than-expected gross margins in the quarter.

In a research note, Goldman Sachs analyst Jerry Revich said the result raised “questions on production ramp-up costs and pricing.” When asked about it on the call, Armstrong referenced higher material costs and fewer production days during the holiday season.

Last year, Peterbilt and Kenworth grabbed 2 percent more market share in the U.S., bringing it to a record 30.7 percent.

Although market share in 2017 was up, Michael Baudendistel, an industry analyst with Stifle Financial, said it could come down. “We suspect some of that market share gain was related to strength from vocational customers.”

This year, a majority of trucks sales will come from the return of large fleets to the marketplace, Baudendistel said.

The company has benefitted from a strong economic climate boosting freight demand, said Gary Moore, Paccar executive vice president. Moore expects the growth to continue in 2018, and projects North America will sell between 235,000 and 265,000 trucks.

Paccar’s aftermarket parts segment performed well in the quarter, with $157.2 million in profit, up 14 percent. The parts business comprises just under 20 percent of Paccar’s portfolio. In 2017, it added new distribution facilities in Australia and Panama, and plans to open another in Toronto, Canada this year.

Technology also is top of mind for the 113-year-old company. The company is investing in technology with an eye toward the federal government’s next phase of greenhouse gas emissions regulations that will kick in for model year 2021, said Armstrong.

Last year Paccar spent $264.7 million on research and development of new truck models, hydrogen fuel cell technology, aerodynamic truck designs, connectivity and advanced safety systems.

While it is investing in zero emissions technology, Paccar will only compete in the electric truck space when “those vehicles become economical to our customers,” he said.

Paccar opened a center in Sunnyvale, Calif. to focus on emerging technologies in July. It plans to grow its research and development investment to between $280 and $310 million in 2018.

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