Paccar Sales Top Expectations for Fourth Quarter

January 29, 2019 by Cyndia Zwahlen

Paccar Inc., which makes Peterbilt and Kenworth trucks, reported higher pretax profits and record revenue for the fourth quarter of 2018. Sales and profits for the full year also were up.

The results were driven in part by record trucks sales of 50,400 in the fourth quarter and better supply chain performance, the company’s chief executive, Ron Armstrong, said in a call with stock analysts Tuesday.

“During the quarter we incurred some additional material and labor costs due to supplier constraints, but conditions improved compared to the third quarter, and by the end of the fourth quarter supplier deliveries to the factories were in good shape,” Armstrong said.

The company invested in some suppliers to help build capacity and, in some cases, recover from area hurricanes, he said. So far this year, suppliers are keeping up with demand, Armstrong said.

Paccar, which has 28,000 employees, runs three main businesses: commercial truck design and manufacturing, parts sales, and financing.

Revenue, profits gain

Fourth-quarter revenue for all operations was $6.28 billion, a 15 percent increase over the year-ago period. Net income for the quarter was $578 million, down 1.9 percent from $589.2 million a year ago, when Paccar received a one-time tax benefit of $173.4 million due to federal tax reform. Without that nonrecurring boon, year-ago fourth-quarter net income would have been $415.8 million.

For the full year, Bellevue, Wash.-based Paccar posted double-digit increases in both profits and revenue. Profits were up 31 percent at $2.2 billion in 2018 compared with $1.68 billion in 2017. Revenue climbed 21 percent to $23.5 billion for the year compared with $19.46 billion in 2017.

Despite some industry observers’ fears of an economic slowdown and the potential drag on freight levels and truck demand, Paccar said it expects 2019 to be another year of strong truck sales.

Improved forecast

The company raised its 2019 forecast for U.S. and Canada Class 8 truck sales to a range of 285,000 to 315,000 trucks. It had estimated sales of 280,000 to 310,000. In 2018, the industry sold 285,000 trucks, a 30 percent jump over 2017 sales, according to Paccar.

The company said globally it delivered a record 189,100 vehicles last year.

Strong outlook

Risks to Paccar financial performance include more disruptions to its supply chain, raw material price hikes and the end of the industrywide peak truck sales cycle if the economy softens and freight volumes decline, according to Baird Equity Research. But the analyst group said Paccar’s profit outlook remains strong.

“Longer term, we would expect margin-growth trends to continue due to an improved cost structure, engine in-sourcing in North America and higher aftermarket contribution,” the analyst group wrote in a recent research report.

Trucks

Paccar sells its trucks worldwide. About 53 percent of the company’s new trucks are delivered in the U.S. and Canada. About 36 percent are delivered in Europe, where it sold a record number of its DAF trucks in 2018.

Its European market share grew to 16.6 percent last year for the 16-ton truck sector. The company’s goal is to have 20 percent of that market.

Overall, the company said European truck industry registrations for trucks above 16 tons could grow slightly or decline by 9 percent this year. There were 319,000 registrations last year, and it expects a range of 290,000 to 320,00 this year.

Parts

Paccar is heavily invested in its aftermarket-parts business, including the recent opening of a new distribution center in Toronto. Fourth-quarter pretax profits for this unit climbed 24 percent to $193.8 million compared with the year-ago period. Revenue for the quarter was a record $970.9 million, an 11 percent increase over the year-ago quarter.

Financial Services

Paccar’s PacLease company, a unit of its financial services group, has a global fleet of 39,000 vehicles. Pretax income from leasing as well as purchase loans increased 21 percent in the fourth quarter to $87.2 million, compared with the year-ago period. Demand for used trucks remains strong, the company said. Its truck resale values are 10 percent to 20 percent higher than those of competitors’ trucks.

Toyota’s Andrew Lund, left, and Kenworth’s Brian Lindgren with Kenworth’s T680 fuel cell truck this month at the Consumer Electronics Show. (Photo: Alan Adler/Trucks.com)

Focus on innovation

Paccar’s Innovation Center in Silicon Valley, open just a year, is focused on developing Level 4 autonomous truck technologies, Armstrong said. The company is working with partners as well as developing its own technologies.

The company also is working on advanced diesel fuel technologies, as it expects diesel to be the fuel of choice for long-haul trucking into the near future.

Paccar expects alternative fuels to be a better match for regional trucks or port drayage operations. At the Consumer Electronics Show in Las Vegas this month it showcased three zero-emission vehicles, two battery electric-powered trucks and a hydrogen fuel cell electric Kenworth T680 it developed with Toyota.

Though the new technologies are still in the “demonstration phase,” a small level of production could start next year.

Read Next: CES 2019: Toyota/Kenworth Team to Build 10 Fuel Cell Trucks

Leave a Comment

Your email address will not be published.