PACCAR (PCAR)

Q4 2011 Earnings Call

January 31, 2012 12:00 pm ET

Executives

Robin E. Easton - Treasurer

Mark C. Pigott - Chairman, Chief Executive Officer and Chairman of Executive Committee

Michael T. Barkley - Principal Accounting Officer, Vice President and Controller

Ronald E. Armstrong - President and Principal Financial Officer

Robin Easton -

Analysts

Andrew Obin - BofA Merrill Lynch, Research Division

Andy Kaplowitz - Barclays Capital, Research Division

Ann P. Duignan - JP Morgan Chase & Co, Research Division

Jerry Revich - Goldman Sachs Group Inc., Research Division

Henry Kirn - UBS Investment Bank, Research Division

Andrew M. Casey - Wells Fargo Securities, LLC, Research Division

Joel G. Tiss - Buckingham Research Group, Inc.

Stephen E. Volkmann - Jefferies & Company, Inc., Research Division

Jamie L. Cook - Crédit Suisse AG, Research Division

Adam William Uhlman - Cleveland Research Company

Seth Weber - RBC Capital Markets, LLC, Research Division

Brian Michael Rayle - Northcoast Research

Patrick Nolan - Deutsche Bank AG, Research Division

Salvatore Vitale - Sterne Agee & Leach Inc., Research Division

Robert Wertheimer - Vertical Research Partners Inc.

Timothy J. Denoyer - Wolfe Trahan & Co.

Michael Regan

Presentation

Operator

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Good morning, and welcome to PACCAR's Fourth Quarter 2011 Earnings Conference Call. [Operator Instructions] Today's call is being recorded and if anyone has an objection, they should disconnect at this time. I would now like to introduce Mr. Robin Easton, PACCAR's Treasurer. Mr. Easton, please go ahead.

Robin E. Easton

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, 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.

Mark C. Pigott

Good morning. PACCAR reported record quarterly revenues and strong net income for the fourth quarter of 2011. PACCAR's fourth quarter sales and Financial Services revenue were $4.85 billion compared to $3 billion in the fourth quarter a year ago, a 58% increase. Quarterly net income increased to $328 million, a 92% increase versus the $170 million earned a year ago. I am pleased to report that this was the best quarterly profit since the first quarter of 2007, 5 years ago.

Earnings per share were $0.91 in the fourth quarter, nearly double the $0.46 earned in the fourth quarter of 2010. PACCAR's 2011 yearly net income of $1.04 billion was the fourth highest profit in company history and marked the company's 73rd consecutive year of earning a net profit. Quite a record. I'm very proud of our 23,400 employees who have delivered industry-leading products and services to our customers worldwide.

Increased truck deliveries, higher aftermarket sales and growing Financial Services business worldwide contributed to PACCAR's increased profits. Our customers in North America are benefiting from increased freight tonnage and higher freight rates, which is generating good profitability for their business and enabling them to replace their aging fleets.

In the U.S. and Canada, Peterbilt and Kenworth achieved a record Class 8 market share of 28.1%. Kenworth Mexicana achieved a record Class 8 market share of 45% in Mexico. Europe's 2011 industry registrations were up 33% compared to 2010, and DAF achieved a record 15.5% share in the above 15-tonne market.

You all read the newspapers or do it electronically, and you can see that economic uncertainties in recent months in the Eurozone have resulted in lower industry truck orders. As result, DAF has reduced build rates by a total of 20%, similar to many, in fact most of its competitors, since last November. The good news is that freight tonne miles in Germany, which is the largest market in Europe, is the highest in 5 years, which we hope will translate into increased truck orders as the year progresses.

PACCAR delivered 41,000 trucks during the fourth quarter, 69% more than the same period last year. Market pricing has improved, and coupled with increased plant utilization has generated higher quarterly truck gross margins of 9.3% in the fourth quarter compared to 6.7% a year ago. PACCAR does expect to deliver slightly fewer trucks in the first quarter compared to the fourth quarter due to the lower production rates at DAF.

U.S. and Canadian industry retail truck sales were 197,000 units last year, in line with our estimates, and we are estimating that they will improve to a range of 210,000 to 240,000 units this year, assuming ongoing replacement of the aging truck fleet and some economic growth. In Europe, the greater than 15-tonne market was 244,000 units in 2011, and it's anticipated the European industry truck sales this year will be in the range of 210,000 to 240,000 units. While we welcome improved markets in the U.S. and Canada, it's still a far cry from the 360,000 units which were the record about 5 years ago.

The company generated over $1.5 billion in cash from operations in 2011. And we're very proud to say that we returned over $800 million to stockholders in dividends and share repurchases. Capital additions totaled $538 million. PACCAR plans to continue to make significant investments in its business this year. Capital spending is estimated to be $450 million to $550 million, and research and development will be in the $275 million to $325 million range.

More good news, PACCAR's SG&A percent of 2.6% was a quarterly record, reflecting excellent productivity and cost controls throughout the company and I thank all our wonderful employees for their hard work.

PACCAR is increasing its investments to expand its geographical footprint and build on its technology and productivity leadership. I think many of you saw the press release of the groundbreaking for the construction of the new DAF assembly facility in Ponta Grossa, Brazil, and we have begun construction of the factory and look forward to building trucks in Brazil in the middle of 2013.

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