PACCAR Inc. — Q3 2021 Form 10-Q
Business context and period. Unaudited results cover the three and nine months ended September 30, 2021, compared with the corresponding 2020 periods. PACCAR operates Truck, Parts and Financial Services businesses, with an industrial winch business included in Other. Dollar amounts below are in millions unless noted.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $5,146.8 | $4,936.0 | $16,836.2 | $13,159.9 |
| Income before tax | $483.3 | $489.9 | $1,727.6 | $1,136.1 |
| Net income | $377.7 | $385.5 | $1,340.7 | $892.6 |
| Diluted EPS | $1.08 | $1.11 | $3.85 | $2.57 |
| After-tax return on revenue | 7.3% | 7.8% | 8.0% | 6.8% |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $1,150.2 | $2,192.5 |
- Truck: Revenue was $3,452.6 in Q3, down from $3,504.0; nine-month revenue rose to $11,837.8 from $9,120.0. Truck pre-tax income was $78.5 in Q3 versus $210.1, while nine-month income increased to $603.0 from $347.0. Truck gross margin was 5.7% in Q3 (8.4% prior year) and 8.2% year to date (7.1%).
- Parts: Revenue reached records of $1,260.2 in Q3 and $3,632.2 year to date, up 24% and 28%, respectively. Pre-tax income increased to $280.8 and $797.7. Gross margin was 28.3% in both comparisons, versus 27.7% for Q3 2020 and 27.3% for the prior-year nine-month period.
- Financial Services: Revenue was $409.1 in Q3 and $1,297.4 year to date. Pre-tax income rose to $120.1 from $55.5 in Q3 and to $303.0 from $159.3 year to date. Improved used-truck results, higher finance and lease margins, and lower credit-loss provisions contributed.
Liquidity, cash flow and debt
- Cash and cash equivalents were $2,227.8 at September 30, 2021, compared with $3,539.6 at year-end 2020. Cash plus marketable securities totaled $3,777.2, down from $4,968.6.
- Nine-month operating cash flow fell by $1,042.3 year over year, chiefly reflecting a $1,341.0 inventory cash outflow versus a small inventory cash inflow in 2020. Investing cash use was $1,025.4; financing cash use was $1,389.9.
- Financial Services liabilities included $3,005.6 of commercial paper and bank loans and $6,849.5 of term notes at September 30, down from $3,344.4 and $7,508.9, respectively, at year-end 2020.
- PACCAR reported $3.59 billion in credit lines, of which $3.32 billion was unused. Management said cash, investments, receivable collections, committed facilities and investment-grade ratings (A+/A1) support liquidity.
- Cash dividends paid in the first nine months were $589.9, versus $1,128.9 in 2020, primarily reflecting a lower extra dividend. No shares were repurchased under the authorization in Q3.
Changes, outlook and risks
- Year-to-date growth reflected higher truck deliveries and parts demand across markets, plus favorable currency translation. Q3 truck deliveries declined 9% to 32,800, with semiconductor shortages reducing deliveries by an estimated 7,000 vehicles; approximately 10,500 trucks awaited components at quarter-end.
- Management expected the chip shortage to constrain deliveries through Q4 2021 and into 2022. Industry 2022 retail/registration outlooks were 250,000–290,000 trucks in the U.S. and Canada, 260,000–300,000 in Europe for vehicles over 16 tonnes, and 130,000–140,000 in South America for heavy-duty trucks.
- PACCAR Parts sales were expected to rise 22%–24% in 2021 and 5%–8% in 2022. Financial Services average earning assets were expected to be comparable in 2021 and increase 1%–3% in 2022. Forecast capital investment and R&D were $525–$550 and $320–$330, respectively, in 2021; for 2022, $425–$475 and $350–$400.
- Management cited strong freight tonnage, rates and fleet utilization as supporting customers’ profitability and cash flow. New heavy- and medium-duty truck models entered production; the company also reported early electric, hydrogen fuel-cell and autonomous-truck programs.
- Key exposures include semiconductor and other supplier constraints, raw-material, labor and freight costs, truck demand and market share, used-truck values and residual-value guarantees, currency and interest-rate movements, credit conditions, regulation, and litigation. The filing reported no material change in market risk or risk factors other than the updated semiconductor-shortage disclosure.
- European truck-industry claims related to the European Commission investigation remain pending. PACCAR said it has defenses but cannot reasonably estimate a potential loss; an adverse outcome could materially affect results. Management did not expect other disclosed proceedings and contingencies to have a material effect.
Investor verification priorities
- Track semiconductor availability, delayed truck inventory and resulting deliveries, costs and margins.
- Assess whether parts growth, price realization and elevated demand persist, and how higher material, labor and freight costs affect profitability.
- Review Financial Services used-truck gains, residual-value exposure, credit-loss assumptions and funding needs.
- Compare actual results with the stated 2021–2022 market, parts, asset-growth, capital-investment and R&D outlooks.
- Monitor cash conversion and inventory build, debt maturities and refinancing access, and developments in the European claims.