Peterbilt, Kenworth Trucks Power Paccar to Record Revenues, Strong Profits

July 23, 2019 by Jerry Hirsch, @Jerryhirsch

A robust global truck market powered Paccar Inc. to strong profit growth and record revenues in the second quarter.

The maker of Peterbilt and Kenworth trucks posted a net income of $619.7 million for the quarter. That was a 10.7 percent gain from the same period a year earlier.

The Bellevue, Wash., company attributed the gain to record truck production as well as record aftermarket parts sales.

“Peterbilt and Kenworth 2019 production schedules are substantially full. Customers are ordering trucks for delivery in the first half of 2020,” said Preston Feight, Paccar’s chief executive officer.

Revenue jumped 14.6 percent to $6.3 billion.

The company reported a strong 9.3 percent after-tax return on revenues for the quarter.

STRONG MARKET

Paccar said the truck market looks strong for the rest of this year.

“The growing North American economies and record levels of freight tonnage have resulted in excellent demand for Kenworth and Peterbilt vehicles,” said Gary Moore, Paccar’s executive vice president.

The company increased its full-year end market expectations for the U.S. and Canada. It now expects the industry to sell 300,000 to 320,000 units at retail, up 2 percent from its previous estimate. That would be about a 7 percent year-over-year growth for the industry, said David Leiker, an analyst at Baird Equity Research.

Paccar also sells the DAF truck brand in Europe.

CAUTION LIGHTS

However some industry analysts said they Paccar’s outlook might be too optimistic.

“We have been surprised with limited customer cancellations in the North America truck OEM industry amid deteriorating freight industry data points on capacity utilization, spot rates and capex,” Jerry Revich, an analyst at Goldman Sachs Equity Research, wrote in an investor report.

Revich said he will continue to monitor the industry and would not be surprised at a truck-production downturn in the first half of next year.

Analysts at Bank of America Merrill Lynch also expressed caution.

“Investors are likely to focus on the company’s deliveries and gross margin outlook given the expected decline in build rates into the second half” of this year, they said.

But others are starting to think truck manufacturing might avoid a severe down cycle.

“We are increasingly intrigued by a growing evidence this cycle could be different,” Leiker wrote in an investor report. Paccar “reported very good results with a few moving pieces that we see as being manageable.”

CAPITAL SPENDING

The truck maker said it will spend more than $320 million this year on research and development. The projects include aerodynamic truck models and integrated powertrains, including zero-emission electrification and hydrogen fuel cell technologies. The company also is working on advanced driver-assistance systems and truck connectivity.

It also will spend from $675 million to $725 million on capital projects. Paccar will make major enhancements to its manufacturing and parts distribution facilities that it said will support future growth.

For example, it will spend $100 million on a new, environmentally friendly paint facility at the Chillicothe, Ohio, Kenworth truck factory. The new facility will improve paint quality and capacity while reducing operating costs, the company said.

Paccar also is investing in additional machining and assembly equipment for its Columbus, Miss., engine factory to expand production of MX-13 and MX-11 engines for Kenworth and Peterbilt trucks.

Jerry Hirsch July 22, 2019
Medium duty trucks are seeing robust sales growth, especially at Ford and Navistar’s International brand even as some segment of the commercial vehicle market start to slow.

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