PACCAR's CEO Discusses Q1 2012 Results - Earnings Call Transcript


Q1 2012 Earnings Call

April 24, 2012 11:00 am ET


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


Mark Mihallo - Barclays Capital, Research Division

Jamie L. Cook - Crédit Suisse AG, Research Division

Jerry Revich - Goldman Sachs Group Inc., Research Division

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

David Leiker - Robert W. Baird & Co. Incorporated, Research Division

Henry Kirn - UBS Investment Bank, Research Division

J. B. Groh - D.A. Davidson & Co., Research Division

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

Joel G. Tiss - The Buckingham Research Group Incorporated

Timothy J. Denoyer - Wolfe Trahan & Co.

Robert Wertheimer - Vertical Research Partners Inc.

Adam William Uhlman - Cleveland Research Company

Seth Weber - RBC Capital Markets, LLC, Research Division

Patrick Nolan - Deutsche Bank AG, Research Division

Basili Alukos - Morningstar Inc., Research Division

Brian Michael Rayle - Northcoast Research



Good morning, and welcome to PACCAR's First Quarter 2012 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 excellent quarterly revenues and net income for the first quarter of 2012. PACCAR's first quarter sales and Financial Services revenues were $4.8 billion compared to $3.3 billion in the first quarter of 2011, a 45% increase. Quarterly net income increased to $327 million, a 69% increase versus the $193 million earned a year ago. I'm very proud of our 23,200 employees who have delivered industry-leading products and services to our customers worldwide.

Increased truck deliveries in North America, higher aftermarket sales and a growing Financial Services business contributed to PACCAR's increased profits. Our customers in North America are benefiting from increased freight tonnage and higher freight rates, which are generating good profitability and enabling them to replace their aging fleets. The vocational truck market in the U.S. and Canada remains subdued due to the low levels of new housing starts.

One of the highlights and we're very pleased with the positive response to the launch of the new Kenworth T680 and the Peterbilt Model 579. These exciting new trucks are the result of a 4-year, $400 million program that designed and developed a new family of 2.1 meter-wide cabs. These new trucks expand our product range and complement our existing vehicles. For the first time in our history, Kenworth and Peterbilt have a 3-cab family. PACCAR's range of 3 cab sizes is similar in format to BMW's 3, 5 and 7 Series of luxury automobiles. I think our trucks will haul a little bit more than those wonderful BMW cars though. These investments in new products will contribute to the company's long-term growth.

PACCAR delivered 39,800 trucks during the first quarter, and our truck deliveries were about 45% higher than the same period last year. Market pricing has improved since the first quarter of last year and coupled with increased plant utilization and improving leverage, generated higher quarterly truck gross margins of 9.2% compared to 7.8% a year ago. PACCAR does expect to deliver slightly fewer trucks 2% to 3% in the second quarter compared to the first quarter.

Economic uncertainties in the Eurozone have resulted in lower industry truck orders compared to last year. Most European truck manufacturers have reduced build rates and scheduled shutdown days to reflect the lower market. The good news is that freight on Germany's motorways, which is one of the most closely watched freight statistics, is comparable to last year, indicating that freight traffic throughout the Eurozone is at good levels and our customers are generating profitable results.

U.S. and Canadian industry retail sales are estimated to improve this year to a range of 210,000 to 240,000 units, up from 197,000 last year. This is being driven by ongoing replacement of the aging truck fleet and some economic growth. In Europe, the greater than 16-tonne truck market is anticipated to be in the range of 210,000 to 230,000 units.

PACCAR's business initiatives worldwide are progressing well. Capital spending is estimated to be $450 million to $550 million, with research and development at $275 million to $300 million. Construction of the new DAF assembly factory in Ponta Grossa, Brazil is on schedule, and we plan to be building DAF Trucks in Brazil by the middle of 2013. Kenworth and DAF deliveries in the Andean region of South America, that is the region not included in Americas [ph], more than doubled in the first quarter of this year compared to the same quarter last year. In addition, ongoing investment in our engine family for EPA 13 and Euro 6, new product development and expanding our global purchasing efforts are all progressing on schedule.

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