PACCAR Inc. — Q2 2021 Form 10-Q
Business context and reporting period. PACCAR designs and manufactures commercial trucks (Kenworth, Peterbilt and DAF), distributes aftermarket parts, and provides truck financing and leasing. This filing covers the quarter and six months ended June 30, 2021; comparisons are with the corresponding 2020 periods. Unless otherwise noted, amounts are in millions of dollars.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Consolidated revenues | $5,843.9 | $3,062.2 | $11,689.4 | $8,223.9 |
| Income before income taxes | $637.0 | $184.0 | $1,244.3 | $646.2 |
| Net income | $492.9 | $147.7 | $963.0 | $507.1 |
| Diluted EPS | $1.41 | $0.43 | $2.76 | $1.46 |
| After-tax return on revenues | 8.4% | 4.8% | 8.2% | 6.2% |
- Truck, Parts and Other: Q2 revenue was $5,387.6 and pretax income $525.5, versus $2,701.9 and $119.5. First-half revenue was $10,801.1 and pretax income $1,051.5, versus $7,479.9 and $518.6. Truck deliveries rose 122% in Q2 and 46% in the first half year over year, reflecting stronger demand and production after pandemic-related shutdowns in 2020.
- Truck: Revenue was $4,152.2 in Q2 and $8,385.2 in the first half. Pretax income was $255.0 in Q2, compared with a $46.2 loss a year earlier, and $524.5 for the half, up from $136.9. Truck gross margin was 9.1% in Q2 versus 2.6%, and 9.2% for the half versus 6.2%. Higher deliveries, pricing and currency translation helped; raw-material costs and higher factory overhead were offsets.
- Parts: Revenue reached records of $1,211.3 in Q2 and $2,372.0 for the half, up 47% and 30%. Pretax income rose 75% to $265.6 in Q2 and 41% to $516.9 for the half. Gross margin improved to 28.2% in Q2 from 25.3%, and to 28.2% for the half from 27.0%, on higher volume, pricing and favorable currency effects, partly offset by material and distribution costs.
- Financial Services: Revenue was $456.3 in Q2 and $888.3 for the half; pretax income rose to $106.5 and $182.9, respectively. Higher used-truck results, finance and lease margins, and lower credit-loss provisions contributed. Q2 and first-half provisions for receivable losses were a benefit of $0.5 and an expense of $3.2, versus expenses of $7.5 and $24.5 in 2020.
- Cash flow: First-half operating cash flow was $867.7, down from $1,360.8. Investing used $666.7; financing used $651.5. Cash and cash equivalents declined $469.8 during the half to $3,069.8.
- Liquidity and debt: Cash plus marketable securities totaled $4,504.4 at June 30, down from $4,968.6 at year-end 2020. Financial Services had $3,409.9 of commercial paper and bank loans and $7,158.7 of term notes. PACCAR reported $3.61 billion of credit lines, of which $3.29 billion was unused. Management cited investment-grade ratings of A+/A1.
- Capital allocation and investment: First-half cash dividends were $471.8; the declared dividend was $0.66 per share for the half. No shares were repurchased under the authorized repurchase program in Q2. First-half capital investments were $214.4 and R&D expense $164.5.
Changes, outlook and risks
- Results improved substantially from 2020, when COVID-19 caused temporary production suspensions and reduced demand. Favorable currency translation and strong freight demand also aided 2021 results.
- Management forecast 2021 U.S. and Canada truck retail sales of 260,000–280,000 units, European registrations of 270,000–290,000 heavy trucks, and South American heavy-duty registrations of 110,000–120,000. PACCAR Parts sales were expected to rise 20–22% from 2020; Financial Services average earning assets were expected to increase 3–5%.
- Expected 2021 capital investments were $550–$600 million and R&D $340–$360 million, including spending on aerodynamic trucks, diesel and zero-emission powertrains, driver-assistance systems, connected services and manufacturing capabilities.
- An industry-wide semiconductor shortage left approximately 6,500 trucks in inventory awaiting components at quarter-end. Management expected the shortage to constrain deliveries in the second half of 2021. Other stated risks include weaker truck demand, supplier and raw-material constraints, commodity and currency changes, interest rates, residual values, regulation, labor disruptions, pandemics and litigation.
- European truck-related claims and lawsuits following the European Commission investigation remain pending. PACCAR said it believes it has meritorious defenses but could not reasonably estimate any potential loss; an adverse outcome could materially affect results.
- Management cautioned that interim results are not necessarily indicative of full-year results. The filing reported no material change in market risk during the first half.
Important facts for investors to verify
- Whether semiconductor availability improves as expected and how many delayed trucks convert to deliveries and revenue.
- Whether strong truck and aftermarket demand, pricing, and reported margins persist as material and labor costs change.
- Used-truck prices, residual-value exposure, and Financial Services credit performance; finance receivables totaled $11,899.3 net of allowances, with a $125.3 allowance for losses.
- Liquidity and refinancing capacity, including upcoming credit-facility expirations and access to capital markets under adverse conditions.
- Developments and potential financial exposure from European truck litigation; the filing provides no clear estimate of a possible loss.