PACCAR Inc. 2022 Q2 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Unless noted otherwise, dollar amounts are in millions. PACCAR makes commercial trucks, distributes aftermarket parts, and provides customer and dealer financing and leasing.
Financial performance
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Total net sales and revenues | $7,158.7 | $5,843.9 | $13,631.3 | $11,689.4 |
| Net income | $720.4 | $495.5 | $1,320.9 | $966.3 |
| Diluted earnings per share | $2.07 | $1.42 | $3.79 | $2.77 |
| After-tax return on revenues | 10.1% | 8.5% | 9.7% | 8.3% |
| Operating cash flow | Not presented separately for Q2 | $1,097.5 | $867.7 |
- Truck, Parts and Other: Revenue was $6,786.2 in Q2 and $12,892.6 for the first half. Truck revenue increased with higher deliveries and pricing; parts revenue grew on stronger demand and pricing. Truck pre-tax income was $422.1 in Q2 and $698.8 for the half; Parts pre-tax income was $353.3 and $693.5, respectively.
- Margins: Truck gross margin was 10.3% in Q2 versus 9.2%, and 9.5% for the first half versus 9.2%. Parts gross margin was 30.0% versus 28.3% in Q2 and 30.1% versus 28.3% for the first half.
- Financial Services: Revenue declined to $372.5 in Q2 and $738.7 for the first half, mainly because of lower used-truck sales. Pre-tax income rose to $144.4 and $291.4, respectively, reflecting improved used-truck results.
- Cash flows: First-half investing cash use was $879.0, including $266.9 of property, plant and equipment spending; financing cash use was $346.0. Cash and cash equivalents decreased $197.0 during the half.
Liquidity, debt and financial position
- Cash and cash equivalents were $3,231.3 at June 30; marketable securities were $1,559.2, for combined cash and securities of $4,790.5, down from $4,987.7 at year-end 2021.
- Total assets were $30,588.7 and stockholders’ equity was $12,518.0. Financial Services liabilities included $3,270.5 of commercial paper and bank loans and $7,293.8 of term notes. PACCAR issued $1.63 billion of medium-term notes in the first half to fund new business and repay maturities.
- Credit lines totaled $3.67 billion, of which $3.41 billion was unused. No committed bank-facility borrowings were outstanding during the first half. Management cited investment-grade ratings of A+/A1 and expects its liquidity sources to support funding needs.
Material changes and unusual items
- Worldwide truck deliveries rose 17% in Q2 to 46,900, and 9% for the first half to 89,900. First-half deliveries in the U.S. and Canada were slightly lower; Europe deliveries increased 24%.
- Higher truck and parts pricing and sales volumes lifted results, despite increased raw-material, labor, freight and overhead costs and unfavorable foreign-currency translation.
- Used-truck gains improved Financial Services results: gains excluding repossessions were $34.7 in Q2 and $69.9 for the first half, compared with losses of $3.3 and $11.1 in the comparable 2021 periods.
- PACCAR changed U.S. inventory accounting from LIFO to FIFO, retrospectively applying the change. For 2022, the change increased net income by $11.0 in Q2 and $19.5 for the first half versus pro forma LIFO results. Management said prior-period per-share and pre-tax effects were not material.
- Comprehensive income was $486.4 in Q2 versus $582.3 a year earlier, chiefly reflecting foreign-currency translation losses; net income increased.
Outlook, risks and contingencies
- Management forecast 2022 heavy-duty industry sales of 260,000–290,000 units in the U.S. and Canada, 270,000–300,000 registrations in Europe, and 125,000–135,000 registrations in South America. Semiconductor and component shortages were expected to continue affecting deliveries.
- PACCAR expected 2022 Parts sales to increase 13%–16%; Financial Services average earning assets to increase 3%–5%; capital investments of $425–$475 million; and R&D spending of $330–$350 million. Investment priorities include clean-diesel and electric powertrains, autonomous systems, connected services, manufacturing and parts distribution.
- The company suspended truck and parts sales to Russia and Belarus in response to sanctions. Management reported no significant effect on results or cash flows to date, but future effects depend on the conflict and its economic consequences.
- European truck-related claims following the European Commission settlement remain ongoing. PACCAR says outcomes are highly uncertain and it cannot reasonably estimate a possible loss; an adverse decision involving significant DAF truck sales could materially affect results and cash flows.
- Other cited risks include industry demand, supply interruptions, commodity and currency movements, interest rates, used-truck prices and residual values, regulation, warranty costs, litigation and access to capital markets. Management reported no material change in market risk and concluded disclosure controls were effective.
Important facts for investors to verify
- Whether semiconductor and component constraints, truck deliveries and the stated regional industry outlook developed as expected.
- Whether pricing continued to offset higher production costs, and whether parts growth and margins were sustained.
- Whether used-truck gains and residual values are repeatable, and whether Financial Services credit quality holds up; worldwide retail accounts 30+ days past due were 0.4%, versus 0.3% at year-end.
- Developments and potential financial exposure from the unresolved European truck claims, for which no loss range was disclosed.
- Liquidity and Financial Services refinancing needs, including the maturity profile of debt and the availability of committed credit facilities.
- The impact of the FIFO accounting change when comparing reported earnings with other periods or with LIFO-based measures.