Q3 2010 Earnings Call
October 26, 2010 12:00 pm ET
Robin Easton - CFO
Mark Pigott - Chairman, Chief Executive Officer and Chairman of Executive Committee
Thomas Plimpton - Vice Chairman and Principal Financial Officer
Tim Denoyer - Wolf Trahan
Ann Duignan - JP Morgan Chase & Co
Jerry Revich - Goldman Sachs Group Inc.
J. B. Groh - D.A. Davidson & Co.
Keith Schicker - Robert W. Baird
Henry Kirn - UBS Investment Bank
Andrew Casey - Wells Fargo Securities, LLC
Seth Weber - RBC Capital Markets Corporation
Robert Wertheimer - Morgan Stanley
Ben Elias - Sterne Agee & Leach Inc.
Patrick Nolan - Deutsche Bank AG
Meredith Taylor - Barclays Capital
Adam Uhlman - Cleveland Research
Jamie Cook - Crédit Suisse AG
Good morning, and welcome to PACCAR's Third Quarter 2010 Earnings Conference Call. [Operator Instructions] I would now like to introduce Mr. Robin Easton, PACCAR's Treasurer. Mr. Easton, please go ahead.
Good morning. We would like to welcome those listening by phone and those on the webcast. My name is Robin Easton, Treasurer of PACCAR. And joining me this morning are: Mark Pigott, Chairman and Chief Executive Officer; Ron Armstrong, Executive Vice President; and Michael Barkley, Vice President, Controller.
As with prior conference calls, if there are members of the media participating, we request that they participate in a listen-only mode.
Certain information presented today will be forward-looking and involve risks and uncertainties, including general economic and competitive conditions that may affect expected results.
I would now like to introduce Mark Pigott.
Good morning. PACCAR today reported improved revenues and net income for the third quarter 2010. PACCAR's third quarter sales and Financial Services revenues were $2.5 billion, which is 26% higher than the $2 billion in the third quarter last year. Net income improved to $120 million, compared to $13 million a year ago. I'm very proud of our 16,500 employees who have delivered outstanding performance to our shareholders and customers in an uneven and unsettled global economy.
In the U.S. and Canada, our customers are starting to adjust to the higher-priced vehicles that have resulted from the EPA 2010 emission change. The U.S. and Canadian retail truck sales are estimated to improve to a range of 120,000 to 130,000 units this, year compared to 108,000 last year.
European truck registrations for the third quarter improved 16% compared to the second quarter. As a result, we expect the 15-ton plus market registrations in Europe to be between 160,000 and 170,000 units this year, comparable to the 168,000 units last year.
The global economic outlook is improving, which is benefiting the truck market. PACCAR delivered 5% more trucks in the third quarter than the second quarter this year. And looking ahead, we think that truck production for PACCAR could be up 20% in the fourth quarter compared to the third quarter.
We discussed in our analyst call in April the three-step process that the truck industry usually progresses as it recovers from a recession. First is improvement in parts and service. Second is used truck values increasing. And third is more new truck orders. For PACCAR in the U.S. and Canada, the good news is that parts sales are up 15% to 20% compared to last year, and used truck pricing has increased 10% to 15%.
More good news is that the U.S. and Canadian industry Class 8 truck orders for the first nine months are up 23% compared to a year ago although they may be slowing now in the industry.
In Europe, PACCAR Parts business and used truck pricing have both improved by 10% to 15%. And DAF's new truck production for the first nine months is 25% higher than last year.
As we look at the European truck market, we're pleased that DAF is now the leader in the On-highway Tractor segment and has achieved a record overall market share of 15.8%. DAF is steadily progressing toward its medium-term goal of 20% share in Europe.
Talking about our customers. They're benefiting from improved freight volumes, higher freight rates and some stable diesel prices. They continue to increase the utilization of their fleets, which in turn is driving increased aftermarket parts and service business for our dealers.
PACCAR's quarterly aftermarket parts sales increased to $554 million, the highest level since the third quarter of 2008.
PACCAR's strong balance sheet and positive cash flow of $1.1 billion this year have enabled the company to continuously reinvest in the business, enhance our operating efficiency and develop innovative new products such as the PACCAR MX diesel engine. Assembly of the PACCAR MX engine began in June at our new manufacturing facility in Columbus, Mississippi. And in September, the engine plant was officially dedicated in a ceremony that was attended by state and local officials, including Mississippi Governor Haley Barbour. We are now installing the MX engine in over 20% of Kenworth and Peterbilt vehicles. This is the highest level of 13-liter engine installations in our Kenworth and Peterbilt and reflects customer recognition of the PACCAR MX engine's excellent power-to-weight ratio, fuel economy and reliability.
Feedback from our customers of the PACCAR MX engine is excellent with over 2,000 MX engines now installed in Peterbilt and Kenworth trucks.
Speaking of engines, the EPA issued its proposed Greenhouse Gas Regulations yesterday. And as you know, PACCAR is an environmental leader worldwide. We are reviewing the proposed regulations, which is 673 pages long, and we're analyzing the details and look forward to working with the EPA in this during the 60-day comment period to fully understand all the aspects of the proposed regulations.