PACCAR Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023; comparisons are with the corresponding 2022 periods. Unless stated otherwise, dollar amounts are in millions. PACCAR manufactures trucks, distributes parts, and provides financing and leasing for its products.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Consolidated revenues | $8,696.4 | $7,058.9 | $26,050.8 | $20,690.2 |
| Income before taxes | $1,589.4 | $979.7 | $4,076.9 | $2,673.2 |
| Net income | $1,228.5 | $769.4 | $3,183.5 | $2,090.3 |
| Diluted EPS | $2.34 | $1.47 | $6.07 | $3.99 |
| After-tax return on revenues | 14.1% | 10.9% | 12.2% | 10.1% |
| Operating cash flow | Not reported separately for quarter | Not reported separately for quarter | $3,003.3 | $1,778.2 |
Q3 consolidated revenues rose 23% and net income rose 60% year over year. For the first nine months, revenues rose 26% and net income rose 52%. Growth and improved profitability chiefly reflected higher truck deliveries and pricing, plus higher parts pricing. Nine-month GAAP results include a $600.0 pre-tax ($446.4 after-tax) charge for European civil litigation claims. Excluding that charge, nine-month adjusted net income was $3,629.9, or $6.92 per diluted share, and adjusted after-tax return on revenues was 13.9% (non-GAAP).
- Truck: Q3 revenue was $6,636.4, up 28%; pre-tax income was $960.9 versus $430.5. Truck gross margin increased to 16.8% from 10.6%. Nine-month revenue was $19,877.7, up 31%; pre-tax income was $2,803.5 versus $1,129.3, and gross margin was 16.3% versus 9.9%.
- Parts: Q3 revenue was $1,582.2, up 8%; pre-tax income was $412.3, up 10%, and gross margin was 31.5% versus 30.4%. Nine-month revenue was $4,804.1, up 12%; pre-tax income was $1,270.2, up 19%, and gross margin was 31.8% versus 30.2%.
- Financial Services: Q3 revenue increased 25% to $464.1, but pre-tax income declined 8% to $133.8. Nine-month revenue rose 19% to $1,327.1, while pre-tax income declined 2% to $427.3. Lower margins on operating leases, including weaker results on returned trucks, offset higher finance margins.
Cash, liquidity and debt
At September 30, 2023, cash and cash equivalents were $5,906.3 and marketable securities were $1,743.1, totaling $7,649.4, up $1,344.3 from year-end 2022. Nine-month operating cash flow was $3,003.3; investing cash outflow was $1,931.1 and financing cash inflow was $159.5. Capital investment and R&D spending were higher than in 2022. Dividends paid were $1,377.3 for the first nine months.
Financial Services had $5,019.2 of commercial paper and bank loans and $7,906.4 of term notes outstanding, totaling $12,925.6, compared with $11,471.6 at December 31, 2022. PACCAR reported $3.98 billion in credit-line arrangements, with $3.51 billion unused; none of the committed bank facilities was drawn during the first nine months. The filing says cash, collections, committed facilities and investment-grade ratings of A+/A1 support liquidity, while warning that rating declines or capital-market disruption could impair refinancing.
Material changes, outlook and risks
- Worldwide truck deliveries increased 13% in Q3 to 50,100 and 14% for the first nine months to 153,100. The company said industry-wide component shortages continued to constrain deliveries. Pricing, higher volumes and improved margins supported truck results.
- Financial Services average earning assets increased 21% in Q3 and 15% for the first nine months. Portfolio yields rose, but borrowing costs also increased; Q3 portfolio yield was 7.0% versus 5.3%, and borrowing rate was 4.2% versus 2.1%. Retail accounts 30+ days past due were 0.8% at September 30, versus 0.4% at both December 31, 2022 and September 30, 2022.
- The European Commission-related claims remain in litigation, with some 2023 judgments favorable and others unfavorable and under appeal. PACCAR recorded a $600.0 million pre-tax charge in Q1 for estimated total costs; management said the estimate could change and materially affect results. The company believes it has meritorious defenses.
- 2023 outlook: U.S./Canada heavy-duty truck retail sales of 295,000–315,000 units; European registrations above 16 tonnes of 310,000–330,000; South American heavy-duty registrations of 105,000–115,000. PACCAR Parts sales were expected to rise 10%–13%. Capital investments were expected at $650–$675 million and R&D at $410–$420 million.
- 2024 outlook: U.S./Canada heavy-duty truck sales of 260,000–300,000 units; European registrations above 16 tonnes of 260,000–300,000; South American registrations in a range similar to 2023. Parts sales could rise 4%–8%; average Financial Services earning assets were expected to grow 3%–5%. Capital investments were projected at $675–$725 million and R&D at $470–$520 million.
- Management cited demand and economic conditions, parts availability, competition and market share, freight conditions, interest and currency rates, used-truck values, credit losses, warranty costs, regulation, labor and supplier disruptions, cybersecurity, climate risks, global conflicts and litigation as factors that could affect results. The battery-cell joint venture with Cummins, Daimler Truck and EVE Energy was subject to regulatory approval; total planned investment was $2–$3 billion, with PACCAR owning 30%.
Important facts for investors to verify
- Progress, appeals, settlements and any revisions to the estimated cost of the European litigation claims.
- Truck delivery trends, component availability, pricing and market-share changes against the company’s industry outlook.
- Financial Services past-due accounts, credit-loss provisions, funding costs, returned-lease truck values and used-truck inventory.
- Execution, regulatory approval, total cost and PACCAR’s obligations under the planned battery-cell joint venture and projected investment plans.