PACCAR Inc. — Q1 2021 Form 10-Q
Business context and reporting period. PACCAR designs and manufactures Kenworth, Peterbilt and DAF commercial trucks, distributes aftermarket parts, and provides truck financing and leasing. This unaudited filing covers the three months ended March 31, 2021; comparisons are with Q1 2020 unless noted. Amounts are in U.S. dollars.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Consolidated revenue | $5.846 billion | $5.162 billion |
| Income before taxes | $607.3 million | $462.2 million |
| Net income | $470.1 million | $359.4 million |
| Diluted EPS | $1.35 | $1.03 |
| After-tax return on revenue | 8.0% | 7.0% |
| Operating cash flow | $536.9 million | $425.9 million |
| Cash and marketable debt securities, March 31 | $4.741 billion | — |
- Truck, Parts and Other revenue was $5.414 billion, up from $4.778 billion. Truck revenue was $4.233 billion; Parts revenue reached a first-quarter record of $1.161 billion.
- Truck income before taxes rose to $269.5 million from $183.1 million; truck pre-tax return on revenue was 6.4% versus 4.9%. Truck gross margin improved to 9.3% from 8.0%.
- Parts income before taxes rose to $251.3 million from $214.7 million. Parts gross margin was 28.2%, compared with 28.5%; pre-tax return on revenue was 21.7% versus 21.5%.
- Financial Services revenue was $432.0 million versus $383.7 million, and pre-tax income was $76.4 million versus $48.3 million. Lower credit-loss provision and better used-truck results supported earnings; lower portfolio yields partly offset revenue growth.
- Operating cash flow increased, but reflected working-capital movements, notably higher accounts payable and accrued expenses, partly offset by receivables and inventory cash outflows. Investing used $215.7 million; financing used $508.3 million. Cash and cash equivalents declined $219.6 million during the quarter.
- At March 31, cash and cash equivalents were $3.320 billion and marketable debt securities were $1.421 billion. Financial Services reported $3.043 billion of commercial paper and bank loans and $7.522 billion of term notes. These are financing-segment borrowings, not a measure of all consolidated obligations.
- PACCAR reported $3.60 billion in credit lines, of which $3.24 billion was unused. It had investment-grade ratings of A+/A1, as stated in the filing. Stockholders’ equity was $10.718 billion.
Material changes versus Q1 2020
- Consolidated revenue increased 13% and net income increased about 31%, primarily as higher truck deliveries and parts demand improved operating results. Q1 2020 included a late-quarter truck and engine production suspension related to COVID-19.
- Worldwide truck deliveries rose 10% to 42,200. Revenue growth also reflected favorable currency translation. However, reported market share declined in U.S./Canada heavy-duty trucks (28.4% from 30.4%) and medium-duty trucks (17.6% from 23.4%); DAF’s European over-16-tonne share was broadly stable at 16.6% versus 16.7%.
- Parts revenue increased 16%, reflecting higher demand, price realization and currency effects. Higher material costs contributed to the slight reduction in parts gross margin.
- Financial Services provision for losses on receivables fell to $3.7 million from $17.0 million. Worldwide retail loan and lease accounts 30+ days past due were 0.4%, down from 0.8% a year earlier.
- Comprehensive income was $404.0 million versus $75.6 million, despite net income growth, reflecting a smaller foreign-currency translation loss ($89.1 million versus $347.1 million).
Outlook, commentary and risks
- Management forecast 2021 U.S. and Canada truck industry retail sales of 260,000–290,000 units; Europe over-16-tonne registrations of 260,000–290,000; and South American heavy-duty registrations of 100,000–110,000.
- PACCAR Parts sales were expected to increase 15%–18% in 2021 versus 2020. Financial Services average earning assets were expected to increase 4%–6%.
- 2021 capital investment guidance was $575–$625 million and R&D guidance was $350–$375 million. Q1 capital investments were $94.2 million; R&D expense was $80.1 million.
- A semiconductor shortage and other supply-chain disruptions reduced Q1 deliveries by about 3,000 trucks. Management expected further delivery impacts in Q2 and improvement in the second half, conditional on adequate semiconductor supply.
- Management cited strong freight tonnage, rates and fleet utilization as supporting customer profitability. A deterioration in transport conditions could increase delinquencies, repossessions and credit losses and reduce new financing business.
- Other risks include demand and market-share shifts, supplier or raw-material constraints, commodity and currency movements, interest rates, used-truck prices and residual values, regulation, warranty costs, pandemics and capital-market access. Management said market-risk exposures had not materially changed during the quarter.
- European truck cartel-related claims and lawsuits remain pending. PACCAR said it believes it has defenses but cannot reasonably estimate a potential loss range; an adverse outcome could materially affect results. Management did not expect other disclosed proceedings and contingencies to have a material effect.
- The filing notes that Q1 results are not necessarily indicative of full-year results. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether semiconductor availability improves as anticipated and how delivery constraints affect production, revenue and margins.
- Whether the industry-volume outlook and Parts sales growth assumptions are realized, including whether PACCAR can sustain or recover market share.
- Whether Q1 operating cash flow’s working-capital contribution is sustainable; monitor receivables, inventories and accounts payable.
- Financial Services portfolio quality, used-truck values and residual-value exposure, including the adequacy of credit-loss reserves and effects of weaker freight conditions.
- Potential financial exposure and developments in European cartel-related litigation, for which the filing provides no estimable loss range.