PACCAR Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; unaudited. PACCAR designs and manufactures commercial trucks, distributes aftermarket parts, and provides truck financing and leasing through Financial Services.
Financial performance
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Consolidated revenue | $3.924 billion | $4.776 billion |
| Income before income taxes | $337.2 million | $479.0 million |
| Net income | $236.1 million | $327.3 million |
| Diluted EPS | $0.67 | $0.91 |
| Return on revenues | 6.0% | 6.9% |
| Operating cash flow | $384.0 million | $126.3 million |
- Truck, Parts and Other revenue was $3.631 billion, down from $4.515 billion. Financial Services revenue rose to $293.1 million from $261.4 million.
- Truck segment revenue fell 23% to $2.933 billion and pretax income fell 45% to $165.0 million. Truck gross margin declined to 9.1% from 10.8%; management attributed the deterioration chiefly to lower delivery volume.
- Parts revenue decreased 2% to $667.4 million and pretax income decreased 6% to $95.3 million. Parts gross margin was 25.4%, versus 25.9%.
- Financial Services pretax income increased 12% to $80.1 million; pretax return on revenue was 27.3%, unchanged. Average earning assets rose 12% to $10.294 billion.
- The effective tax rate was 30.0%, down from 31.7%, principally reflecting U.S. tax-law changes enacted in January 2013 with retroactive effect for specified items.
Liquidity, cash flow and debt
- Cash and cash equivalents totaled $1.261 billion at March 31, 2013; marketable debt securities were $1.178 billion. Combined, these were $2.439 billion, compared with $2.465 billion at year-end 2012.
- Operating cash flow was $384.0 million; investing activities used $341.5 million and financing activities used $37.4 million. The operating-cash-flow increase over Q1 2012 primarily reflected lower growth in Financial Services wholesale receivables and lower pension contributions, partly offset by lower net income.
- Financial Services borrowings comprised $3.069 billion of commercial paper and bank loans and $4.640 billion of term notes. Truck, Parts and Other reported $150 million of current and $150 million of long-term debt at March 31.
- PACCAR reported $3.70 billion in credit-line arrangements, of which $3.47 billion was unused. A $1.0 billion syndicated facility was scheduled to mature in June 2013; the company said it intended to replace facilities as they expire.
- Stockholders’ equity was $5.948 billion, compared with $5.847 billion at December 31, 2012. Cash dividends paid were $70.7 million; dividends declared were $0.20 per share.
Changes, outlook and risks
- Total revenue declined about 18% and net income about 28% year over year. Management cited lower truck deliveries, particularly in North America, amid slower economic growth. Truck deliveries fell 23% to 30,600 units; U.S. and Canada deliveries declined 33%.
- For 2013, PACCAR expected U.S. and Canada truck-industry retail sales of 210,000–240,000 units and European over-16-tonne registrations of 210,000–235,000 units. It expected North American aftermarket parts sales to increase modestly and European parts sales to be comparable with 2012.
- Management forecast 2013 capital investment of $400–$500 million, largely for a new DAF factory in Brazil, and R&D spending of $250–$275 million. Financial Services average earning assets were expected to grow approximately 5%–10%.
- Management said current freight conditions supported customer profitability and cash flow; weaker economic conditions could increase past-due accounts, truck repossessions and credit losses. Worldwide Financial Services accounts 30 or more days past due were 0.7%, versus 0.6% at year-end 2012 and 1.5% a year earlier.
- Comprehensive income was $156.6 million versus $422.4 million, including a $96.0 million foreign-currency translation loss in Q1 2013, compared with a $91.3 million translation gain in Q1 2012.
- PACCAR disclosed an ongoing SEC investigation into financial reporting for 2008–2011, including loan-loss reserves, troubled debt restructurings and segment reporting; the company said it was cooperating. An EU Competition Commission investigation of major commercial-vehicle manufacturers was also ongoing. Management said ordinary-course lawsuits were not expected to materially affect the business or financial condition.
- The filing identifies risks including lower industry demand, competition, regulation and emissions costs, currency and commodity volatility, used-truck values, supplier or labor interruptions, capital-market liquidity, interest rates, warranty costs and litigation. Management reported no material change in risk factors or market risk for the quarter, and concluded disclosure controls were effective.
Important facts for investors to verify
- Whether truck-industry demand, PACCAR delivery volumes and margins track the company’s 2013 market outlook.
- Progress in refinancing or replacing the syndicated credit facility due in June 2013, and continued access to commercial-paper and debt markets.
- Trends in Financial Services past-due accounts, credit losses, repossessions and residual values, including the effect of account modifications.
- Developments and potential financial implications of the SEC and EU investigations; the filing does not quantify a potential outcome.
- Execution, timing and costs of the Brazil factory investment and other planned capital and R&D spending.