PACCAR Inc.

PACCAR is a manufacturer of high quality light, medium, and heavy trucks with industry leading brands of Peterbilt, Kenworth, and DAF. Its subsidiary, PACCAR Financial Services (PFS) provides financing on a portfolio of 188,000 trucks and trailers and its leasing company, PacLease, has a portfolio of over 38,000 vehicles. In FY17, PFS accounted for 12% of Earnings Before Tax (EBT). The company has an outstanding record of long-term growth they focus on innovation and excellence. They have a history of paying special dividends on top of their regular dividend which has been uninterrupted since 1941.

Ests: 4Q19 1Q20 FY19 FY20

Revs 5.6b 5.2b 24b 21b

EPS 1.51 1.37 6.85 5.37 -22%

Special Divs/share Record Dates: Dec 16, 2016: $0.60, Dec 14, 2017: $1.20, Dec 14, 2018: $2.00, Dec 20, 2019: $2.30

P=75.17 div=1.28, yield=1.7% not including periodic special divs, debt offset by PFS receivables, gross cash and investments 5.2bn but 1.6bn net of WC deficit or 4.66/sh. TTM EPS 6.87 P/E=11X, FY20 P/E=14X est of 5.37.

4Q19 1.53 vs 1.65 -7%, est 1.51, FY19 EPS 6.87 vs 6.24 +9%

Revs -2.9% to 6.1bn, EBT margin 11.2% vs 11.9%, EBT -8.6%,
Truck Revs -5.3%, EBT -12.4%, Parts Revs +2.4%, EBT +5.9%, PFS Revs +17.1%, EBT -21.9%,
Deliveries -9.3% to 45.7k a bit lower than mgmt. expected, US and Canada -0.7% to 26.6k, EU -19% to 14.6k, Other -20% to 4.5k
PFS portfolio 208k trucks and trailers with 10.07bn in assets incl >40k vehicles with PacLease
PFS EBT while down y/y (used truck pricing down double digits) was flat q/q, low past due and low credit losses.
PACCAR MX engines were 47% of sales in 4Q vs 43% last year.
Continued penetration of PACCAR engines, distribution centre expansion, e-commerce, and having the right parts in the right places driving solid Parts business.
FY20 industry outlook unchanged: NA Class 8 230-260k, EU >16 tonne 260-290, South America >16 tonne 100-110, Brasil >16 tonne 70-80k (combined HD -10% to -20% y/y)
NA class 8 share was 20% vs 29.4%, EU > 16 tonne 16.2% vs 16.6%
EV trucks in trials with customers, plan production deliveries in next 12-18 months
Expect 1Q20 deliveries down 5-7% q/q (-16-18% y/y), expect FY20 Parts revs +4-6%
Decent results in cyclical decline, stock still looks attractive on FY20 estimates.

3Q19 1.75 vs 1.55 +13%, est 1.65 down from 1.70

Oct 22, 2019, P=73.00, TTM EPS 7.01, P/E=10X, FY20 P/E=13X
Revs +10.6% to 6.37bn, EBT margin 12.2% vs 11.6%, EBT +16.3%
Truck Revs +12.4%, EBT +23%, Parts Revs +4%, EBT +10%, PFS Revs +6.7%, EBT -15.6
Deliveries +3% to 29.3k, a bit lower than mgmt. estimated, US and Canada +11.6% to 31.7k, EU -11% to 12.7k, Other -3.9% to 4.9k
PFS portfolio 205k trucks and trailers with 15.6bn in assets incl 39k vehicles with PacLease
Repurchased 832.9k shares for $53.6m, $430.5m remaining
Mgmt expects 4Q deliveries down 6-8% q/q
FY19/20 Outlook: NA Class 8 industry sales 310-320k (raised low end), FY20 230-260k. EU truck registrations >160-tonnes 310-320 (again raised low end), FY20 260-290k. South American >16-tonne 95-105k (lowered), FY20 100-110k
Mgmt thinks FY20 forecast indicates a normal truck replacement market, hopefully solid positioning leads to increased market share.
Generally continued solid results, lower EBT in PFS (used truck pricing, impairments?), FY20 outlook is lower than FY19 but still solid and investors are expecting a cyclical decline (outlook looks similar to 2014-2015, stock would be ~18X the ~$4.00 per share the company generated back then).

2Q19 1.78 vs 1.59, +11%, est 1.81 up from 1.70

July 23, 2019, P=69.16, TTM EPS=6.81, P/E=10X, FY20 P/E=12X
Revs +14% to 6.63bn, EBT margin 12.3% vs 12.4%, EBT +13.2% due to lower other income
Truck Revs +16.7% to 5.2bn, EBT +17.7%, Parts Revs +5.9% to210.6m, EBT +8.3%, PFS +6.9% to 80.3m, EBT +10.9%,
PFS portfolio 205k trucks and trailers with 15.41bn in assets incl 39k vehicles with PacLease
Deliveries: +13% to 52,300, US and Canada +15.8% to 30k, EU -0.6% to 15.7k, Other +40.4% to 6.6k, Mgmt estimates 3Q deliveries to be +5-7% y/y
F19Outlook: NA Class 8 industry retail sales 300-320k (previous 285-315k), EU truck registrations >16-tonnes to 300-320k, (raised low end), Brazil >16-tonne truck industry 65-75k (unchanged), South America 100-110k.
US and Canada class 8 backlog at end of June was 188k trucks, Kenworth and Peterbilt 36% of industry. NA industry inventories at 2.8 months, PCAR at 2.3 months.
South America strong demand for DAF and Kenworth resulted in deliveries +70% ytd
While EPS slightly missed estimates (due to lower Other Income), EPS came ahead of where estimates were 3 months ago and the stock is still a bit lower.
Mgmt seems to be characterizing current order rates (which are down from unsustainably high rates but still historically strong) are in line with current build rates, backlog normal, economy doing ok, US freight tonnage up 4.4% YTD
Interestingly the stock is at similar levels to when the stock peaked in the last cycle and when EPS bottomed despite EPS being 82% higher than that trough and 47% higher than the peak EPS. The stock peaked in Dec 2014 @ $70 with a P/E of 18X, EPS peaked in 3Q15 @ $4.64 and the stock corrected 33% to about $45 giving it a P/E at the EPS peak of ~10X, again after a 33% correction. The stock then rallied ~50% to ~$69 by the time EPS bottomed at $3.74 in 2Q17, giving it a P/E of 18X. So the stock has gone sideways from the previous stock peak (18X P/E) to the EPS trough (18X) despite EPS going up 80% and the stock hasn’t either benefited from a significant rally nor been hit with a big selloff (other than market driven movements). Investors are clearly mixed whether earnings keep going up, go sideways, or fall off a massive cliff but with the current P/E in light of previous cycle dynamics, earnings went up and the stock didn’t benefit so it’s almost like investors are already pricing in a decline in earnings although that doesn’t necessarily make the stock immune, the stock could initially sell off until investors get insight in how deep the decline would be then the stock could be posed for a rally. Maybe although analysts are mostly negative so just a temperance of that negativity could benefit the stock. This cycle has been a bit ridiculous.

1Q19 1.81 vs 1.45 +23%, est 1.65 up from 1.56

Apr 30, 2019, P=71.32, TTM EPS=6.60, P/E=11X, FY19 P/E=11X
Revs +15% to 6.49bn, EBT margin 12.6% vs 11.8%, EBT +22.4%
Truck Revs +17.3% to 5.1bn, EBT +30.8%, Parts Revs +6.9% to 1bn, EBT +8.2%, PFS Revs +5.2% to 349.5m, EBT +24.4%
1Q19 truck deliveries +15.7% to 51.5k, US and Canada +19.4% to 24.2k, EU +7.6% to 16.9k, Other +24% to 5.7k
PFS portfolio 202k trucks and trailers with total assets 14.91bn
Mgmt. says backlog for this year is very firm, taking orders for 2020, market is still pretty tight for timely shipping, comments support TFI’s outlook on the industry. Customers (like TFI) delivering solid performance, credit teams applying a lot of intelligent data analytics to credit underwriting, used truck market is healthy. Also producing more engines and increasing penetration of their engines.
1Q19 trends: U.S. and Canada industry Class 8 sales + 23%, inched up lower end of expected range for FY19. DAF’s EU >16-tonne registrations +10%, achieved 17.1% share, EU industry expectations unchanged, Mgmt expects FY19 Brasil >16-tonne trucks +30% to 65-75k
Solid results continue, CFO was lower due to increase in receivables and pmt of regular and special divs
FY19 estimates are for EPS of 6.41 compared to 6.60 trailing implying EPS peaking and declining this year or estimates are too low.
Stock has been trading sideways for roughly 5 years, peak of last cycle was in 2015 when EPS peaked at $4.64 (and fell 19%) compared to TTM EPS of $6.60 and stock price is at the same level, stock is still prone to cycles but company has grown their business/market share/profitability with no reflection in the stock price (lower P/E ratio).

4Q18 1.65 vs 1.18, +40%, est 1.53, FY18 6.24 vs 4.26

Jan 29, 2019, P=61.30, TTM EPS=6.26, P/E=10X
Revs +15% to 6.28bn, EBT margin 12% vs 11.1%, EBT +24.5%
Truck Revs +16.6% to 4.9bn, EBT +24%, Parts Revs +10.7% to 970.9m, EBT +24.1%, PFS Revs +4.5% to 347m, EBT +21.3%
Had some additional costs from supplier constraints but conditions improved q/q
FY18 invested 437m in capital and 306m in R&D, for FY19 expect Capital +20-32%, and R&D +8-14% for next gen technology and expanded capacity and improve efficiency
4Q18 deliveries +13.8% to 50,400 (US & Canada +18% to 26.8k, EU +8.4% to 18k, Other +12% to 5.6k) 4Q EU orders were +8% and +17% for FY18
PFS portfolio of 198k trucks and trailers with total assets of 14.4bn, PacLease fleet >39k vehicles
FY18 delivered 189,100 trucks (orders were 450k), DAF >16-tonne share in EU 16.6% vs 15.3% (10% 20 years ago) >40-tonne share in Brasil increased to 6.7% in 5 years from 0.
Class 8 truck industry sales in Canada and U.S. were +30% to 285k, expect 285-315k in 2019
EU industry >16-tonne registrations 319k, expect 290-320k in FY19
Kenworth and Peterbilt had 29.4% share in Canada and U.S (21% 20 years ago). in FY18, have strong backlog with visibility into late 2019, 4Q fleet utilization was 97%, current growth is driven by economic growth and freight growth, not emissions pre-buying.
Mgmt expects 1Q deliveries +15% y/y and up slightly q/q
FY18 dividends incl. special div was 5.4%, repurchased 5.85m shares for $354.4m, $539.9m remaining under current authorization.
Solid results, growth outlook continues unless we experience recession or significant disruptions, stock still looks cheap for this quality of a company.

Mid Quarter Update - Dec 4, 2018

Increased regular dividend 14% to $1.28, 2.1% yield. Also paying special dividend of $2, payable on January 4th, 2019 to shareholders of record at close of business on Dec 14, 2018.
Also approved new $500m share repurchase program effective when the existing one completes, 124.8m remaining of current $300m programs.

3Q18 1.55 vs 1.14, +36%, est 1.51 up from 1.41

Oct 23, 2018 P=60.50, TTM EPS=5.77, P/E=10X, FY19 P/E=10X
Revs +14% to 5.8bn, EBT Margin 11.6% vs 11.5%, EBT +15% to 668.8m
Truck Revs +14.5%, EBT +12.8%, Parts Revs +14.3%, EBT +24%, PFS Revs +3.6%, EBT +11.6%
Customer demand is very strong. Backlogs very strong, DAF’s YTD market share in >16 tonne at record 16.6% vs 15.1% last year
Deliveries: U.S. and Canada +21.9% to 28.4k, EU +15.3% to 14.3k, Other +13% to 5.1k
Repurchased 906k shares for $59m
Mgmt raised expectation of U.S and Canada industry Class 8 sales for FY18 to 280-290k, see FY19 280-310k, expects EU >16 tonne FY18 sales 310-320k, see FY19 290-320
Mgmt expects FY18 Capital investments 425-475m and development expenses 300-310m. FY19 estimates capital investments 525-575m and development expenses 300-330m as the company continues to invest in new models including electric, hybrid, and fuel cell trucks.
Solid results, stock and market are weak as investors fret about peak deliveries and cost increases and tariffs, trade disruptions, potential economic weakness, other cyclical companies have seen their stocks and valuations grow as earnings grow but PCAR has seen consistent declines and low P/E in the face of growing earnings.
Mgmt thinks effects of tariffs is “hundreds of dollars per truck”, feel dealer inventories are in good shape, backlog is longer than it’s been for a while.

2Q18 1.59 vs 1.06, +50%, est 1.42 up from 1.38, TR 22% vs 31%

Revs +23% to 5.81bn (est 5.3), EBT Margin 12.4% vs 11.5%, EBT +33.5% to 719.6m
Trucks Revs +25.7%, EBT +39%, Parts Revs +17.6%, EBT +28.6%, PFS Revs +10.3%, EBT +16.0%
Repurchased 1.21m shares for 77.2m, completed 300m authorization and approved another 300m repurchase plan.
Deliveries: U.S. and Canada +22% to 25.9k, EU +14.5% to 15.8k, Other +6.8% to 4.7k
Solid results, EPS beat mainly looks like lower tax rate, concerns of peak deliveries still weighing on stock.
100% of DAF vehicles are getting PACCAR engines, 40-45% of Kenworth and Peterbilt.
Mgmt maintained outlook for industry orders, customers operating at high utilization rates and are expanding (not just replacing), mgmt. feels good about 2019, orders not being driven by emission legislation, expanding market share.
Tariff appeared once on the call, mgmt. indicated they do not see a significant impact.

1Q18 1.45 vs .88, est 1.31

Revs +33% to 5.65bn (est 5.05), EBT +49% to 669.4m, EBT mgn 11.8% vs 10.6%
Truck, +39% to 4.35bn, EBT 9.1% vs 7.4%, Parts +19.4% to 939.9m, EBT 20.4% vs 19.2%,
PFS +9.9% to 332.2m, EBT mgn 20.3% vs 18.8%
Deliveries: U.S. and Canada +42% to 24.2k, EU +9.7% to 15.7k, ROW +24.3% to 4.6k
CFO 528.5m vs 610.5m due to increased receivables on new trucks (increased financing).
1Q U.S. and Canada Class 8 truck industry orders >+100% y/y, increased their estimate for industry Class 8 trucks to 265-285k trucks (from 235-265k). Expect EU >16 tonnes 300-320k (tightened from 290-320k). PCAR has been investing in South America, DAF Brasil’s higher market share and expanding market has resulted in higher prodn, expect Brasil >16-tonne market to 40-45k trucks up from 32k last year.
DAF >16 tonne truck orders +41% aided by expanded prodn capacity
Over the past decade, the company has invested 6bn in facilities, products, and technology. FY18 CapEx to be 425-475m and R&D 300-320m for expanded manufacturing and parts distribution, new truck models, integrated powertrains including electric, hybrid, hydrogen fuel cell, enhanced aerodynamic designs, advanced driver assistance systems and connectivity.
Excellent results, stock weak following release, some investors likely fearing a peak in the cycle. Results should continue to be boosted by solid global economy, strong freight, and replacement of older vehicles.
Seeing continued increased adoption of their MX engine. Trucks business still solid, do not see indicators of weakening demand, feel truck markets will stay strong as long as the economy stays solid.

4Q17 1.18 vs 0.82, FY17 4.26 vs 3.85

Revs +34% to 5.45bn, delivered record quarter of 44,300 vehicles

FY17 Revs +14% to 19.46bn, delivered 158,900 vehicles, Kenworth and Peterbilt achieved record Class 8 market share of 30.7% in U.S. and Canada (up from 28.5%)

U.S. and Canada industry Class 8 sales in FY17 218,000 vs 216,000, company expects 235-265,000 in FY18 due to economic growth, increased consumer spending, strong residential and commercial construction resulting in record freight tonnage and high fleet capacity utilization. EU industry sales >16-tonnes were a robust 306,000 trucks, company expects 290-320,000 in FY18

FY17 Regular dividend was $1.00, total $2.20 vs $1.56